Vero Energy Inc. announces financial and operating results for the third
quarter of 2009 and current activities update
/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE
Third Quarter 2009 Highlights - Increased average daily production 6% to 6,610 boe/d (80% natural gas) in 2009 from 6,236 boe/d in the third quarter of 2008. For the year to date production increased 16% to 6,998 boe/d. - Cash flow from operations was $4.0 million equating to $0.09 per share (basic and diluted). - Capital spending was $ 5.0 million including the drilling of 1 (1.0 net) horizontal well. Another horizontal well started drilling before the end of the quarter. Current Activities Update - On November 3, 2009 closed a bought-deal financing for 2.2 million flow-through common shares at $5.65 per share for gross proceeds of $12.6 million. - Entered into two definitive agreements for the sale of 350 boe/d of producing assets for proceeds of $15.2 million before adjustments. Both deals are expected to close in the fourth quarter. - Current production based on field estimates is back over 7,000 boe/d (81% natural gas) - Currently have two operated drilling rigs with a third to start drilling on November 7. All three rigs will be drilling horizontal wells. Financial and operating highlights for the third quarter of 2009 with comparisons to the third quarter of 2008 are as follows: Three Months ended Nine months ended September 30, September 30, -------------------------------------------------- Financial ($000's except per share amounts) 2009 2008 % 2009 2008 % ------------------------------------------------------------------------- Production revenue 15,897 33,495 (56) 55,644 108,103 (49) Funds flow from operations (1) 4,044 16,584 (76) 18,013 61,232 (71) Per basic share 0.09 0.50 (82) 0.46 1.93 (76) Per diluted share 0.09 0.50 (82) 0.46 1.92 (76) Net (loss) earnings (3,682) 10,421 (135) (19,125) 22,944 (183) Per basic share (0.08) 0.32 (125) (0.49) 0.72 (168) Per diluted share (0.08) 0.31 (126) (0.49) 0.72 (168) Capital expenditures, net 4,973 48,234 (90) 34,869 84,533 (59) Net debt (2) 106,936 67,725 58 106,936 67,725 58 Share Capital (000's) ------------------------------------------------------------------------- Basic, weighted average 40,952 32,955 24 38,887 31,680 23 Basic, end of period 40,952 33,433 22 40,952 33,433 22 Fully diluted 44,111 36,416 21 44,111 36,416 21 Daily Production ------------------------------------------------------------------------- Natural gas volumes (mcf/d) 31,850 30,059 6 33,912 28,172 20 Light oil (boe/d) 288 515 (44) 342 582 (41) Liquids (boe/d) 1,014 711 43 1,003 755 33 Corporate (boe/d) 6,610 6,236 6 6,998 6,032 16 Average Realized Prices ------------------------------------------------------------------------- Natural gas ($/mcf) 3.23 7.81 (59) 4.14 9.11 (55) Light Oil ($/bbl) 64.35 112.72 (43) 55.00 107.75 (49) Liquids ($/bbl) 50.76 100.07 (49) 44.53 99.67 (55) Corporate ($/boe) 24.64 55.78 (56) 28.41 63.79 (55) Netbacks ($/boe)(4) ------------------------------------------------------------------------- Operating 12.54 32.17 (61) 14.06 40.07 (65) Funds flow from operations 6.65 28.91 (77) 9.43 37.04 (75) Wells drilled ------------------------------------------------------------------------- Gross 1 8 (88) 8 22 (64) Net 1.0 5.3 (81) 7.4 15.2 (51) (1) Funds flow from operations is calculated as cash provided by operating activities from the statement of cash flows, adding change in non-cash working capital and asset retirement expenditures. Funds flow from operations is used to analyze the Company's operating performance and leverage. Funds flow from operations does not have a standardized measure prescribed by Canadian Generally Accepted Accounting Principles and therefore may not be comparable with the calculations of similar measures for other companies. (2) Net debt represents current assets less current liabilities and bank debt (but excludes the potential future liability related to the mar- to-market measurement of hedges). It does not have a standardized meaning prescribed by Generally Accepted Accounting Principles and it is therefore unlikely to be comparable to similar measures presented by other companies. (3) All barrels of oil equivalent conversions use 6 mcf to 1 barrel of oil. (4) Operating netback equals total revenue less royalties, transportation and operating costs calculated on a per boe basis. Operating netback and funds flow from operations netback do not have a standardized measure prescribed by Canadian Generally Accepted Accounting Principles and therefore may not be comparable with the calculations of similar measures for other companies.
OUTLOOK
The outlook for Vero Energy has improved significantly with major initiatives taken by the Company. In fact we believe that the Company is now in an excellent position to quickly and profitably grow production. Commodity prices have improved into the fourth quarter and the Company has resumed spending on a measured and prudent capital program.
During five months of limited capital spending and no wells being drilled, time was spent developing and executing a solid business plan. We critically reviewed our industry leading low capital cost spending, focusing on further improvement while optimizing our drilling and completions to get maximum return. That focus has paid off as our first two horizontals in the second half of this year are showing very good results in deliverability and more importantly, our expectations are that reserve recovery per well will improve.
The Company also put a plan in place to take advantage of our significant and growing drilling inventory, reductions in the costs of services, and the very appealing drilling incentives currently offered in the Province of Alberta. The plan included the disposition of non-core assets where we were not going to invest capital in the foreseeable future. Good assets are still receiving
Our capital cost efficiencies and our accelerated cycle times, (50-60 days from drill to first sales); give us the confidence that our projects are as competitive as any in
Vero's current production is over 7,000 boe/d with 1,000 boe/d restricted and /or shut-in. Production currently shut-in due to economics is approximately 200 boe/d. Of the restricted production 400 boe/d is self restricted during post clean-up after new well completions and due to low commodity price. The balance requires some facility work to remove restrictions. In order to remove some production restrictions due to bottlenecks, the Company plans to add another gas compression facility that is expected to be operational in mid December. This facility will also allow us to switch production between two different midstream plants in an area where we have recently seen significant downtime. The plans are to drill 6 (5 net) horizontal wells in the fourth quarter. With production coming on from new wells and after dispositions, the Company expects to average 6,800-6,900 boe/d in this quarter and exit 2009 between 7,500-8,000 boe/d with net debt of approximately
Vero is cautiously optimistic as we enter 2010. We have positioned ourselves well both economically and strategically. We believe natural gas will average between
FINANCIAL REVIEW
During the third quarter of 2009 the natural gas industry experienced further natural gas price declines to levels that have not been seen since the beginning of this decade. In this low price environment Vero adopted a variety of strategies designed to conserve its resources and reserves. During the third quarter Vero spent
In addition to conserving capital, Vero intentionally curtailed production rates during the quarter to preserve value with the expectation prices will start to recover in the near future. The new well drilled in the quarter was choked back to 1.2 mmcfed in accordance with this strategy. High operating cost wells were shut-in during the second quarter and this continued into the third quarter. Despite these intentional reductions, the Company still experienced an increase in production for the third quarter and year to date over the results from 2008. Vero averaged 6,610 boe/d in the third quarter of 2009 versus 6,236 in the same quarter of last year and 6,998 boe/d and 6,032 for the nine month periods ended
Funds flow from operations in the third quarter of 2009 was
OPERATIONS REVIEW
Edson, Alberta --------------
Vero's largest producing property with average production of 4,818 boe/d (82% natural gas) in the third quarter of 2009 which represents 73% of total corporate production. Approximately 700 boe/d of operated production was shut-in for three weeks as the main gas compressor at a midstream facility had a serious mechanical failure. The Company also had 400 boe/d of self-restricted production in the quarter so as to not sell flush production into a low price environment. Also, approximately 75 boe/d of high operating cost production was shut-in during the quarter. The Company took advantage of the slowdown associated with the low, gas, commodity price environment to do some operated facility maintenance and upgrades.
In the quarter, Vero drilled and completed one horizontal well and started drilling a second horizontal well. Both were 100% working interest wells with the first one being brought on at the end of the quarter. Vero's primary geological targets in Edson are in the Mannville and Rock Creek zones, which range in depth from 2,000 to 2,600 meters and are characterized by gas with a high liquid content, capable of generating liquid volumes of up to 40 bbls/mmcf. Future drilling plans will be focused on defining the emerging resource potential of the Mannville and Cardium zones, and to start drilling the Rock Creek zone again. Vero continues to technically evaluate and optimize its horizontal drilling and completion techniques including drilling lengths, number of fracs and frac sizes. Plans for the fourth quarter of the year will be focused on drilling in the Edson area with 5 (4.0 net) horizontal wells.
Vero's acreage in the area consists of 68,000 gross (38,840 net) developed acres and 67,840 (54,973 net) undeveloped acres. A majority of the acreage in Edson has potential for at least two wells per section and the Company has an ongoing program of making applications to the regulator for down spacing approvals thereby increasing well inventory. Many of the emerging resource zones have the potential for more than two wells per section. Notwithstanding our acreage in Edson is a significant part of Vero's total acreage, we continue to stress that the reserve potential in this area is an even more important part of the area's development plan.
With Vero's relatively low capital and operating costs in Edson, the Company has the flexibility to respond quickly and efficiently to prevailing commodity prices. Coupling facility and operational control to a high quality inventory, characterized by short on-stream cycle time, will allow Vero the opportunity to create significant value as commodity prices recover. The Company is also in a position to prudently take advantage of the Alberta drilling and royalty incentive programs announced in March of this year.
Whitecourt ----------
Whitecourt is Vero's second largest producing area. Production averaged 754 boe/d (88% natural gas) in the third quarter. During the quarter approximately 50 boe/d of uneconomic production was shut-in.
The Whitecourt area has a number of tight gas drilling and down-spacing opportunities which are similar to the types of targets that have been successfully exploited with horizontal drilling and multi-fracs in the Edson area. The Company plans to drill one of these opportunities in the fourth quarter of 2009. Our focus during the remainder of the year will be on operating efficiencies and continuing to augment our portfolio with drilling and enhancement projects.
Vero currently controls 40,477 (22,160 net) developed acres and 51,840 (41,577 net) undeveloped acres in this area.
Other Areas -----------
The other areas contributed approximately 16% to Vero's daily production average in the quarter while averaging 1,038 boe/d (68 % natural gas). Although no wells have been drilled in these areas since
FINANCIAL STATEMENTS
Below is selected financial statement information for the three and nine month periods ended
------------------------------------------------------------------------- VERO ENERGY INC. Consolidated Balance Sheets (in thousands of dollars) September 30, December 31, 2009 2008 (unaudited) (audited) ------------------------------------------------------------------------- ASSETS CURRENT Accounts receivable 17,791 29,218 Prepaid expenses and deposits 5,794 5,294 Loans receivable 2,751 350 ------------------------------------------------------------------------- 26,336 34,862 Property and equipment 295,857 297,697 Goodwill 19,913 19,913 ------------------------------------------------------------------------- 342,106 352,472 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES CURRENT Accounts payable and accrued liabilities 30,301 63,354 Risk management 2,073 - Bank debt 102,971 75,419 ------------------------------------------------------------------------- 135,345 138,773 Asset retirement obligations 5,935 5,570 Future taxes 15,742 17,416 ------------------------------------------------------------------------- 157,022 161,759 ------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital 169,388 160,103 Contributed surplus 8,981 4,759 Retained Earnings 6,715 25,851 ------------------------------------------------------------------------- 185,084 190,713 ------------------------------------------------------------------------- 342,106 352,472 ------------------------------------------------------------------------- ------------------------------------------------------------------------- VERO ENERGY INC. Consolidated Statement of Operations, Comprehensive (Loss) Income and Retained Earnings For the three and nine month periods ended September 30 (in thousands of dollars, except per share data)(unaudited) ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 2009 2008 2009 2008 ---------------------------------------- REVENUE Production revenue 15,897 33,495 55,644 108,103 Realized loss on risk management activities (912) (1,490) (1,374) (2,666) ------------------------------------------------------------------------- 14,985 32,005 54,270 105,437 Royalties (1,607) (8,857) (9,041) (27,123) Unrealized loss on risk management activities 3,271 9,321 (2,073) 1,612 Interest and other 20 - 62 - ------------------------------------------------------------------------- 16,669 32,469 43,218 79,926 ------------------------------------------------------------------------- EXPENSES Operating 5,886 3,903 17,290 9,994 Transportation 778 788 2,460 2,083 General and administrative 1,472 1,263 4,417 3,226 Stock based compensation 664 816 4,222 1,316 Interest and bank charges 1,218 611 3,111 1,779 Depletion, depreciation and accretion 11,973 10,039 37,073 28,591 ------------------------------------------------------------------------- 21,991 17,419 68,573 46,990 ------------------------------------------------------------------------- (LOSS) INCOME BEFORE INCOME TAXES (5,322) 15,050 (25,356) 32,937 INCOME TAXES Future tax (recovery) expense (1,640) 4,629 (6,230) 9,993 ------------------------------------------------------------------------- (1,640) 4,629 (6,230) 22,944 ------------------------------------------------------------------------- NET (LOSS) EARNINGS AND COMPREHENSIVE (LOSS) INCOME (3,682) 10,421 (19,125) 22,944 RETAINED EARNINGS, BEGINNING OF PERIOD 10,397 17,387 25,851 4,864 Repurchase of shares - (556) (11) (556) RETAINED EARNINGS, END OF PERIOD 6,715 27,252 6,715 27,252 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NET (LOSS) EARNINGS PER SHARE Basic (0.08) 0.32 (0.49) 0.72 ------------------------------------------------------------------------- Diluted (0.08) 0.31 (0.49) 0.72 ------------------------------------------------------------------------- VERO ENERGY INC. Consolidated Statement of Cash Flows For the three and nine month periods ended September 30 (in thousands of dollars, except per share data)(unaudited) ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 ---------------------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES: OPERATING Net (loss) earnings (3,682) 10,421 (19,125) 22,944 Adjustments for: Unrealized (gain) loss on risk management activities (3,271) (9,321) 2,073 (1,612) Stock based compensation 664 816 4,222 1,316 Depletion, depreciation and accretion 11,973 10,039 37,073 28,591 Future tax (recovery) expense (1,640) 4,629 (6,230) 9,993 ------------------------------------------------------------------------- 4,044 16,584 18,013 61,232 Changes in non-cash working capital (919) 2,647 (12,292) (3,473) ------------------------------------------------------------------------- 3,125 19,231 5,721 57,759 ------------------------------------------------------------------------- FINANCING Increase (decrease) in bank debt (998) 21,368 27,552 7,904 Proceeds from issuance of common shares, net of share issue costs (7) - 13,916 16,758 (Increase) decrease in related party loans 105 - (2,401) - Stock option exercises - 3,434 - 4,378 Repurchase of shares - (1,081) (86) (1,081) ------------------------------------------------------------------------- (900) 23,721 38,981 27,959 ------------------------------------------------------------------------- INVESTING Corporate acquisitions - - - (2,606) Additions to petroleum and natural gas properties (4,973) (27,893) (35,006) (61,568) Purchase of producing petroleum properties - (20,312) - (20,312) Proceeds on sale of petroleum properties - - 145 - Additions to administrative assets - (29) (7) (47) Changes in non-cash working capital 2,748 5,282 (9,834) (1,185) ------------------------------------------------------------------------- (2,225) 42,952 (44,702) 85,718 ------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS - - - - CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - - - - ------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD - - - - ------------------------------------------------------------------------- -------------------------------------------------------------------------
Vero Energy Inc. is a
The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.
This press release shall not constitute an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction. The common shares of Vero will not be and have not been registered under the
READER ADVISORY
Forward Looking Statements: Certain information regarding the Company in this news release including management's assessment of future plans and operations, production estimates, drilling inventory and wells to be drilled, timing of drilling and tie-in of wells, productive capacity of new wells, capital expenditures and capital efficiencies and the completion of dispositions and the timing thereof, and commodity price projections 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, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, the timing and length of plant turnarounds and the impact of such turnarounds and the timing thereof, risks that planned dispositions will not be completed on projected timelines or at all, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, the Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly no assurance can be given that any events anticipated by the forward-looking statements will transpire or occur, or, if any of them do so, what benefits the Company will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could effect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), and the Company's website (www.veroenergy.ca). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news 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 required by applicable securities laws.
BOE Disclosure: Disclosure provided herein in respect of barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Mboe means thousands of barrels of oil equivalent.
Non-GAAP terms: this press release contains the terms "funds flow from operations" and "netbacks" which are not terms recognized under Generally Accepted Accounting Policies ("GAAP"). The Company uses these measures to help evaluate its performance as well as to evaluate acquisitions. The Company considers funds flow from operations a key measure as it demonstrates the Company's ability to generate funds necessary to repay debt and to fund future growth through capital investment. Funds generated from operations should not be considered as an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian GAAP as an indicator of Vero's performance. Vero's determination of funds flow from operations may not be comparable to that reported by other companies. The reconciliation between net income and funds flow from operations can be found in the statement of cash flows in the financial statements. Vero also presents funds generated from operations per share whereby per share amounts are calculated using weighted average shares (basic and diluted) outstanding consistent with the calculation of net earnings per share, which per share amounts are calculated under GAAP. The Company considers netbacks as a key measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks are calculated by taking total revenues and subtracting royalties, operating expenses and transportations costs on a per boe basis. Funds flow netbacks are calculated by taking the operating netback and subtracting interest costs, and general and administrative costs on a per boe basis.
%SEDAR: 00022902E
For further information: For further information: Doug Bartole, President & CEO, at (403) 218-2063; Gerry Gilewicz, Vice-President Finance & CFO, at (403) 693-3170; Scott Koyich, Investor Relations, (403) 215-5979; Internet: www.veroenergy.ca
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