CALGARY, March 14, 2012 /CNW/ - Insignia Energy Ltd. ("Insignia" or the "Company") (TSX: ISN) is pleased to announce its financial and operating results for the fourth quarter of 2011 and 2011 fiscal year.
Copies of the Financial Statements and Management's Discussion and Analysis for the period ended December 31, 2011 will be filed with Canadian securities regulators on SEDAR on March 14, 2012 and accessible at www.sedar.com or by visiting Insignia's website at www.insigniaenergy.ca.
FINANCIAL AND OPERATING HIGHLIGHTS
- Fourth quarter production averaged 3,511 boe/d; consisting of 1,096 bbls/d of oil and NGL's and 14,488 mcf/d of natural gas. On a boe basis, this is up seven per cent from the same quarter in 2010 and 19 per cent from the previous quarter;
- Oil and NGL's, as a percentage of total production, is up 18 per cent from the same quarter in 2010 and 23 per cent from the previous quarter. In the quarter, oil and NGL's represented approximately 31 per cent of our total production volumes;
- Funds from operations for the fourth quarter were $7.6 million, up 50 per cent from the same quarter a year ago and 49 per cent from the previous quarter. Funds from operations, quarter over quarter, increased as a result of higher production levels, an increase in our oil and NGL production and increased commodity prices;
- On November 18, 2011 Insignia completed its rights offering which was oversubscribed and, accordingly, Insignia issued a total of 28,301,887 common shares to its existing shareholders at a price of $1.06 per common share for gross proceeds of $30 million; and
- Insignia exited 2011 with net debt of $9.7 million and a credit facility of $50 million with a Canadian chartered bank.
2011 Year Highlights
- In 2011, Insignia incurred $27 million in capital expenditures which was 1.1 times the $24.5 million of cash flow for the year;
- Insignia increased production, year over year, by 16 per cent, to an average of 3,363 boe/d in 2011 versus an average of 2,903 boe/d in 2010;
- Funds from operations increased to $24.5 million ($0.72/share), which is a 77 per cent increase from the $13.8 million ($0.45/share) of funds from operations received in 2010;
- Insignia successfully reduced its operating costs by 21 per cent from the first quarter of 2011 to the fourth quarter of 2011, with fourth quarter average operating costs of $9.32/boe compared to $11.73/boe in the first quarter of 2011;
- On February 15, 2012, the Company released its 2011 year end reserves summary, as prepared by its independent evaluator GLJ Petroleum Consultants Ltd. ("GLJ Report"), announcing a 20 per cent increase in its proved reserves to 7.4 MMboe and a five per cent increase in its proved plus probable reserves to 15.4 MMboe, compared to 2010 year end levels. Also, as of December 31, 2011, the net present value of the Company's proved plus probable reserves (before tax and discounted at 10%) was estimated at $129.1 million, and after adjusting for year-end net debt, land value and dilutive securities resulted in a net asset value of $2.42 per fully diluted common share;
- Finding & Development costs for 2011 were $15.62/boe proved reserves and $8.08/boe proved plus probable reserves, including change in future development costs;
- Insignia drilled 14 (8.3 net) wells in 2011 with a 100% success rate;
- The Company achieved a recycle ratio of 3.0 based on our 2011 average operating netback of $23.91/boe and the F&D of $8.08/boe for proved plus probable reserves.
Below are the Financial and Operating Statistics for the fourth quarter of 2011 and the year ended 2011:
|Three months ended||Year ended|
| Dec 31,
| Sep 30,
| Dec 31,
| Dec 31,
| Dec 31,
|($ thousands, except per share amounts)|
|Oil and natural gas sales||13,721||10,507||10,845||49,087||38,006|
| Funds from operations(1)
Per share - Basic and diluted(1)
| Net loss
Per share - Basic and diluted
|Net Debt (1)||9,742||36,316||35,775||9,742||35,775|
|Weighted average common shares outstanding (thousands):|
|Basic and diluted||43,888||30,660||30,660||33,994||30,660|
(boe conversion - 6:1 basis)
|Average daily production|
| Natural gas (mcf/d)
Oil and NGL (bbls/d)
|Natual gas ($/mcf)||3.51||4.02||3.82||3.90||4.26|
|Oil and NGL ($/bbl)||89.59||81.52||71.74||85.24||68.49|
|Operating netback ($/boe)(1)||26.85||22.52||20.48||23.91||17.03|
(1) Funds from operations, funds from operations per share and operating netback are not defined by IFRS in Canada and are referred to as non-IFRS measures. Funds from operations is cash provided by operating activities before changes in non-cash working capital and before abandonment and reclamation costs. Funds from operations per share is calculated by dividing funds from operations by the weighted average number of shares outstanding, consistent with the calculation of net loss per share. Operating netback per boe is calculated as total oil and natural gas revenue less royalties, operating costs, transportation costs and net of any realized income on financial derivative contracts, calculated on a boe basis. Net debt is the sum of bank indebtedness and working capital but excludes financial derivative contracts.
(2) The average selling prices reported are before transportation charges.
Additional Fourth Quarter Highlights
- Capital expenditures for the quarter were $10.3 million. The majority of this capital, over $9.7 million, was related to drilling, completion and equipping expenditures. Expenditures totaled $27.0 million in 2011;
- During the quarter, the Company successfully drilled five (3.4 net) wells on its three core properties;
- Specifically, at Caroline, the Company successfully drilled and completed one (1.0 net) vertical well at 02-13-034-07W5 ("the 02-13 well") in the Lower Mannville formation. Following a 24 hour flow test, the 02-13 well flowed at a final rate of 2.9 mmcf/d (average rate of 3.3 mmcf/d) of natural gas at 900 psi pressure (initial pressure of 1,850 psi). The 02-13 well was placed on production on March 1, 2012 and is expected to produce at a restricted rate of 1 to 1.5 mmcf/d. The liquid yield is expected to be approximately 25 bbls/mmcf;
- Also at Caroline, the Company successfully drilled one (1.0 net) vertical well at 15-29-033-06W5 ("the 15-29 well") in the Lower Mannville formation. The 15-29 well was successfully completed subsequent to year end and, following a two day flow test, the well flowed at a final rate of 5.2 mmcf/d (average rate of 6.1 mmcf/d) of natural gas at 1,670 psi pressure (initial pressure of 2,960 psi). The 15-29 well was placed on production on February 1, 2012 at a restricted rate of 1.1 mmcf/d and the liquid yield is expected to be approximately 25 bbls/mmcf;
- At Pembina, the Company successfully drilled and completed one (0.4 net) horizontal well at 04-19-048-04W5 ("the 04-19 well") in the Cardium formation. The 04-19 well was placed on production late in the quarter and, after the first 75 days of production has averaged 185 boe/d (95% oil) of gross production; and
- At Pouce Coupe, the Company successfully drilled two (1.0 net) horizontal wells targeting both the Lower Doig and Montney formations. Subsequent to the quarter, the Company successfully completed both of these wells. The Lower Doig well was completed in 8 stages and, after four days of flow testing had a final rate of 4.2 mmcf/d (average rate of 4.1 mmcf/d) at approximately 580 psi pressure (initial pressure of 3,160 psi). The Montney well was completed in 9 stages and after 5 days of flow testing had a final rate of 4.9 mmcf/d (average rate of 4.8 mmcf/d) at approximately 1,120 psi pressure (initial pressure of 3,350 psi). It is anticipated that both of these wells will commence production early in the second quarter of 2012.
- Subsequent to the quarter;
- At Pouce Coupe, the Company successfully drilled and completed one (0.5 net) horizontal well targeting the Lower Doig formation. The well was completed in 4 stages and after three days of flow testing had a final rate of 1.6 mmcf/d (average rate of 4.1 mmcf/d) at approximately 170 psi pressure (initial pressure of 2,240 psi). The well is expected to commence production early in the second quarter;
- At Pembina, in late February, the Company spud one (1.0 net) horizontal well targeting the oil potential in the Cardium formation. At the time of this press release this well has been drilled and cased and is expected to be completed in the second quarter of 2012; and
- In two separate transactions, the Company successfully closed and sold four (3.9 net) sections of undeveloped land for gross proceeds of $5.6 million. The Company had no production or reserves assigned to these lands.
Updated First Half 2012 Capital Budget and Guidance
As a result of lower natural gas prices, the Company is revising its previously approved H1/12 capital budget, amounting to $22 million, to $16.5 million. Of this amount, approximately $13.5 million has already been incurred or committed relating to activity noted above and the Company plans to drill and complete 1 (1.0 net) horizontal well in the Pembina area targeting the Cardium oil potential. Based on this revised budget, we now anticipate exiting the first half of 2012 with production in the range of 3,600 to 3,800 boe/d and net debt of approximately $12 million. Furthermore, the Company now advises that it expects its first half cash flow to be approximately $8.3 million ($16.6 million ($0.28 per share) annualized) based on an average WTI price of $100 USD/bbl and an average AECO price of $2.00/mcf.
Although 2011 was not without its challenges including declining natural gas prices and general lack of capital market support for natural gas weighted producers, we are nevertheless pleased with our operating performance in 2011. With a capital budget that essentially equaled cash flow, we managed to advance production and reserves throughout the year at impressive capital efficiency metrics.
The Company also maintained its focus on its balance sheet. With the closing of the rights offering late in the year, the Company is well positioned with a balance sheet strength that should enable it to weather any prolonged downturn in natural gas prices.
The drilling success that Insignia has achieved over the past several years is a function of the quality of its asset base. For more information on our three core areas, Pouce Coupe, Caroline and Pembina we refer you to our website at www.insigniaenergy.ca. As showcased, we have an extensive drilling inventory with in excess of 150 resource based locations with only 20% of these booked in our year end engineering report.
Although the timing of the recovery of natural gas prices is a bit unclear right now, we are confident that prices will, nevertheless, recover. As others have said, "the best remedy for low natural gas prices is low natural gas prices," and this statement is at last gaining traction as we are starting to see the majors cut back on natural gas drilling and even shut in natural gas production. And finally, demand for this clean burning fuel is gaining market attraction both domestically and especially in the Asian countries.
In close, we would like to thank the employees for their significant effort and performance in 2011 and to our Board of Directors who have been supportive and encouraging as we navigate in these volatile and, at times, challenging times.
The discussion of our oil and natural gas production and related performance measures is presented on a working-interest, before royalties basis. For the purpose of calculating unit information, natural gas is converted to a barrel of oil equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil. Readers are cautioned that boe's may be misleading, particularly if used in isolation. A conversion ratio of six thousand cubic feet of natural gas to one barrel of oil 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 indication of value. In this press release: boe/d means boe per day; mcf/d means thousand cubic feet per day, bbl means barrel, mbbl means thousand barrels, mmcf means million cubic feet and mboe means thousand boe's.
Any reference to production tests included in this press release are not necessarily indicative of long-term performance or ultimate recovery.
Investors are further cautioned that the preparation of financial statements in accordance with International Financial Reporting Standards as adopted by Canadian generally accepted accounting principles ("Canadian GAAP") requires management to make estimates and assumptions that affect the reported amounts of our assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and our revenues and expenses during the reporting period. Our management reviews these estimates, including those related to accruals, environmental and asset retirement obligations, income taxes, and the determination of proved reserves on an ongoing basis. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.
Certain financial measures referenced to in this news release are not prescribed by Canadian GAAP. These non-GAAP financial measures do not have any standardized meaning and therefore are unlikely to be comparable to similar measures presented by other companies. We include these measures because management utilizes them to analyze operating and financial performance. The additional information should not be considered in isolation or as a substitute for measures of performance prepared in accordance with the Canadian GAAP. We use funds from operations which is cash provided by operating activities before changes in non-cash working capital and before abandonment and reclamation costs. Funds from operations per share is calculated by dividing funds from operations by the weighted average number of shares outstanding, consistent with the calculation of net loss per share. Funds from operations netback per boe is calculated as funds from operations divided by our total boe produced. Operating netback per boe is calculated as total oil and natural gas revenue less royalties, operating costs, transportation costs and net of any realized financial instrument income calculated on a boe basis. Net debt is the sum of bank indebtedness and working capital but excludes financial derivative contracts.
Also included in this press release are estimates of Insignia's first half 2012 cash flow and net debt, which are based on the various assumptions as to production levels, capital expenditures, and other assumptions disclosed in this press release and including the commodity price assumptions disclosed herein. To the extent such estimates constitute a financial outlook, they were approved by management of Insignia on March 14, 2012 and are included to provide readers with an understanding of Insignia's anticipated cash flow and net debt and to provide information on the financial feasibility of the Company based on the capital expenditures and other assumptions described herein and readers are cautioned that the information may not be appropriate for other purposes.
The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.
In relation to the disclosure of net asset value ("NAV"), the calculation of NAV is a "produce-out" NAV calculation whereby the current value of the Company's reserves would be produced at forecast future prices and costs and do not necessarily represent a "going concern" value of the Company. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the future net revenues estimated by GLJ represent the fair market value of the reserves, nor should it be assumed that Insignia's internally estimated value of its undeveloped land holdings of $28.1 million represent the fair market value of the lands.
Forward Looking Statements
Statements throughout this Press Release that are not historical facts may be considered to be "forward looking statements". These forward looking statements sometimes include words to the effect that management believes or expects a stated condition or result. All estimates and statements that describe the Company's objectives, goals, or future plans, including, without limitation, anticipated cash flow and net debt, anticipated production rates or volumes and commodity mix, management's assessment of future plans and operations, anticipated commodity prices and their impact, anticipated demand for commodity prices, timing of expenditures, budgeted capital expenditures and the nature of those expenditures and the method of funding thereof, drilling plans and the timing of drilling and wells to be brought on production, completion and tie-in of wells and the timing thereof, the expected levels of production and allocation of capital, may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, volatility of commodity prices, imprecision of reserve estimates, environmental risks, competition from other producers, incorrect assessment of the value of acquisitions, failure to complete and/or realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources and changes in the regulatory and taxation environment. As a consequence, the Company's actual results may differ materially from those expressed in, or implied by, the forward-looking statements. Forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: the ability of the Company to obtain equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manor; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through development of exploration; future oil and natural gas prices; interest rates; the regulatory framework regarding royalties, and the ability of the Company to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included elsewhere herein and in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com, or at the Company's website www.insigniaenergy.ca). Furthermore, the forward-looking statements contained in this Press Release are made as at the date of this Press Release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.
Insignia is a publicly listed junior oil and gas exploration and development company based in Calgary, Alberta. Insignia's shares trade on the TSX under the symbol "ISN".
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