Arsenal Energy Inc.
TSX : AEI
OTCQX : AEYIF

Arsenal Energy Inc.

March 08, 2016 16:00 ET

Arsenal Energy Inc. Releases 2015 Results

CALGARY, ALBERTA--(Marketwired - March 8, 2016) - Arsenal Energy Inc. ("Arsenal" or the "Company") (TSX:AEI)(OTCQX:AEYIF) is pleased to release its 2015 financial and operational results.

Financial:

SUMMARY OF FINANCIAL RESULTS
Three Months Ended
December 31
Year Ended
December 31
(000s Cdn. $ except per share amounts) 2015 2014 2015 2014
FINANCIAL
Oil and gas revenue 11,528 25,283 55,082 117,114
Funds from operations 2,531 16,906 30,354 54,563
Per share - basic 0.13 0.98 1.63 3.29
Per share - diluted 0.13 0.95 1.62 3.22
Cash and stock dividends paid 388 1,186 1,688 4,378
Per share 0.020 0.070 0.090 0.265
Net income (loss) (26,499 ) 15,367 (43,980 ) 25,641
Per share - basic (1.37 ) 0.89 (2.37 ) 1.55
Per share - diluted (1.37 ) 0.81 (2.37 ) 1.54
Total debt 53,816 65,198 53,816 65,198
Capital expenditures 2,699 9,025 20,302 53,534
Property acquisitions - - - 152
Property dispositions (26 ) (100 ) (1,882 ) (100 )
Common Share Trading Range
High 1.94 9.25 6.72 9.80
Low 1.05 5.25 1.05 4.52
Close 1.22 6.77 1.22 6.77
Average daily volume 24,193 24,524 22,420 25,091
Shares outstanding - end of period 19,423 17,877 19,423 17,877

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

Cashflow from operations for Q4 2015 totaled $2.5 million or $0.13 per share basic and diluted versus $16.9 million or $0.98 per share basic and $0.95 per share diluted for Q4 2014. The decrease in cash flow is attributable to a 35% drop in the revenue per boe and from lower production volumes. For 2015, cash flow totaled $30.4 million $1.63 per share basic and $1.62 per share diluted versus $54.6 million or $3.29 per share basic and $3.22 per share diluted in 2014. Lower production, lower prices and hedging gains accounted for the decrease in 2015 from 2014.

The loss recorded for 2015 was $44.0 million or $2.37 per share basic and diluted versus income of $25.6 million or $1.55 per share basic and $1.54 per share diluted. Lower operating margin resulting from lower production and commodity prices and property impairments significantly contributed to the loss in 2015.

Operations:

SUMMARY OF OPERATIONAL RESULTS
Three Months Ended
December 31
Year Ended
December 31
(000s Cdn. $ except per share amounts) 2015 2014 2015 2014
OPERATIONAL
Daily production
Heavy oil (bbl/d) 4 49 19 45
Medium oil and NGLs (bbl/d) 1,617 2,000 1,662 1,890
Light oil and NGLs (bbl/d) 1,095 1,651 1,218 1,549
Natural gas (mcf/d) 3,731 6,247 4,856 6,098
Oil equivalent (boe/d @ 6:1) 3,338 4,742 3,707 4,500
Realized commodity prices ($Cdn.)
Heavy oil (bbl) 16.54 75.01 42.48 79.58
Medium oil and NGLs (bbl) 40.42 66.18 46.18 81.40
Light oil and NGLs (bbl) 48.02 70.94 51.28 88.15
Natural gas (mcf) 1.96 3.46 2.25 4.41
Oil equivalent (boe @ 6:1) 37.54 57.96 40.70 71.30
Netback ($ per boe)
Revenue 37.54 57.96 40.70 71.30
Royalty (7.44 ) (12.19 ) (8.50 ) (15.41 )
Operating and transportation (17.73 ) (17.58 ) (16.18 ) (18.73 )
Operating netback per boe 12.36 28.18 16.03 37.16
General and administrative (2.85 ) (1.59 ) (3.03 ) (2.45 )
Cash portion of share based compensation - - (0.09 ) -
Interest and other financing (1.82 ) (1.56 ) (1.60 ) (1.69 )
Realized gain (loss) on risk management contracts (0.25 ) 14.62 10.96 0.75
Other (FX and current tax) 0.80 (0.90 ) 0.16 (0.54 )
Fund from operations per Boe 8.24 38.75 22.43 33.22

Average production of 3,338 boe/d during the fourth quarter was 30% lower when compared to the fourth quarter of 2014. The drop is due to uneconomic wells being shut-in and normal production declines in the absence of new well production coming on-stream. Production for 2015 averaged 3,707 boe/d versus 4,500 boe/d in 2014. Property sales, uneconomic wells being shut-in, well declines and limited production adds contributed to lower production in 2015.

During Q1, 2015 Arsenal participated in new drill operations on 6 gross (0.89 net) Bakken/ThreeForks horizontal wells in Lindahl, North Dakota. All of the wells were originally scheduled to be on production in August of last year. The operator has delayed startup until March of 2016.

During the fourth quarter, funded from the issuance of flow through shares, Arsenal drilled five exploratory wells at Princess resulting in two oil wells, two gas wells, and one dry hole. Arsenal has decided to delay tie in operations of the successful wells until prices improve. The drilling successes proved up an additional inventory of drillable locations. Including the wells at Lindahl and Princess, Arsenal estimates that approximately 700 bbls/d of oil production plus additional gas reserves are behind pipe.

Outlook

Subsequent to quarter end, Arsenal reached an agreement to sell its 300 boe/d natural gas property at Desan. The property is cash flow negative and the Company could not envision a scenario under which it could become cash flow positive again. The sale is scheduled to close in mid-March with expected proceeds of approximately $1 million dedicated to reducing debt. The Company will also dispose of approximately $3.1 million of abandonment liabilities in the transaction.

In January, the Company entered into a process to market some or all of its US properties. Those properties currently produce approximately 1,000 boe/d with additional volumes behind pipe awaiting tie in. They are low cost with a long life and are, as expected, attracting industry interest. In addition to the US sale, Arsenal will market its 250 bbl/d light oil property at Evi. The goal of the property sales is to substantially reduce or eliminate the Company's indebtedness.

The property sales, if and when completed, will reposition the balance sheet and should allow the Company to pursue growth at Princess. Capital efficiencies at Princess are competitive with some of the best plays currently under development in North America. Over the last few years Arsenal has spent considerable capital building a land and seismic base and derisking the play. Costs and risks going forward should be substantially lower.

2016 Budget

The current forecast calls for capital spending during 2016 of approximately $6.5 million. All of the capital in the forecast is allocated to tie ins, drilling and acquisitions at Princess. The Company plans to continue with reductions to operating and overhead costs as it repositions its asset base.

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

Forward-Looking Statements

This release contains forward-looking statements and forward-looking information within the meaning of applicable Canadian securities laws. These statements relate to future events or the Company's future performance and are based upon the Company's internal assumptions and expectations. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "should", "believe", "intends", "forecast", "plans", "guidance", "budget" and similar expressions.

More particularly and without limitation, this release contains forward-looking statements and information relating to petroleum and natural gas production estimates and weighting, projected crude oil and natural gas prices, future exchange rates, expectations as to royalty rates, expectations as to transportation and operating costs, expectations as to general and administrative costs and interest expense, expectations as to capital expenditures and net debt, planned capital spending, future liquidity and Arsenal's ability to fund ongoing capital requirements through operating cash flows and its credit facilities, supply and demand fundamentals for oil and gas commodities, timing and success of development and exploitation activities, cash availability for the financing of capital expenditures, access to third-party infrastructure, treatment under governmental regulatory regimes and tax laws and future environmental regulations.

The forward-looking statements and information contained in this release are based on certain key expectations and assumptions made by Arsenal. The following are certain material assumptions on which the forward-looking statements and information contained in this release are based: the stability of the global and national economic environment, the stability of and commercial acceptability of tax, royalty and regulatory regimes applicable to Arsenal, exploitation and development activities being consistent with management's expectations, production levels of Arsenal being consistent with management's expectations, the absence of significant project delays, the stability of oil and gas prices, the absence of significant fluctuations in foreign exchange rates and interest rates, the stability of costs of oil and gas development and production in Western Canada, including operating costs, the timing and size of development plans and capital expenditures, availability of third party infrastructure for transportation, processing or marketing of oil and natural gas volumes, prices and availability of oilfield services and equipment being consistent with management's expectations, the availability of, and competition for, among other things, pipeline capacity, skilled personnel and drilling and related services and equipment, results of development and exploitation activities that are consistent with management's expectations, weather affecting Arsenal's ability to develop and produce as expected, contracted parties providing goods and services on the agreed timeframes, Arsenal's ability to manage environmental risks and hazards and the cost of complying with environmental regulations, the accuracy of operating cost estimates, the accurate estimation of oil and gas reserves, future exploitation, development and production results and Arsenal's ability to market oil and natural gas successfully to current and new customers. Additionally, estimates as to expected average annual production rates assume that no unexpected outages occur in the infrastructure that the Company relies on to produce its wells, that existing wells continue to meet production expectations and any future wells scheduled to come on in the coming year meet timing and production expectations.

Commodity prices used in the determination of forecast revenues are based upon general economic conditions, commodity supply and demand forecasts and publicly available price forecasts. The Company continually monitors its forecast assumptions to ensure the stakeholders are informed of material variances from previously communicated expectations.

Financial outlook information contained in this release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this release should not be used for purposes other than for which it is disclosed.

Although the Company believes that the expectations reflected in such forward -looking statements and information are reasonable, it can give no assurance that such expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent known and unknown risks and uncertainties. Arsenal'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 of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits Arsenal will derive therefrom. 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 currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general such as 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 estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation, environmental risks, competition from others for scarce resources, the ability to access sufficient capital from internal and external sources, changes in governmental regulation of the oil and gas industry and changes in tax, royalty and environmental legislation. Additional information on these and other factors that could affect the Company's operations or financial results are included in the Company's most recent Annual Information Form and other reports on file with the applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

Readers are cautioned that the foregoing list of factors is not exhaustive. Furthermore, the forward-looking statements contained in this release are made as of the date of this release for the purpose of providing the readers with the Company's expectations for the coming year. The forward-looking statements and information may not be appropriate for other purposes. Arsenal 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. The forward-looking statements contained in this release are expressly qualified in their entirety by this cautionary statement.

Basis of Presentation. For the purpose of reporting production information, reserves and calculating unit prices and costs, natural gas volumes have been converted to a barrel of oil equivalent (boe) using six thousand cubic feet equal to one barrel. A boe conversion ratio of 6:1 is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion conforms with the Canadian Securities Administrators' National Instrument 51-101 when boes are disclosed. Boes may be misleading, particularly if used in isolation.

Non-IFRS Measures. This release contains the terms "funds from operations", and "net debt" which are not recognized measures under IFRS. The Company uses these measures to help evaluate its performance. Management uses funds from operations to analyze performance and considers it a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. Funds from operations is a non-IFRS measure and has been defined by the Company as cash flow from operating activities before, exploration and evaluation expenses, decommissioning expenditures and changes in non-cash working capital from operating activities. The Company may also presents funds from operations per share whereby amounts per share are calculated using weighted average shares outstanding consistent with the calculation of earnings per share. Arsenal'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. Net debt includes borrowings under the Company's credit facility plus or minus the Company's working capital. Net debt excludes long term decommissioning obligations and risk management contracts (whether an asset or an obligation and whether classified as short or long term). Net debt is used by management to monitor remaining availability under its credit facilities.

Contact Information

  • Arsenal Energy Inc.
    Tony van Winkoop
    President and Chief Executive Officer
    (403) 262-4854
    (403) 265-6877 (FAX)

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