Arsenal Energy Inc.
TSX : AEI
PINKSHEETS : AEYIF

Arsenal Energy Inc.

May 06, 2014 16:10 ET

Arsenal Energy Inc. Announces 2014 First Quarter Results and Increased Quarterly Dividend

CALGARY, ALBERTA--(Marketwired - May 6, 2014) - Arsenal Energy Inc. ("Arsenal") (TSX:AEI)(PINKSHEETS:AEYIF) is pleased to release its 2014 Q1 financial and operational results.

Cash flow for the first quarter increased 55% from 2013 Q1 to $11.1 million. On a per share basis, cash flow increased to $0.69 per share, a 50% increase from 2013 Q1. The Board of Directors has declared an increase in the quarterly dividend to $.065 per common share. This 8% increase is consistent with the Arsenal dividend policy of paying out approximately 10% of trailing quarterly cash flow. The dividend is payable on May 30, 2014 to shareholders of record at the close of business on May 16, 2014. The ex-dividend date is May 14, 2014.

Three Months Ended March 31
(ooo'S Cdn. $ except per share amounts) 2014 2013 % Change
FINANCIAL
Oil and gas revenue 27,606 21,117 31
Funds from operations 11,053 7,139 55
Per share - basic 0.69 0.46 50
Per share - diluted 0.69 0.45 52
Net income (loss) 1,028 (4,648 ) -
Per share - basic 0.06 (0.30 ) -
Per share - diluted 0.06 (0.30 ) -
Total debt 74,294 70,641 5
Capital expenditures 12,189 11,578 5
Property acquisitions 152 - -
Shares outstanding - end of period (ooo's) 16,090 15,694 3
Net wells drilled
Oil 4.61 2.83 63
OPERATIONAL
Daily production
Heavy oil (bbl/d) 46 63 (26 )
Medium oil and NGL's (bbl/d) 1,635 1,425 15
Light oil and NGLs (bbl/d) 1,298 1,292 -
Natural gas (mcf/d) 6,776 6,153 10
Oil equivalent (boe/d @ 6:1) 4,108 3,806 8
Realized commodity prices ($Cdn.)
Heavy oil (bbl) 71.70 58.07 23
Medium oil and NGL's (bbl) 86.09 69.63 24
Light oil and NGLs (bbl) 96.60 88.31 9
Natural gas (mcf) 5.51 2.86 92
Oil equivalent (boe @ 6:1) 74.66 61.65 21
Netback ($ per boe)
Revenue 74.66 61.65 21
Royalty (14.66 ) (13.35 ) 10
Operating cost (21.29 ) (22.10 ) (4 )
Operating netback per boe 38.71 26.20 48
General and administrative (2.67 ) (3.19 ) (16 )
Finance expenses (1.79 ) (2.08 ) (14 )
Realized losses on risk management contracts (4.18 ) (0.06 ) -
Other (FX and current tax) (0.17 ) (0.02 ) 673
Fund from operations per Boe 29.89 20.84 43

Financial

Funds from operations for Q1 2014 totaled $11.1 million or $0.69 per share versus $7.1 million or $0.46 per share for Q1 2013. The increase in cash flow is attributable to increased production volumes and higher prices. The average price received increased by $13.01 per Boe compared to the same period in 2013. Royalties increased by $1.31 per Boe and operating costs decreased by $0.81 per Boe. The operating margin for Q1 2014 of $38.71 per Boe was 48% higher than the $26.20 per Boe in Q1 2013. Funds from operations were $29.89 per Boe versus $20.84 per Boe in Q1 2013. The funds from operations netback in Q1 2014 included a realized loss on commodity contracts of $4.18 per Boe. Arsenal recorded net income of $1.0 million in Q1 2014 compared to a loss of $4.6 million in Q1 2013.

Operations

At Princess, Alberta, just prior to year end 2013 Arsenal placed a new Lower Mannville channel oil well (65% working interest) on production. That well has averaged 560 boe/d (44% oil) over 110 producing days. During the first quarter, two additional Lower Mannville channel wells (100% working interest) were drilled and completed at Princess. The first well has averaged 280 boe/d (97% oil) over 40 days of production. The second has averaged 585 boe/d (95% oil) over 48 days of production. The results of all three wells are significantly better than anticipated. Current production from Princess is 1,100 boe/d (85% oil) but is limited by processing facilities and transportation. Total well production capacity is estimated at 1,600 boe/d. Arsenal has initiated a debottlenecking program to accommodate the restricted volumes as well as potential volumes from new drills. Arsenal has assembled 25,600 acres of undeveloped land in the Princess area and is permitting 4 additional 100% working interest drills for Q2 2014 and 4 additional 100% working interest drills for Q4 2014. The Company has an inventory of approximately 20 drilling locations at Princess. Although the last three drill results are encouraging, shareholders are cautioned that future results may trend towards more modest "type" wells with IP30s of 140 boe/d, reserves of 81,000 bbls/well and 82% rates of return.

During Q1 2014 Arsenal participated in new drill operations on 9 (2.61 net) Bakken/ThreeForks horizontal wells in North Dakota. One well (0.15 net) was fracked and placed on production in April, six wells (2.24 net) were drilled and cased and are awaiting completion, and two wells (0.22 net) are currently drilling. It is anticipated that all wells will be completed and placed on production by the end of the third quarter. Bakken wells typically produce at an average rate of 630 boe/d for the first month and 260 boe/d for the first year.

Average production of 4,108 boe/d during the first quarter was up 8% when compared to the first quarter of 2013. The increase is attributed to the new Mannville wells at Princess. Operating costs at $21.29/boe and royalties at 20% were relatively stable compared to Q1 2013. Arsenal's Q1 2014 production mix was 32% light oil, 41% medium and heavy oil, and 27% natural gas.

Outlook

Due to the results of the three Princess drills, Arsenal is raising its estimate of average production for the year to 4,400 boe/d. Based on the higher production and higher prices, cash flow guidance for 2014 is increased to $50 million. Capital expenditures for 2014 are currently estimated at $44 million. Debt at year end is projected at $71 million or 1.4 X 2014 estimated cash flow.

Full financial details are contained in the financial statements and MD&A filed on SEDAR and on the Company's website at: www.arsenalenergy.com

Advisory

Certain information regarding Arsenal Energy Inc. (the "Company") contained in this press release, including statements regarding management's assessment of future plans and operations, the timing of drilling, tie-in and commencement of production of new wells, productive capacity and economics of new wells and alternatives for increasing liquidity, may constitute forward-looking statements under applicable securities laws. The forward‐looking statements are based on certain key expectations and assumptions made by the Company, including expectations and assumptions concerning the success of optimization and efficiency improvement projects, the availability of capital, the success of future drilling and development activities, the performance of existing wells, the performance of new wells, prevailing commodity prices, the availability of labor and services, the geological nature of the formations targeted by the Company and the success of completion and recompletion activities. Although the Company believes that the expectations and assumptions on which the forward‐looking statements are based are reasonable, undue reliance should not be placed on the forward‐looking statements because the Company can give no assurance that they will prove to be correct. Since forward‐looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas in0dustry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations, changes in the regulatory regime applicable to the Company and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in the Company's Annual Information Form will be filed on SEDAR and can be accessed at www.sedar.com on filing. The forward‐looking statements contained in this presentation are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward‐looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

This press release contains financial terms that are not considered measures under International Financial Reporting Standards ("IFRS"), which are considered to be generally accepted accounting principles ("GAAP"), such as cash flow, funds from operations, net debt and operating netback. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders. Specifically, cash flow and funds from operations reflects cash generated from operating activities before changes in non-cash working capital, decommissioning liabilities settled, exploration and evaluation expenses and transaction costs. Management considers cash flow and funds from operations important as it helps evaluate performance and demonstrates the ability to generate sufficient cash to fund future growth opportunities and repay debt. Net debt includes bank debt outstanding plus or minus working capital and is used to evaluate the Company's financial leverage. Profitability relative to commodity prices per unit of production is demonstrated by an operating netback. Operating netback reflects revenues less royalties and operating and transportation expenses divided by production for the period. Cash flow, funds from operations, net debt and operating netbacks may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS.

Natural gas volumes have been converted to barrels of oil equivalent ("boe"). Six thousand cubic feet ("mcf") of natural gas is equal to one barrel based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boes may be misleading, especially if used in isolation.

There is no assurance that future dividends will be declared or the timing or amount of any future dividend. The payments of dividends or distributions in the future are within the discretion of the Corporation's Board of Directors and are dependent on numerous factors including the Corporation's cash flow, capital expenditure budgets, earning, financial conditions, the satisfaction of the applicable solvency test in the Corporation's governing statue (the Business Corporation Act (Alberta)), and such other factors as the Board of Directors may consider appropriate from time to time. The Corporation's ability to continue to pay dividends in the future is also subject to many other factors including falling commodity prices, repatriation restrictions, disruptions or reductions in production or collection of receivables following sales of production. Dividend payments to shareholders will be subject to applicable statutory deductions and tax withholdings prescribed by the applicable law. There is also no assurance that future drawdowns of the secured term loan facility will be available to the Corporation when requested or at all.

To receive company news releases via e-mail, please advise ir@arsenalenergy.com and specify "Arsenal Press Releases" in the subject line.

Contact Information

  • Arsenal Energy Inc.
    Tony van Winkoop
    President and Chief Executive Officer
    (403) 262-4854

    Arsenal Energy Inc.
    J. Paul Lawrence
    Vice President, Finance and CFO
    (403) 262-4854
    (403) 265-6877 (FAX)
    ir@arsenalenergy.com
    www.arsenalenergy.com