Toronto Stock Exchange: SCS
Common Shares: 84,121,297
CALGARY, Nov. 15, 2012 /CNW/ - Second Wave Petroleum Inc. ("Second Wave" or the "Company") announced today the filing of its interim financial statements and management's discussion and analysis for the quarter ended September 30, 2012, which have been filed on SEDAR at www.sedar.com.
Third Quarter Highlights
- Production averaged 2,074 boe/d (75% oil and natural gas liquids), an increase of 41% year-over-year.
- Cash from operating activities before working capital was $5.1 million, an increase of 104% year-over-year.
- Operating and transportation costs decreased by 24% quarter-over-quarter and 58% year-over year, to $18.21 per boe.
- Netbacks increased 40% year-over-year to $36.22 per boe with average realized price decreasing 2% year-over-year to $57.38 per boe.
- Net capital spending for the quarter totaled $3.4 million and was focused on the tie in of 4.0 gross (1.6 net) previously completed wells and the completion of 4.0 gross (1.6 net) Beaverhill Lake light oil wells of which 2.0 gross (0.8 net) of these wells were tied in during the quarter.
- Second Wave now has a total of 35 gross (16.4 net) Beaverhill Lake light oil wells in Judy Creek with average approximate 30-day initial production ("IP"), 60-day IP and 90-day IP light oil rates per well of 500 bbl/d, 283 bbl/d and 219 bbl/d, respectively. These wells are currently producing at an average estimated rate of 95 bbl/d per well after an average of 235 days of production.
Selected Third Quarter Financial and Operational Information
| Three months ended
| Three months ended
|($000s, except per share and per boe amounts)||2012||2011||% Change||2012||% Change (1)|
|Petroleum and natural gas sales||10,949||7,935||38||15,864||(31)|
|Lease operating costs||(3,405)||(3,521)||(3)||(4,962)||(31)|
|Operating netback per boe(2)||36.22||25.94||40||39.08||(7)|
|Net capital expenditures||3,430||23,244||(85)||18,824||(82)|
|Net income (loss)||(3,179)||899||(454)||4,869||(165)|
|Net income (loss) per share||(0.04)||0.01||(500)||0.06||(167)|
|Cash from operating activities before working capital(2)||5,054||2,473||104||9,553||(47)|
|Cash from operating activities before working capital per share(2)||0.07||0.03||133||0.11||(45)|
|Natural gas liquids (bbl/d)||107||101||6||137||(22)|
|Natural gas (mcf/d)||3,115||2,992||4||3,257||(4)|
|Combined (boe/d) (6:1)||2,074||1,470||41||2,641||(21)|
|Crude oil and liquids weighting (%)||75||66||14||79||(1)|
|(1)||Percentage change from three months ended June 30, 2012 to the three months ended September 30, 2012.|
|(2)||Operating netback operating netback per boe, and cash from operating activities before working capital per share are not recognized under IFRS and are therefore unlikely to be comparable to similar measures presented by other oil and gas companies. The Company calculates its "operating netback" by subtracting from petroleum and natural gas sales revenue the aggregate of royalties, lease operating costs and transportation costs. Cash from operating activity before working capital is an additional IFRS measure. The Company calculates its "cash from operating activities before working capital" by adjusting its "cash from operating activities" by the change in non-cash working capital. Management considers these to be important measures as they demonstrate the Company's ability to generate the cash flow necessary to fund future growth through capital investment.|
Third Quarter Operational Review
In the third quarter Second Wave continued to focus exclusively on its Judy Creek Beaverhill Lake light oil play. The Company tied in and initiated production from 4.0 gross (1.6 net) previously completed Beaverhill Lake light oil wells with an average of 60 days of production from each of these wells during the quarter. Additionally, Second Wave completed a further 4.0 gross (1.6 net) Beaverhill Lake light oil wells with 2.0 gross (0.8 net) wells tied in during the quarter with an average of 40 days of production per well. At the end of the quarter, Second Wave had 3.0 gross (1.2 net) wells waiting to be tied in or completed. Subsequent to the quarter end 2.0 gross (0.8 net) of those wells were tied in and placed on production, leaving an inventory of 1.0 gross (0.4 net) well currently standing waiting on completion operations. The Company did not drill any wells in the third quarter.
Approximate initial test results from the 8.0 gross (3.2 net) wells tied in since the beginning of the third quarter are noted in the table below:
|| On Prod. Date
| Peak Daily Gross Oil
| Days on
| Current Gross Oil
Production Data as of November 15, 2012
Second Wave now has a total of 35 gross (16.4 net) Beaverhill Lake light oil wells in Judy Creek with average approximate 30-day IP, 60-day IP and 90-day IP light oil rates per well of 500 bbl/d, 283 bbl/d and 219 bbl/d, respectively. These wells are currently producing at an average estimated rate of 95 bbl/d per well after an average of 235 days of production.
The Company cautions that test results and IP rates are not necessarily indicative of long-term performance or ultimate recovery.
During the third quarter, the Company's average time to complete, tie in and place wells on production stretched significantly to 115 days due to wet ground conditions, which negatively affected production levels in the quarter.
Production during the third quarter averaged 2,074 boe/d (75% oil and natural gas liquids), representing an increase of 41% from the third quarter of 2011 and a decrease of 21% from the second quarter of 2012. Production was negatively impacted on a quarter-over-quarter basis by the above-noted delays in bringing on new production and reduced capital activities.
The Company suspended approximately 80 boe/d of production of low netback natural gas weighted production in the second and third quarters and does not expect to re-start this production until natural gas prices recover further. In addition, the Company had 150 boe/d of oil weighted production curtailed in the quarter due to maximum rate limitations on wells located in Judy Creek in the Beaverhill Lake and Pekisko formations. The Company expects these curtailments to ease over the next 12 months as the Company expands its Pekisko waterflood and further develops its Beaverhill Lake pool.
Corporate operating netbacks for the third quarter were $36.22 per boe, an increase of 40% year-over-year and a decrease of 7% from the previous quarter. Realized sales prices for the third quarter averaged $57.38 per boe, a decrease of 2% year-over-year and 15% from the previous quarter. Operating costs (including transportation) were $18.21 per boe, a decrease of 24% quarter-over-quarter and 58% year-over-year.
In light of a significant decline in commodity prices in 2012, the Company has been successful in holding its operating netbacks relatively static as it continues to improve its operating cost structure in Judy Creek while concurrently increasing the light oil weighting of its production base.
The Company continues to improve the capital efficiency of its Beaverhill Lake drilling program. Based on the average costs of its last five wells the Company currently anticipates that the costs to drill, complete and tie in each Beaverhill Lake well will average approximately $4.9 million for a dual well pad and approximately $5.2 million for a single well pad, which is down significantly from previously budgeted levels of $5.6 million. The Company anticipates potential to further improve capital efficiencies in 2012 and 2013 as service pricing continues to decline to better match the current business environment.
Second Wave remains focused on developing its Beaverhill Lake light oil resource play in Judy Creek. The Company currently estimates that it has a total of 90 net drilling locations on this play with 16.8 net locations currently developed.
Due to continued weakness in commodity pricing and the above-noted production delays in the third quarter the Company has reduced its 2012 capital and production guidance. As noted previously the Company's 2012 second half capital budget is to be fully funded from cash flow, which has been negatively impacted by commodity prices and production rates that were lower than previously forecast.
The Company now anticipates drilling 18 gross (8.4 net) Beaverhill Lake light oil wells and 1 (1.0 net) Pekisko oil well versus the previous forecast of 23 gross (10.4 net) Beaverhill Lake light oil wells in 2012. The capital budget will be reduced to $60 million from $67 million with annual and December exiting production now forecast to be 2,200 boe/d and 2,300 boe/d, respectively.
Second Wave expects to provide a full 2013 capital and production forecast early in 2013 and to update its corporate presentation later this year. The Company intends to manage a capital program that is fully funded from cash flow. Based on current strip pricing and the robust economics associated with the Company's Beaverhill Lake light oil play the Company anticipates that it can grow its production base by 5 to 10% in 2013 while moderately reducing its debt levels.
Barrels of Oil Equivalent (BOEs). The term BOE refers to barrel of oil equivalent, with natural gas converted to crude oil equivalent at a ratio of six thousand cubic feet to one barrel. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of six mcf (six thousand cubic feet) to one bbl (one 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.
Forward-Looking Statements. This news release contains forward-looking statements as to the Company's internal projections, expectations and beliefs relating to future events or circumstances. Forward-looking statements are typically (but not necessarily) identified by words such as "anticipate", "believe", "budget", "estimate", "expect", "plan", "intend", "potential", "may", "will", "should" or similar words suggesting future outcomes. Although the Company believes that these forward-looking statements are reasonable, undue reliance should not be placed on them as they are subject to known and unknown risks and uncertainties, many of which are beyond the Company's control. Forward-looking statements are not guarantees of future outcomes. There can be no assurance that the plans, intentions or expectations contained in the forward-looking statements or upon which they are based will in fact occur or be realized, and actual results may differ from those expressed or implied in the forward-looking statements. The difference may be material.
Second Wave is subject to the inherent risks associated with the exploration, development, exploitation and production of oil and gas. More particularly, material risk factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in this news release include: adverse changes in commodity prices, interest rates or currency exchange rates; accessibility of capital when required and on acceptable terms; lower than expected production of crude oil and natural gas; production delays; lower than expected reserve volumes on the Company's properties; increased operating costs; ability to attract and retain qualified personnel or to secure drilling rigs and other services on acceptable terms; competition for labour, equipment and materials necessary to advance the Company's projects; unforeseen engineering, environmental or geological problems; ability to obtain all required regulatory approvals on a timely basis and on satisfactory terms; and changes in laws and governmental regulations (including with respect to taxes and royalties). This list is not exhaustive. Readers should also review the risk factors described in other documents filed by the Company from time to time with securities regulatory authorities in Canada, including its most recent annual information form, copies of which are available electronically at www.sedar.com and at www.secondwavepetroleum.com.
Specific forward-looking statements contained in this news release include statements regarding: the expected easing of production curtailments resulting from maximum rate limitations in the Beaverhill Lake and Pekisko formations; the potential for further improvements in capital efficiencies; the estimated number of net drilling locations on the Beaverhill Lake play; the total number of wells anticipated to be drilled in 2012; the amount of the reduced capital budget for 2012; forecasted annual and exit production for 2012; the anticipated timing for providing a 2013 capital and production forecast and updated corporate presentation; and anticipated production growth and moderate debt reduction in 2013. In making such forward-looking statements, Second Wave has made various assumptions regarding, among other things: the accuracy of geological and geophysical data and interpretations of that data; future oil and natural gas prices; future capital requirements; future exchange rates; the accessibility and cost of capital (including credit); the Company's ability to economically produce oil and gas from its properties and the timing and cost to do so; and its ability to obtain qualified staff, equipment and supplies in a timely and cost-efficient manner.
The forward-looking statements included herein are made as of the date of this news release and Second Wave undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by securities laws.
SOURCE: Second Wave Petroleum Inc.
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