Arsenal Energy Inc.

Arsenal Energy Inc.

March 10, 2015 16:24 ET

Arsenal Energy Inc. Releases 2014 Fourth Quarter Results

CALGARY, ALBERTA--(Marketwired - March 10, 2015) - Arsenal Energy Inc. ("Arsenal" or the "Company") (TSX:AEI)(OTCQX:AEYIF) is pleased to release its 2014 Q4 financial and operational results. Cash flow for the fourth quarter was a record $16.9 million or $0.98 per share, a 75% increase from 2013 Q4. Cash flow for the year was a record $54.6 million or $3.29 per share, a 36% increase from 2013.

Three Months Ended December 31 Year Ended December 31
(000'S Cdn. $ except per share amounts) 2014 2013 2014 2013
Oil and gas revenue 25,283 24,112 117,114 97,811
Funds from operations 16,906 9,013 54,563 37,859
Per share - basic 0.98 0.56 3.29 2.38
Per share - diluted 0.95 0.56 3.22 2.36
Cash and stock dividends 1,186 964 4,378 964
Per share 0.070 0.060 0.265 0.060
Net income (loss) 15,367 (396 ) 25,641 (2,714 )
Per share - basic 0.89 (0.02 ) 1.55 (0.17 )
Per share - diluted 0.81 (0.02 ) 1.54 (0.17 )
Net debt 65,198 70,422 65,198 70,422
Net debt to current quarter funds from operations annualized 1.18 1.95 1.18 1.95
Capital expenditures 9,025 6,645 53,534 39,743
Property acquisitions - - 152 -
Property dispositions (100 ) (296 ) (100 ) (4,230 )
Shares outstanding - end of period 17,877 16,080 17,877 16,080


Funds from operations for Q4 $0.56 per share basic for Q4 volumes, lower unit operating 2014 totaled $16.9 million or $0.98 per share basic versus $9.0 million or 2013. The increase in cash flow is attributable to increased production costs, lower royalties, and a significant realized hedging gain.

During the fourth quarter average production of 4,742 boe/d was up 17% when compared to the fourth quarter of 2013. Production increases came from Arsenal's medium gravity oil property at Princess, Alberta. Arsenal's Q4 2014 production mix was 35% light oil, 43% medium and heavy oil, and 22% natural gas. For the year, production averaged 4,500 boe/d.

Commodity pricing per boe was down by 10% for the fourth quarter year over year. Most of the decrease is due to lower pricing for Arsenal's North Dakota oil production. Higher production volumes offset by lower prices resulted in oil and gas revenue that was up 5% compared to Q4 2013. Arsenal realized a hedging gain of $6.4 million during the quarter.

Q4 2014 operating costs decreased by $1.99 per boe compared to Q4 2013 due to higher volumes and lower costs at Princess, Alberta. Lower oil prices resulted in a 7% decline in Q4 year over year operating margins to $28.18 per boe. Cash flow per boe increased from $24.20 per boe in Q4 2013 to $38.75 per boe in Q4 2014 primarily due to a realized hedging gain of $14.62 per boe in Q4 2014.

Net Income for the quarter was $15.4 million and for the year was $25.6 million, which includes both realized and unrealized hedging gains.

Three Months Ended December 31 Year Ended December 31
2014 2013 2014 2013
Daily production
Heavy oil (bbl/d) 49 55 45 65
Medium oil and NGL (bbl/d) 2,000 1,371 1,890 1,389
Light oil and NGL (bbl/d) 1,651 1,621 1,549 1,495
Natural gas (mcf/d) 6,247 6,012 6,098 6,139
Oil equivalent (Boe/d @ 6:1) 4,742 4,048 4,500 3,973
Realized commodity prices ($Cdn.)
Heavy oil (bbl) 75.01 71.88 79.58 73.73
Medium oil and NGL (bbl) 66.18 70.32 81.40 77.60
Light oil and NGL (bbl) 70.94 87.30 88.15 91.15
Natural gas (mcf) 3.46 3.38 4.41 3.11
Oil equivalent (Boe @ 6:1) 57.96 64.75 71.30 67.46
Netback ($ per Boe)
Revenue 57.96 64.75 71.30 67.46
Royalty (12.19 ) (14.98 ) (15.41 ) (14.53 )
Operating cost (17.58 ) (19.57 ) (18.73 ) (19.80 )
Operating netback per boe 28.18 30.20 37.16 33.13
General and administrative (1.59 ) (1.75 ) (2.45 ) (2.88 )
Finance expenses (1.56 ) (1.86 ) (1.69 ) (1.78 )
Realized gain (loss) on risk management contracts 14.62 (2.66 ) 0.75 (2.22 )
Other (FX and current tax) (0.90 ) 0.27 (0.54 ) (0.14 )
Funds from operations per Boe (4) 38.75 24.20 33.22 26.11


Arsenal is diverting most of its 2015 cash flow to exploration activities to take advantage of available deal flow and low costs. The Company anticipates returning to production development mode by Q4 2015 when the forward strip suggests WTI prices will be in the $60.00 per bbl. range.

Average production of 4,742 boe/d during the fourth quarter was up 17% when compared to the fourth quarter of 2013. Production was added from four (0.5 net) Bakken wells drilled at Lindahl, North Dakota earlier in the year. Three (0.5 net) additional non-operated wells at Lindahl are expected to be placed on production at the end of the first quarter and drilling has commenced on a new 6 well pad there. Arsenal's working interest is approximately 15%. Those wells are anticipated to come on production in Q4 2015.

Arsenal drilled three oil wells, one gas well, and one water injector during the fourth quarter. One of the oil wells was tied in during Q1 and is currently producing at 200 boe/d. It is anticipated that the other two oil wells will be tied in by Q3. During Q4 waterflood was approved for the Princess HHH pool and water injection has begun.


Oil prices have declined by approximately 50% since the summer of 2014. The oil price drop has been somewhat mitigated by narrowing price differentials and a drop in the Canadian dollar. Operating margins that averaged $37.16 per boe in 2014 are anticipated to drop to $16.45 per boe for 2015. Rates of return for most of Arsenal's development projects are positive but marginal. Rather than accelerate the depletion of Arsenal's reserve base for marginal returns, the Company is allocating most of its capital in 2015 to expanding the opportunity base through exploration and selective core property acquisitions. Costs for land and seismic are down very significantly and attractive industry lands that were previously unavailable are now negotiable. Arsenal's capital allocation will favour land acquisition, seismic acquisition, and exploratory drilling. The Company is currently shooting a large exploration 3D seismic survey at Princess and plans to drill three exploration wells at Princess and an exploration well targeting the Viking formation at Provost during Q3. At WTI prices in the mid $60s Arsenal's development portfolio returns to more acceptable rates of return and it is anticipated that at those prices the Company will return to development drilling and production growth.

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


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 industry 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 on SEDAR and can be accessed at on filing. The forward‐looking statements contained in this press release 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, operating income 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 but excludes the value of risk management contracts whether an asset or a libility 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 income reflects revenues less royalties and operating and transportation expenses and operating netback per Boe reflects operating income 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""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 commodity prices, repatriation restrictions, disruptions or reductions in production or collection of receivables following sales of production. 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.

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