Twin Butte Energy Announces First Quarter Financial Results

CALGARY, May 12, 2016 /CNW/ - (TSX: TBE) – Twin Butte Energy Ltd. ("Twin Butte" or  the  "Company") reports its financial and operational results for the three months ended March 31, 2016.   

Highlights of Twin Butte's first quarter 2016 are as follows:

  • Focused on moving the strategic alternatives process forward.
  • Reduced per boe operating and transportation costs by 11% relative to Q4 2015 to $17.95 per boe.
  • Reduced gross G & A expenses 23% relative to Q1 2015 despite higher legal and advisory costs associated with the revised credit facility.
  • Generated negative funds flow of $3.0 million ($0.01/share).
  • Produced an average of 13,944 boe/d, 88% liquids.
  • Executed a limited capital program of $2.8 million focused on field maintenance and operating cost reduction opportunities. No new wells were drilled in the quarter.
  • Exited with net debt of $294 million, $40 million lower than Q1 2015, $70 million lower than Q1 2014.
  • Twin Butte's current LMR in Alberta is 2.2, the LLR in Saskatchewan is 2.5 and the LMR in British Columbia is 1.0. The Company currently has a Letter of Credit with the Province of B.C. of $1.5 million to maintain that LMR. The total LMR/LLR liability exposure is allocated by province as 86% in Alberta, 13% in Saskatchewan and 1% in British Columbia.

Certain selected financial and operational information for the three months ended March 31, 2016 and 2015 is outlined below and should be read in conjunction with Twin Butte's condensed interim financial statements for the three months ended March 31, 2016 and 2015 and accompanying management discussion and analysis filed with the Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and also on the Company's website.


Three months ended March 31


2016

2015

% Change

Financial ($ 000's, except per share amounts)



Petroleum and natural gas sales

27,847

61,713

-55%

Funds flow (1)

(2,980)

55,367

-105%

Per share basic 

(0.01)

0.16

-106%

Per share diluted

(0.01)

0.16

-106%

Net income (loss) 

(28,440)

(22,447)

-27%

Per share basic 

(0.08)

(0.06)

-33%

Per share diluted

(0.08)

(0.06)

-33%

Dividends declared

-

10,698

-100%

Capital expenditures(1)

2,763

25,042

-89%

Net debt (1)

293,987

333,916

-12%

Operating




Average daily production




Medium & light crude oil (bbl per day)

7,105

8,480

-16%

Heavy crude oil (bbl per day)

5,006

8,480

-41%

Natural gas (Mcf per day)

10,075

12,141

-17%

Natural gas liquids (bbl per day)

154

174

11%

Barrels of oil equivalent (boe per day, 6:1)

13,944

19,158

-27%

% Oil and NGLs

88%

89%

-2%

Average sales price




Medium & light crude oil ($ per bbl)

26.19

40.91

-36%

Heavy crude oil ($ per bbl)

19.63

35.29

-44%

Natural gas ($ per Mcf)

1.76

2.71

-35%

Natural gas liquids ($ per bbl)

25.49

37.82

-33%

Barrels of oil equivalent ($ per boe, 6:1)

21.95

35.79

-39%

Field netback ($ per boe) (1)




Petroleum and natural gas sales

21.95

35.79

-39%

Royalties

(2.34)

(4.31)

-46%

Operating expenses

(16.95)

(18.87)

-10%

Transportation expenses

(1.00)

(0.96)

4%

Field netback  (1)

1.66

11.65

-86%

Cash gain (loss) on financial derivatives

3.17

24.81

-87%

Operating netback  (1)

4.83

36.46

-87%

Wells drilled 




Gross

-

17.0

-100%

Net

-

17.0

-100%

Success (%)

 n/a 

94


Common Shares




Shares outstanding, end of period

354,727,864

353,326,551

0%

Weighted average shares outstanding – diluted

354,523,901

352,979,775

0%

(1) Funds flow, Capital expenditures, Net debt and Field netback are non-GAAP measures. Refer to "Reader Advisory" in this news release or the MD&A for the three months ended March 31, 2016 for further discussion and reconciliation to GAAP measures, if applicable.

Corporate:

The industry faced in the first quarter, and continues to face, one of the most challenging periods in recent memory with WTI oil prices dropping below $27US per barrel, natural gas prices declining, and sources of liquidity being severely constrained. 

Twin Butte's focus remains two fold.  First, effectively managing the base operations in a safe and efficient manner, and second, moving the strategic alternatives process, announced on December 9, 2015, forward. The Company continues to look at options in the best interests of all stakeholders to recapitalize and satisfy the requirements of our bank loan repayment terms.

Due to the low realized commodity prices, the resulting impact on cash flow and liquidity restrictions, Twin Butte reduced capital expenditures to minimum levels and did not drill any wells in the first quarter.

General and administrative costs were reduced due to lower salaries and benefits, and decreased staffing levels relative to previous quarters.  These reductions align with the objective of supporting the strategic process.

Financial:

Twin Butte realized negative funds flow of $3 million in the first quarter as compared to positive funds flow of $55.4 million  one year ago. The major factors impacting the decrease in funds flow were the reduction in hedge gains from $43 million in Q1 2015 down to $4 million in Q1 2016 and a 39% reduction in the average realized price per boe.

In spite of lowering net debt by $40 million from the first quarter of 2015 ($70 million lower than Q1 2014) the Company's interest expense and bank charges increased by $2.1 million as a result of additional fees and significantly higher interest rates charged on the bank debt.

Operations:

With no new wells drilled in the first quarter of 2016 and incremental legacy vertical heavy oil shut-ins, Twin Butte saw sales volumes decrease to 13,944 boe/d.  Despite lower production volumes the Company reduced operating and transportation costs by 10% as compared to Q1 2015 due to the ongoing impact of the transition of the asset base to a lower cost horizontal oil focus, along with the impact of operating cost reduction initiatives started 12 months ago.  The decline rate on oil volumes is decreasing as expected due to the performance of our horizontal wells and the reduction of high decline, vertical heavy oil production. 

Horizontal wells drilled in 2014 and 2015 continue on average to meet or beat our type curve production estimates, providing additional confidence in the large inventory of horizontal wells available to drill. 

Due to the low price of natural gas the Company began a systematic shut in of uneconomic gas volumes in Q1.  If gas prices remain low through the second quarter this program will reduce Q2 corporate gas volumes by approximately 4 million cubic per day but marginally improve cash flow.

Outlook

Twin Butte is focused on finding the best solution for all stakeholders to satisfy the repayment terms of its non-revolving credit facility. As announced on May 2, 2016, the Company received a one month extension for the repayment of the $85 million non-revolving credit facility to May 31, 2016, enabling the Company to continue with its strategic alternatives process. The Company cautions that there are no assurances or guarantees that the process will result in a transaction or, if a transaction is undertaken, the terms or timing of such a transaction.

Within the context of the ongoing strategic alternatives process, the current low oil price environment and the May 31, 2016 debt repayment milestone, there is uncertainty surrounding the Company's ability to continue as a going concern. While the Company is in discussions with its lenders, failure to repay the non-revolving facility when due (unless otherwise extended) will constitute an event of default and entitle the syndicate to exercise its remedies under the credit facility, including acceleration of the credit facility and realization over the assets of the Company.

About Twin Butte:

Twin Butte Energy Ltd. is a value oriented intermediate producer with a deep, low risk, drilling inventory focused on medium and heavy oil reservoirs. The common shares of Twin Butte are listed on the TSX under the symbol "TBE".

Reader Advisory

Forward-Looking Statements

In the interest of providing Twin Butte's shareholders and potential investors with information regarding Twin Butte, including management's assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation.  Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In particular but without limiting the foregoing, this news release contains forward-looking statements pertaining to the following: the decline rate on oil volumes is decreasing, the anticipated reduction in Q2 corporate gas volumes if natural gas prices remain low through the second quarter, assessment of future plans regarding the strategic alternatives review process and any expectations regarding Twin Butte's ability to continue as a going concern and future operational activities.

With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas prices and differentials between light, medium and heavy oil prices; results from operations including future oil and natural gas production levels; future exchange rates and interest rates; Twin Butte's ability to obtain equipment in a timely manner to carry out development activities; decline rates based on analogous information; its ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; Twin Butte's ability to obtain financing on acceptable terms; and Twin Butte's ability to add production and reserves through its development and exploitation activities. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following: Twin Butte has a limited period of time to address possible restructuring changes to its business failing which the bank credit facilities may be subject to syndicate action, the strategic alternatives review process may not result in a transaction which is satisfactory to the banking syndicate which may lead the syndicate to take action on the credit facilities; the risks associated with the oil and gas industry; commodity prices; operational risks in exploration; development and production; delays or changes in plans; risks associated with the uncertainty of reserve estimates; health and safety risks, and; the uncertainty of estimates and projections of production, costs and expenses. volatility in market prices for oil and natural gas; general economic conditions in Canada, the U.S. and globally; and the other factors described under "Risk Factors" in Twin Butte's most recently filed Annual Information Form available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Barrels of Oil Equivalent

Barrels of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indicated value.

Funds Flow

The reader is cautioned that this news release contains the term funds flow, which is not a recognized measure under generally accepted accounting principles ("GAAP") and is a measure that represents the total of cash provided by operating activities, before adjusting for changes in non-cash working capital items and expenditures on decommissioning liabilities. Management uses this measure in order to assist them in understanding Twin Butte's liquidity and its ability to generate funds to finance its operations. The term funds flow should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with GAAP as an indicator of the Company's performance. Twin Butte's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.

Capital Expenditures

The reader is cautioned that this news release contains the term Capital Expenditures, which is not a recognized measure under generally accepted accounting principles ("GAAP") and is a measure that represents the total of expenditures on property and equipment, expenditures on exploration and evaluation assets, proceeds on disposition of property and equipment and proceeds on disposition of exploration and evaluation assets, as per the Statement of Cash Flows. Management uses this measure in order to assist them in understanding Twin Butte's cash used in investing activities. Twin Butte's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to measures used by other companies.

Field and Operating Netback

The reader is also cautioned that this news release contains the terms field and operating netback, which are not recognized measures under GAAP. Field Netback is calculated as a period's sales of petroleum and natural gas, net of royalties less net production and operating expenses as divided by the period's sales volumes. Operating netback is the field netback, adjusted for realized gains/losses on derivatives.  Management uses these measures to assist them in understanding Twin Butte's profitability relative to current commodity prices and they provide an analysis tool to benchmark changes in operational performance against prior periods and to peers on a comparable basis.  Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance.  Twin Butte's method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

Net Debt

The reader is cautioned that this news release contains the term net debt, which is not a recognized measure under GAAP and is calculated as bank debt, convertible debentures, and adjusted for working capital excluding mark-to-market derivative contracts.  Working capital excluding mark-to-market derivative contracts is calculated as current assets less current liabilities both of which exclude derivative contracts and current liabilities excludes the current portion of debt.  Management uses net debt to assist them in understanding Twin Butte's liquidity at specific points in time.  Mark-to-market derivative contracts are excluded from working capital, in addition to net debt, as management intends to hold each contract through to maturity of the contract's term as opposed to liquidating each contract's fair value or less.

LMR/LLR

LMR ("Liability Management Rating") and LLR ("Licensee Liability Rating") are terms used by the various provincial agencies to calculate each company's ratio of assets over liabilities as it relates to current producing wells and future abandonment and reclamation exposure.  

SOURCE Twin Butte Energy Ltd.

For further information: Twin Butte Energy Ltd., Rob Wollmann, President and Chief Executive Officer, R. Alan Steele, Vice President Finance, Chief Financial Officer and Corporate Secretary, Tel: (403) 215-2045, Websi­te: www.twinbutteenergy.com

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