CALGARY, May 10, 2012 /CNW/ - Winstar Resources Ltd. ("Winstar" or the "Company") (TSX: WIX) reports its operating and financial results for the first quarter of 2012. All values are expressed in US dollars unless otherwise stated.
Highlights for the three months ended March 31, 2012
- Tunisian production: 2,192 barrels of oil equivalent per day ("boepd"), up 26% over Q1 2011 and up 33% over the 2011 annual average;
- Funds from continuing operations; US $11.3 million (US $14.0 with inventory included) up 23% over Q1 2011;
- Tunisian after tax field operating netback: US $76.48 per boe, up 13% over Q1 2011 and up 6% over the year 2011.
During Q1 2012, the Company improved its balance sheet and reported record production. These positive Q1 2012 results are tempered by less than expected production rates in April and May 2012. During this period production was negatively affected by mechanical issues with the Company's natural gas purchaser and a labour strike between April 29 and May 1, 2012, Daily production from Chouech Essaida and Ech Chouech, which during Q1 was some 2,000 boepd, was reduced by 50% to 75% to between 500 boepd and 1,000 boepd during April and the first part of May further to the above mentioned issues. The Company is in negotiations with the local Tunisian union in an attempt to settle labour issues, while natural gas sales may be sporadic until Q3 2012, when third party mechanical modifications are expected to be completed. The Company's production has been 1,400 to 1,600 boepd during April and the first part of May 2012.
Investor Conference Call
A conference call to discuss the results will be held on Friday May 11, 2012,
|Time:||8:00 a.m. Mountain daylight time (10:00 a.m. Eastern daylight time)|
|Dial-in:||North American participants (toll free)||1-866-544-4631|
|Participants outside North America||1-416-849-5571|
Shortly after the conclusion of the call, a replay will be available by dialing 1-866-245-6755 or 1-416-915-1035. The pass code is 78059. The replay will be available until June 22, 2012. Thereafter, a copy of the call can be accessed through a link on Winstar's website at www.winstar.ca
Production versus sales
Winstar produced 2,192 boepd from its Tunisian operations during the first three months of 2012, as compared to 1,737 boepd during Q1 2011 and 1,650 boepd for the full year of 2011. The majority of the year over year growth can be directly attributable to the (full) production start up of Chouech Essaida Silurian #1 ("CS Sil #1") in December 2011.
Sales during the quarter ended March 31, 2012 were 1,853 boepd, which is significantly lower than total production volumes due to some 33,000 barrels ("bbls") of Q1 production being in storage and not sold at March 31, 2012. Crude oil and condensate are produced everyday but historically sold monthly through large volume tanker sales. In early February, Winstar sold greater than 80,000 barrels of oil ("bbls"), net after royalty, representing the Company's net production for the months of January and February 2012 for approximately US $124 per barrel ("bbl"). No crude oil sale was scheduled during March 2012, which has resulted in the material difference between reported first quarter 2012 production and sales.
Funds from continuing operations (US $11.3 million) does not recognize the value of this 33,000 bbls of crude oil inventory stored at March 31, 2012, which was sold in April at a price of US $117 per bbl. Based on royalties and operating expenses of US $882,000 included in inventory and estimated incremental current taxes of US $282,000, the sale of the inventoried 33,000 bbls in Q1 2012 would add an estimated US $2.7 million to funds from operations. The total funds from operations including the estimated value of inventory would be US $14.0 million during Q1 2012.
Financial Highlights from Continuing operations
| Three months ended,
US $ thousands (except per unit amounts)
| March 31,
| March 31,
|Oil and gas sales not including inventory||18,422||14,421||28|
|Net royalty expense||(2,584)||(2,056)||26|
|Income tax expense||(987)||(206)||379|
|General and administrative expense (excluding non cash stock based compensation)||(1,531)||(1,580)||(3)|
|Cash financing charges, foreign exchange and other expenses||(30)||185||(116)|
|Funds from operations*||11,334||9,226||23|
|Basic and diluted per share||0.32||0.26||23|
|Field operating netback ($/boe)||76.48||67.95||13|
|Basic and diluted per share||0.02||0.06||(67)|
|Total Sales (boepd) not including inventory||1,853||1,737||7|
|Oil and condensate (bopd)||1,150||1,222||(6)|
|Average oil price ($/bbl)||122.95||103.45||19|
|Natural gas (mcf/d)||4,216||3,088||37|
|Average gas price ($/mcf)||14.47||10.95||32|
|Realized oil and natural gas price ($/boe)||109.25||92.26||18|
|Royalty expense ($/boe)||(15.32)||(13.15)||17|
|Operating expense ($/boe)||(11.60)||(9.84)||18|
|Income tax expense ($/boe)||(5.85)||(1.32)||343|
|General and administrative expense ($/boe)||(9.08)||(10.11)||(10)|
|Funds from operations netback ($/boe)||67.40||57.84||17|
|Total production (boepd )||2,192||1,737||26|
|Oil and condensate (bopd)||1,489||1,222||22|
|Natural gas (mcf/d)||4,216||3,088||37|
*Q1 2012 funds from continuing operations does not include US $2.7 million of funds from operations related to crude inventory.
Operations and Capital Expenditures
Capital expenditures during the first quarter of 2012 were US $5.9 million as compared to US $6.7 million during the equivalent period in 2011.
During Q1 2012 field operations in Tunisia included the testing of the (100% working interest) Chouech Essaida Sil #10 ("CS Sil #10") well and the workover of two (100% working interest) Triassic oil wells: Chouech Essaida 12 ("CS #12") and Chouech Essaida #11 ("CS #11"), for a capital expenditure of approximately US $3.2 million.
The production testing operation of CS Sil #10 was inconclusive. The potential of the Silurian Tannezuft sandstone could not be measured. The zone appears to be crude oil dominated which was not expected and therefore requires further investigation. The Triassic oil zone, which as per open-hole log analysis appears to be highly potential, could not be measured as it was in communication with overlaying Triassic aquifers. Cased hole logs indicated that the cement between the casing and the borehole may not be competent or in other words does not separate the Triassic oil zone from certain active water zones above, making testing impossible.
During Q2 2012 a recompletion program for CS Sil #10 is designed to re-cement the Triassic zone and to evaluate the Silurian as best as can be done given the borehole configuration. This program is expected to commence in June 2012, at an estimated cost of US $4.0 million. If either or both zones can be successfully re-completed an incremental 200 to 500 bopd plus gas is potential. Winstar anticipates that reserves from CS Sil #10 will be included in Winstar's December 31, 2012 independent engineering evaluation.
During the first quarter of 2012, workover operations commenced on two pre-existing Triassic oil wells at the Chouech Essaida concession. The wells CS #12 and CS #11 each required artificial lifting to maximize production. During the Q1 and Q2 2012 both were re-completed at an estimated total cost of US $300,000, which is expected to re-establish some 300 barrels of oil per day ("bopd") plus associated gas production.
In Romania, at the Satu Mare concession, the Company drilled the 1,800 meter Moftinu 1000 well, which was tested along with the 1,800 meter Madaras 109 well for an estimated cost of US $2.3 million during the quarter. The drilling operations for the Moftinu well were on budget and on time. Testing of the Madaras well unfortunately did not yield any hydrocarbons, while production testing of Moftinu yielded natural gas at measured rates of approximately 1.8 MMcf/d. Internal estimates for the Moftinu well (which are not 51-101 equivalent) presuming one square mile drainage are between a gross 5 to 7 Bcf of potential hydrocarbons. The commercial development of the Madaras discovery is now being evaluated by our partners Rompetrol and the Government of Romania. Winstar has paid 100% of the drilling and testing costs to date to earn up to a 60% working interest of the Satu Mare concession.
Business Environment: Tunisia
Tunisia continues an orderly transition to a democratic republic but high unemployment persists. During 2011 Winstar, in part to facilitate the Company's growth and in part to help spur the local economy Winstar increased its Tunisian compliment from approximately 80 to 100 employees.
During the last year the Company experienced limited interruptions in service due to civil unrest. This situation unfortunately changed during late April 2012. The Company was exposed to a three day strike (April 29 to May 1, 2012) when the Labor Tunisian General Union, Labor Regional Union Tataouine issued a strike communiqué, resulting in the complete shut-in of the producing facilities at the Chouech Essaida, Ech Chouech and Sanhrar concessions. This action by the trade unions is not isolated to Winstar but has affected all that produce in Southern Tunisia. The strike as it pertains to Winstar is in response to contract and trainee personal demanding full time Winstar employee status. Winstar is confident that a satisfactory long term solution will be eventually resolved, but it advises shareholders that a second strike from May 13 to 18, 2012 has been announced if current negotiations fail.
During the remainder of year the Company, in Tunisia, is planning the recompletion of CS Sil #10 as discussed above plus the recompletion of Ech Chouech #4 ("EC #4") within the Ech Chouech concession, the drilling of a new Ordovician well known as Sabria 12 within the Sabria concession, plus the reactivation of production from the Zinnia concession.
The 100% working interest EC #4 recompletion is designed to test the crude oil commercial potential of the Ouan Kasa Devonian sandstone. The EC #4 well originally tested hydrocarbons for a short period. Winstar believes that by using a small hydraulic fracturing ("frac") we may stimulate the formation and result in natural flow. Winstar has one Devonian producer known as Ech Chouech #1 ("EC #1") some 1.7 kilometer west of EC #4 which consistently produces over 100 bopd plus gas through natural flow. The EC #4 recompletion is expected to occur in June 2012 and is estimated to cost US $3.5 million subject to final approval. The well is fortunately tied in so there will be no production delay if the recompletion is successful. A successful small frac may generate 100 to 200 bopd plus gas of incremental production, plus open a new development fairway.
At the Sabria concession a new 4,000 meter vertical well with a 300 to 400 meter horizontal leg known as Sabria 12 is expected to spud in Q3 2012, subject to final approval. The Sabria 12 well is a 45% working interest well which Winstar will operate. The well is expected to cost US $8.1 million net to Winstar and if successful is anticipated to add 200 to 400 boepd net to Winstar. There are currently three wells producing on average 430 boepd gross or 195 boepd net at the Sabria concession.
The 100% working interest Zinnia concession has been suspended due to poor economics for the last several years. This situation has now reversed with commodity prices of over US $100 per barrel and US $14 per mcf. The Zinnia concession is expected to be operational further to a successful water injection well recompletion. This program is expected to cost US $300,000 and is scheduled to be completed in Q4 when it is anticipated 100 to 200 boepd of incremental production may come on stream.
As a European Union member, Romania started a series of verification of the expansion terms of exploration licenses granted by Romanian National Energy Agency (NAMR) to the entire Romanian oil industry, including Winstar's partner, Rompetrol. The legal procedure between the administrative control authority, the Court of Accounts, and NAMR are underway.
Winstar is convinced this review will conclude positively but is also aware the full examination procedure may take some time to come to fruition conclusion. In the mean time, Winstar has been advised by its partner, legal counsel and NAMR officials that, in their opinion, our mineral rights and farm in obligations are secure. Winstar is now evaluating the acquisition of a new 80 square kilometer 3D at Satu Mare an expected cost of US$4.5 million perhaps in 2012. As with the drilling and testing, Winstar will pay 100% of the seismic costs to earn up to a 60% working interest in the Satu Mare concession.
Production in Tunisia is affected by third party mechanical issues and as discussed previously labour unrest . The Company during Q1 sold some 700 boepd of natural gas. Approximately 650 boepd of Winstar's natural gas production is from the Chouech Essaida concession. Gas sales from Chouech Essaida are dependent upon STEG (Societe Tunisienne de l'Electricite et du Gaz) the Tunisian national purchaser and transporter of natural gas, nominating gas sales. STEG during February and now during April and May conducted major mechanical upgrades to their gas transportation and compression systems. During these periods no gas or limited gas was purchased from Winstar. Gas sales may be sporadic until Q3 2012 when these modifications are expected to be completed.
We enter the second quarter of 2012 with a positive working capital position of US $3.8 million. The Company is capable of producing 2,500 boepd; however recent mechanical and labour difficulties make it producing at our capacity problematic. We are hopefully that the difficulties now upon Winstar in Q2 will find resolution during Q3 2012. When these unforeseen difficulties are resolved new recompletions scheduled during the year (subject to final approval) may add another 100 to 200 boepd (Zinnia), 200 to 400 boepd (Sabria), 100 to 200 boepd (Ech Chouech) and 200 to 500 bopd plus gas (Chouech Essaida). While commodity prices are buoyant, we look forward to exploiting our opportunities throughout the remainder of 2012.
References herein to boe mean barrels of oil equivalent derived by converting gas to oil in the ratio of 6,000 cubic feet (mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based upon an energy conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the wellhead.
Funds from operations are a non-GAAP measure, defined by the Company as cash flow from operating activities excluding:
- The change in non-cash working capital related to continuing and discontinued operations, which is eliminated to show the net cash effect on income;
- Geological and geophysical expenses from continuing and discontinued operations, which are costs incurred for the purpose of generating future investment opportunities and are therefore not indicative of operational performance; and
The Company also presents:
- Funds from operations per share, whereby amounts per share are calculated using weighted average common shares outstanding.
Management uses funds from operations to analyze performance and considers it to be a key measure as they demonstrate the Company's ability to generate the cash necessary to fund future capital investments. Winstar's determination of funds from operations may not be comparable to that reported by other companies nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS.
Field operating netback is a non-GAAP measure defined by the Company as revenue, less royalty, operating expense and current income tax. Management considers field operating netbacks an important measure as they demonstrate the Company's profitability from field operations, before general and administrative costs, relative to current commodity prices.
This press release contains certain forward-looking statements. These statements relate to future events or future performance of the Company. When used in this press release, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "predict", "seek", "propose", "expect", "potential", "continue", and similar expressions, are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Such statements reflect the Company's current views with respect to certain events, and are subject to a number of risks, uncertainties and assumptions. Many factors could cause Winstar's actual results, performance, or achievements to materially differ from those described in this press release. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in other public disclosures made by the Company or this press release as intended, planned, anticipated, believed, estimated, or expected. Specific forward-looking statements in this press release include, among others, statements pertaining to the following: factors upon which Winstar will decide whether or not to undertake a specific course of action; and estimated volumes and timing of future production; business plans for drilling, exploration and development; and other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance. The risks to which the Company is subject include those of the oil and gas industry in general, including operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas fields and deposits; volatility in global market prices for oil and natural gas; general economic conditions; competition; liabilities and risks, including environmental liability and risks inherent in oil and gas operations; uncertainties as to the availability and cost of financing and changes in capital markets; alternatives to and changing demand for petroleum products; and changes in legislation and the regulatory environment, including uncertainties with respect to the Kyoto Protocol.
Furthermore, statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be produced profitably in the future. The forward-looking statements contained in this press release are expressly qualified in their entirety by this cautionary declaration. These statements speak only as of the date of this press release. The Company does not intend and does not assume any obligation, to update these forward-looking statements to reflect new information, subsequent events or otherwise, except as required by law.
Winstar Resources Ltd. is a Calgary-based junior oil and gas Company, which explores for, develops, produces and sells crude oil, natural gas liquids and natural gas in Tunisia and conducts exploration activities in Romania. Winstar's common shares trade on The Toronto Stock Exchange under the symbol WIX.
Winstar's consolidated Interim Financial Statements and Management Discussion and Analysis for the three month period ended March 31, 2012 can be obtained at www.winstar.ca.
Effective June 1, 2012 Winstar's Calgary headquarters will change locations from 845, 401-9th Avenue SW, T2P 3C5 to 3130, 520 - 3rd Avenue SW, T2P 0R3.
For further information:
Mr. Charles de Mestral
Chief Executive Officer
Phone: +41 22 361 14 45
(Note: Mr. de Mestral is based in Europe, in a time zone which is eight hours ahead of Calgary time)
Mr. David Monachello
Phone: +1 403 513 4200
E-mail : email@example.com
Mr. Jerrad Blanchard
Chief Financial Officer
Phone : +1 403 513 4204
E-mail : firstname.lastname@example.org