Arsenal Energy Inc.
TSX : AEI
PINKSHEETS : AEYIF

Arsenal Energy Inc.

August 07, 2013 11:55 ET

Arsenal Energy Releases Q2 Results and Announces Consolidation and Dividend

CALGARY, ALBERTA--(Marketwired - Aug. 7, 2013) - Arsenal Energy Inc. ("Arsenal" or "Company") (TSX:AEI) (PINKSHEETS:AEYIF) is pleased to release its Q2 2013 results and announce the consolidation of share capital and a dividend. Cash flow for the second quarter was $10.0 million, a 40% increase from 2013 Q1 and a 53% increase compared to Q2 2012. It is anticipated that cash flow will show additional substantial growth in the third quarter due to production increases from recently drilled Bakken wells in North Dakota and higher current realized prices.

Arsenal is now producing cash flow in excess of the capital required to fund the Company's growth strategy. The Board of Directors ("BOD") has, therefore, adopted a dividend policy and declared a quarterly dividend of $0.006 per common share (pre consolidation). The dividend is payable on August 30, 2013 to shareholders of record at the close of business on August 15, 2013. The ex-dividend date is August 13, 2013.

SUMMARY OF FINANCIAL AND OPERATIONAL RESULTS
Three Months Ended June 30 Six Months Ended June 30
(000'S Cdn. $ except per share amounts) 2013 2012 % Change 2013 2012 % Change
FINANCIAL
Oil and gas revenue 22,405 18,444 21 43,522 39,642 10
Funds from operations 10,011 6,538 53 17,151 13,337 29
Per share - basic and diluted 0.06 0.04 50 0.11 0.09 28
Net income (loss) 2,957 7,030 (58 ) (1,691 ) 2,258 (175 )
Per share - basic and diluted 0.02 0.04 (59 ) (0.01 ) 0.01 (174 )
Total debt 67,078 60,054 12 67,078 60,054 12
Capital expenditures 9,116 11,230 (19 ) 20,693 18,602 11
Property dispositions (3,934 ) (1,864 ) 111 (3,934 ) (1,896 ) 107
Wells drilled (net)
Oil 1.87 0.19 - 4.70 1.88 -
Shares outstanding - end of period 160,696 156,194 3 160,696 156,194 3
OPERATIONAL
Daily production
Heavy oil (bbl/d) 66 138 (52 ) 64 149 (57 )
Medium oil and NGL's (bbl/d) 1,360 1,391 (2 ) 1,393 1,459 (5 )
Light oil and NGLs (bbl/d) 1,303 1,053 24 1,298 1,023 27
Natural gas (mcf/d) 5,868 5,837 1 6,010 5,996 -
Oil equivalent (boe/d @ 6:1) 3,707 3,555 4 3,756 3,631 3
Realized commodity prices ($Cdn.)
Heavy oil (bbl) 75.60 64.24 18 67.09 71.35 (6 )
Medium oil and NGL's (bbl) 78.54 72.83 8 74.01 77.71 (5 )
Light oil and NGLs (bbl) 87.96 77.52 13 88.13 79.82 10
Natural gas (mcf) 3.38 1.87 81 3.11 2.02 54
Oil equivalent (boe @ 6:1) 66.42 57.02 16 64.02 59.99 7
Operating netback ($ per boe)
Revenue 66.42 57.02 16 64.02 59.99 7
Royalty (12.14 ) (12.17 ) - (12.75 ) (13.45 ) (5 )
Operating cost (18.20 ) (19.64 ) (7 ) (20.16 ) (20.48 ) (2 )
Operating netback per boe 36.08 25.20 43 31.10 26.06 19
General and administrative (3.39 ) (3.33 ) 2 (3.29 ) (3.06 ) 7
Finance expenses (1.62 ) (1.76 ) (8 ) (1.85 ) (1.66 ) 11
Realized gains (losses) on risk management contracts (0.51 ) 0.01 - (0.29 ) (1.18 ) (76 )
Other (0.88 ) 0.09 - (0.45 ) 0.02 -
Fund from operations per Boe 29.68 20.21 47 25.23 20.18 25

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

Financial

Funds from operations for Q2 2013 totaled $10.0 million or $0.06 per share versus $6.5 million or $0.04 per share for Q2 2012. Operating netbacks increased to $36.08/boe in Q2 2013 from $25.20/boe in Q2 2012. The higher netbacks are due to higher realized unit prices and slightly lower operating costs. Unit overhead remained relatively stable at $3.39/boe.

Arsenal's mix of medium gravity Alberta oil and light gravity North Dakota oil has been heavily discounted to world prices for the past two years. By the end of June those discounts narrowed substantially to $7.50/bbl for Bakken crude and to $15.50/bbl for medium gravity Alberta crude. As a result, Arsenal's blended boe sales price increased by 16% from $57.02/boe in Q2 2012 to $66.42/boe in Q2 2013.

Arsenal recorded net income of $3.0 million for the second quarter. Debt plus working capital at quarter end was $67.1 million. Based on Q2 2013 cash flow, Arsenal's debt to cash flow ratio has fallen to 1.7/1.0.

Operations

Production averaged 3,707 boe/d during the second quarter, up 4% compared to the second quarter of 2012. Quarterly production levels in 2013 were adversely affected by approximately 150 boe/d due to a facility outage at Desan and by offset shut-ins during frac operations in North Dakota. Arsenal's Q2 production mix was 74% liquids and 26% natural gas.

Through the first half of 2013 Arsenal drilled the John Paul and Ron Carter horizontal Bakken wells. Both wells were completed with multistage fracs and placed on production in July. Test results were previously released. Arsenal has a 62.5% WI in each well. Due to the addition of these two wells and the return to production of the Desan volumes and shut-in Bakken volumes, production for the month of July averaged in excess of 4,400 boe/d.

Operating costs averaged $18.20/boe during the second quarter. This is a 7% drop vs. Q2 2012 and a continuation of a long term trend of declining operating costs as low operating cost Bakken production increases.

Consolidation and Dividend

At the last annual general meeting, shareholders authorized the BOD to consolidate the common shares of the Company. The BOD approved a 10 for one consolidation effective August 6th, 2013. After the consolidation the Corporation will have approximately 16,069,582 issued and outstanding common shares.

Pursuant to the Company's dividend policy, the BOD intends to pay quarterly dividends of $0.006 (pre- consolidation) per common share commencing in August 2013. Pursuant to the dividend policy the Board has set the initial dividend at approximately 10% of quarterly trailing cash flow and intends to review the level quarterly dependent on cash flows, capital requirements, financial conditions, or other factors as the BOD may consider appropriate from time to time.

Arsenal's year/year base production decline rate is 26%. Over the last two and a half years, the Company's capital efficiency has been $34,850/boe. Based on a go forward cash flow forecast of $31.50/boe, it is anticipated that after capital to replace declines and after the dividend, the Company will have excess cash which can be used for growth and/or debt reduction

Outlook

It is anticipated that volumes will increase in Q3 2013 with the addition of the John Paul and Ron Carter Bakken wells. Four additional non-operated (.25 net) Bakken wells have been drilled in North Dakota and are awaiting stimulation. In the third quarter Arsenal is scheduled to drill 4 wells at Princess (4 net), one well at Chauvin (1 net), and one well (0.5 net) in the deep basin. Production from those programs will mostly affect fourth quarter volumes. Arsenal is maintaining exit rate guidance at 4,400 boe/d.

Oil prices for the remainder of the year are looking strong. Based on forward strip prices and forecast volumes, Arsenal is increasing its 2013 cash flow guidance from $39 million to $41 million.

Advisory

All barrels of oil equivalent (boe) conversions in this release are derived by converting natural gas to oil at the ratio of six thousand cubic feet (Mcf) of natural gas to one barrel (bbl) of oil. Certain financial values are presented on a boe basis and such measurements may not be consistent with those used by other companies. Boe amounts may be misleading, particularly if used in isolation. A boe conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf: 1 bbl) and is based on an energy equivalency conversion method applicable at the burner tip and does not represent a value equivalency at the wellhead.

Certain financial measures referred to in this release, such as funds from operations and funds from operations per share, are not prescribed by generally accepted accounting principles (GAAP). Funds from operations are a key measure that demonstrates the ability to generate cash to fund expenditures. Funds from operations is calculated by taking the cash provided by operations from the consolidated statement of cash flows and adding back changes in non-cash working capital. Funds from operations per share are calculated using the same methodology for determining net income per share. These non- GAAP financial measures may not be comparable to similar measures presented by other companies. These financial measures are not intended to represent operating profits for the period nor should they be viewed as an alternative to cash provided by operating activities, net income or other measures of financial performance calculated in accordance with GAAP.

Management uses certain industry benchmarks such as field netback to analyze financial and operating performance. Field netback has been calculated by taking oil and gas revenue less royalties, operating costs and transportation costs. This benchmark does not have a standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. Management considers field netback as an important measure to demonstrate profitability relative to commodity prices.

Certain statements and information contained in this press release, including but not limited to management's assessment of Arsenal's future plans and operations, production, reserves, revenue, commodity prices, operating and administrative expenditures, funds from operations, capital expenditure programs and debt levels contain forward-looking statements. All statements other than statements of historical fact may be forward looking statements. These statements, by their nature, are subject to numerous risks and uncertainties, some of which are beyond Arsenal's control including the effect of general economic conditions, industry conditions, changes in regulatory and taxation regimes, volatility of commodity prices, escalation of operating and capital costs, currency fluctuations, the availability of services, imprecision of reserve estimates, geological, technical, drilling an processing problems, environmental risks, weather, the lack of availability of qualified personnel or management, stock market volatility, the ability to access sufficient capital from internal and external sources and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel that may cause actual results or events to differ materially from those anticipated in the forward looking statements. Such forward-looking statements although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated in the statements made and should not unduly be relied on. These statements speak only as of the date of this press release. Arsenal does not intend and does not assume any obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Arsenal's business is subject to various risks that are discussed in its filings on the System for Electronic Document Analysis and Retrieval (SEDAR).

Contact Information

  • Arsenal Energy Inc.
    Tony van Winkoop
    President and Chief Executive Officer
    (403) 262-4854 or Toll free: 1(866) 405-4854
    (403) 265-6877 (FAX)

    Arsenal Energy Inc.
    J. Paul Lawrence
    Vice President Finance and Chief Financial Officer
    (403) 262-4854 or Toll free: 1(866) 405-4854
    (403) 265-6877 (FAX)

    Arsenal Energy Inc.
    Suite 1900, 639 - 5th Avenue SW
    Calgary, Alberta T2P 0M9
    info@arsenalenergy.com
    www.arsenalenergy.com