AvenEx Energy Corp.
TSX : AVF

AvenEx Energy Corp.

August 14, 2012 20:36 ET

AvenEx Energy Corp. Announces Second Quarter 2012 Results

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2012) - AvenEx Energy Corp. ("AvenEx" or the "Company") (TSX:AVF) is pleased to announce the financial and operational results for the second quarter ended June 30, 2012 and to announce they have filed the complete Management Discussion and Analysis and the unaudited Interim Condensed Consolidated Financial Statements. Certain selected financial and operational information is set out below and should be read in conjunction with AvenEx's unaudited Interim Condensed Consolidated Financial Statements and related Management Discussion and Analysis. These filings will be available on the Corporation's SEDAR profile at www.sedar.com.

TOTAL CONSOLIDATED FINANCIAL SUMMARY
(in thousands of $ except for per share amounts) For the three months ended June 30 For the six months ended June 30
2012 2011 % Change 2012 2011 % Change
Total Revenue $302,122 $239,284 26 $590,586 $449,264 31
Funds from Operations (FFO)1 $7,957 $12,096 (34 ) $19,699 $26,632 (26 )
FFO Per Share1- Basic $0.15 $0.23 (35 ) $0.36 $0.50 (28 )
Dividends $5,698 $7,139 (20 ) $12,967 $16,656 (22 )
Dividends Per Share - Basic $0.105 $0.135 (22 ) $0.240 $0.315 (24 )
Dividend Payout Ratio2 72 % 59 % 22 66 % 63 % 5
Net Income (Loss) ($14,718 ) $14,475 (202 ) ($17,599 ) $12,731 (238 )
Net Income (Loss) Per Share - Basic ($0.27 ) $0.27 (200 ) ($0.33 ) $0.24 (238 )
Total Assets $448,757 $450,849 - $448,757 $450,849 -
Working Capital deficiency3 ($64,885 ) ($38,050 ) (34 ) ($64,885 ) ($38,050 ) (34 )
Mortgages (assets held for sale) $3,059 $5,512 (45 ) $3,059 $5,512 (45 )
Wtd. Avg. Shares Outstanding - Basic 54,238,287 52,877,930 3 54,017,687 52,871,331 2
Shares Outstanding 54,267,262 52,877,930 3 54,267,262 52,877,930 3
(1) Funds from Operations ("FFO"), FFO per share are not recognized measures under International Financial Reporting Standards ("IFRS"). See "Non-IFRS Financial Measures" at the end of this press release.
(2) Dividend Payout Ratio is calculated by dividing the Monthly Dividends by the FFO.
(3) Working capital deficiency excludes (a) assets held for sale and (b) risk management assets and liabilities.

SECOND QUARTER RESULTS SUMMARY

Despite a very solid second quarter for Elbow River, the Corporation's second quarter 2012 funds from operations were down 34% from second quarter of 2011 due to the impact of lower commodity prices and lower production volumes in the Oil & Gas Division. For the quarter ended June 30, 2012, the Corporation had a net loss of $14.7 million, funds from operations of $8.0 million and dividends of 72% of funds from operations. This compares to the second quarter of 2011, where the Corporation had net income of $14.5 million, funds from operations of $12.1 million and dividends of 59% of funds from operations. Of the second quarter 2012 funds from operations, the Oil & Gas Division provided 45%, with 56% coming from Elbow River, 2% from Real Estate and the Corporate Division used 3%.

In the Oil & Gas Division, second quarter 2012 production averaged 3,834 BOE per day down 25% from the 5,086 BOE per day in the corresponding quarter of 2011 with oil and NGL's down 18% and natural gas down 30%. Oil and NGL production was down from second quarter 2011 due to natural declines and access issues due to an extremely wet spring. Natural gas volumes are down due to declines and shut-ins as no new capital has been directed to natural gas projects over the past nine months. Quarterly production volumes were split 48% oil and NGL and 52% natural gas. Second quarter oil and NGL prices were $74.71 per Bbl, down 14% over the previous year while natural gas prices were $2.35 per Mcf ($1.78 per Mcf excluding hedging), down 46% from the previous year level. In the quarter, natural gas prices hit ten year lows and oil differentials to WTI widened significantly from first quarter 2012 and historical levels for both light and heavy crudes. Operating netbacks decreased significantly with the lower crude oil and natural gas prices to $17.25 per BOE versus $27.62 per BOE in the comparable period in 2011 and $23.57 per BOE in the first quarter of 2012.

The total capital expenditures for the second quarter of 2012 were $3.6 million with the capital program being limited to non-operated projects in south west Saskatchewan, Pembina and Swan Hills and the final costs of the operated first quarter program at Randell. Capital expenditures, restricted for the balance of the year to Oil & Gas operating income less Oil & Gas dividend contribution are now forecast to total about $22 million for the full year 2012. AvenEx will continue to focus entirely on oil development programs in the core areas of North Randell, Cranberry and East Pembina targeting the Slave Point, Cardium and Montney formations through horizontal drilling. With this level of spending, AvenEx is forecasting the oil and natural gas liquids production to remain flat at the current 2,000 Bbls/d for the balance of 2012. With no natural gas development activity the Oil & Gas Division now expects natural gas production to average about 11,000 Mcf/d over the final six months of 2012. During the second quarter, AvenEx recognized an impairment charge of $8.2 million before taxes on two of its natural gas weighted cash generating units ("CGUs") as a result of the impact of continued low natural gas prices on the asset value.

The Elbow River results were well ahead of second quarter 2011 results with funds from operations of $4.5 million versus $1.9 million in the same quarter of 2011. The quarter benefited from strong crude oil by rail shipments. Heavy fuel oils and refined products were also at expectations while LPG sales were lower on weaker butane sales. The quarter's net income included unrealized losses on financial instruments of $15.2 million on AvenEx's hedged forward sales as a result of changes in the underlying product commodity prices. The loss impacts net income but not funds from operations as the gains or losses reverse in the next period when the physical transactions occur. The third quarter is expected to be very solid with results similar to the same quarter of 2011 due to continued strong forecast demand for crude by rail. Crude oil is now expected to be Elbow River's largest product sales segment passing butane as the traditional sales leader. The third quarter of 2012 will also mark Elbow River's initial physical asset ownership with an investment in a rail handling facility in north-west Alberta. The facility will enable Elbow River to initially ship an additional 2,000 Bbls/d of heavy crude in late third quarter with the ability to expand to handle up to 10,000 Bbls/d if demand continues and rail cars can be sourced.

The Corporation is continuing with the disposition of its real estate portfolio in order to focus on its energy related divisions. Two portfolio properties remain, including an industrial property in Ontario and the Kelowna theatre property. The Kelowna property now has an unconditional agreement in place which is expected to close in the third quarter, while the Ontario property is still expected to be sold later in 2012. The portfolio continues to be 100% leased and perform as expected.

AvenEx sold its investment in EnerVest Diversified Income Trust units subsequent to the end of the quarter and was used the $4.1 million in proceeds to pay down Oil & Gas Division bank debt.

The benefits of the diversification of an energy marketing company, together with a traditional junior exploration and production company are being realized as the oil and gas industry deals with continued low natural gas prices and wide crude oil pricing differentials to WTI. Elbow River's business has been very strong, benefitting from the demand for crude by rail sales volumes such that Elbow River is now forecast to effectively contribute up to 65%-70% of the dividend.

REVIEW OF FINANCIAL RESULTS

Net loss for the quarter ended June 30, 2012 was $14.7 million, less than the net income of $14.5 million for the quarter ended June 30, 2011 as a result of continued decline in realized natural gas prices, a decline in both oil and natural gas production volumes, the recognition of an $8.2 million impairment charge on certain natural gas weighted CGUs and the recording of a large unrealized loss on Elbow River's forward sales that will reverse when physical sales are completed. Weaker results in the Oil & Gas Division translated into lower funds from operations of $8.0 million for the quarter ended June 30, 2012, down from funds from operations for the quarter ended June 30, 2011 of $12.1 million.

AvenEx declared dividends of $5.7 million ($0.105 per share) for the quarter ended June 30, 2012 which is down from the $7.1 million ($0.135 per share) distributed for the quarter ended June 30, 2011. The second quarter 2012 payout ratio was 72% of funds from operations compared to 59% for the three months ended June 30, 2011 and the Corporation's long term target of 60%. The six month dividend payout ratio as at June 30, 2012 of 66% was higher than the 2011 comparative of 63%.

As of June 30, 2012 AvenEx had approximately 54.3 million common shares issued and outstanding. The common shares of AvenEx trade on the Toronto Stock Exchange (the "TSX") under the trading symbol "AVF".

AvenEx Energy Corp.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
As at
June 30,
2012
December 31,
2011
(in thousands of dollars) $ $
ASSETS
Current
Marketable securities 4,097 4,182
Accounts receivable 97,605 130,739
Prepaid expenses 5,018 3,038
Inventory 25,598 29,735
Risk management assets 5,492 9,489
137,810 177,183
Assets held for sale - Real Estate 8,496 10,517
146,306 187,700
Exploration and evaluation 35,045 35,500
Property, plant and equipment 197,056 202,914
Intangibles and other assets 10,788 11,428
Goodwill 28,603 28,603
Deferred income taxes 30,959 25,135
448,757 491,280
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 95,008 102,608
Accounts payable and accrued liabilities 100,295 120,170
Dividend payable 1,899 2,406
Risk management liabilities 16,279 3,023
213,481 228,207
Liabilities of assets held for sale - Real Estate 3,178 3,258
216,659 231,465
Decommissioning liabilities 31,537 31,630
248,196 263,095
Shareholders' equity
Share capital 258,966 254,500
Contributed surplus 6,275 7,545
Deficit (64,778 ) (34,032 )
Accumulated other comprehensive income 98 172
200,561 228,185
448,757 491,280
AvenEx Energy Corp.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three months ended
June 30
Six months ended
June 30


(in thousands of dollars)
2012
$
2011
$
2012
$
2011
$
REVENUE
Oil and gas revenue 15,126 25,293 34,833 50,045
Royalties (2,143 ) (4,354 ) (4,988 ) (9,048 )
Unrealized gain (loss) on financial instruments 4,891 4,416 3,695 (111 )
Total oil and gas revenue 17,874 25,355 33,540 40,886
Elbow River revenue 299,325 200,431 577,641 396,960
Unrealized gain (loss) on financial instruments (15,235 ) 13,345 (20,949 ) 11,109
Total Elbow River revenue 284,090 213,776 556,692 408,069
Interest and other revenue 158 153 354 309
Total revenue 302,122 239,284 590,586 449,264
EXPENSES
Oil and gas operating 6,503 7,642 13,461 15,347
Oil and gas transportation costs 459 512 1,049 1,166
Elbow River operating 290,550 197,290 560,648 387,574
General and administrative 5,562 4,165 11,004 8,927
Share-based compensation 694 1,023 1,327 1,752
Bad debt expense (recovery) 2 (289 ) 3 (797 )
Finance costs 1,709 848 3,150 927
Capital taxes 75 95 181 167
Exploration and evaluation expense 321 320 763 534
Depletion, depreciation and amortization 5,799 7,656 12,322 15,774
Impairment 8,219 - 8,219 -
319,893 219,262 612,127 431,371
Income (loss) from continuing operations before income tax (17,771 ) 20,022 (21,541 ) 17,893
Income taxes:
Deferred income tax recovery (expense) 4,024 (5,501 ) 4,796 (5,343 )
4,024 (5,501 ) 4,796 (5,343 )
Net income (loss) from continuing operations (13,747 ) 14,521 (16,745 ) 12,550
Net income (loss) from discontinued operations - Real Estate (971 ) (46 ) (854 ) 181
Net income (loss) for the period (14,718 ) 14,475 (17,599 ) 12,731
Other comprehensive loss:
Change in fair value of marketable securities, net of tax (261 ) (414 ) (74 ) (225 )
Other comprehensive loss (261 ) (414 ) (74 ) (225 )
Comprehensive income (loss) for the period (14,979 ) 14,061 (17,673 ) 12,506
Net income (loss) from continuing operations per share
Basic and diluted (0.25 ) 0.27 (0.31 ) 0.24
Net loss from discontinued operations per share
Basic and diluted (0.02 ) 0.00 (0.02 ) 0.00
Net income (loss) per share
Basic and diluted (0.27 ) 0.27 (0.33 ) 0.24
AvenEx Energy Corp.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the six months ended June 30,
2012 2011
(in thousands of dollars) Number $ Number $
Share capital
Balance, beginning of period 53,475,546 254,500 52,783,690 250,337
Exercise of options 632,600 3,579 94,240 599
Settlement of RSUs 159,116 887 - -
Balance, end of period 54,267,262 258,966 52,877,930 250,936
Contributed surplus
Balance, beginning of period 7,545 6,144
Exercise of options (1,775 ) (107 )
Settlement of RSUs (887 ) -
Cash settlement of options (115 ) (94 )
Share based compensation capitalized 180 -
Share based compensation expensed 1,327 1,752
Balance, end of period 6,275 7,695
Deficit
Balance, beginning of period (34,032 ) -
Net income (loss) (17,599 ) 12,731
Dividends (13,147 ) (16,721 )
Balance, end of period (64,778 ) (3,990 )
Accumulated other comprehensive income
Balance, beginning of period 172 1,241
Change in fair value of marketable securities, net of tax (74 ) (225 )
Balance, end of period 98 1,016
AvenEx Energy Corp.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three months ended
June 30,
Six months ended
June 30,
(in thousands of dollars) 2012
$
2011
$
2012
$
2011
$
OPERATING ACTIVITIES
Net income (loss) from continuing operations (13,747 ) 14,521 (16,745 ) 12,550
Add (deduct) non-cash items:
Share-based compensation 694 1,023 1,327 1,752
Non-cash general and administrative 252 252 504 504
Exploration and evaluation expense 321 320 763 534
Depletion, depreciation and amortization 5,799 7,656 12,322 15,774
Impairment 8,219 - 8,219
Accretion of decommissioning liabilities 456 468 905 872
Unrealized (gain) loss on financial instruments 10,345 (17,761 ) 17,254 (10,999 )
Unrealized (gain) loss on foreign exchange (475 ) 6 (284 ) 53
Deferred income tax expense (recovery) (4,024 ) 5,501 (4,796 ) 5,343
Funds from continuing operations 7,840 11,986 19,469 26,383
Funds from discontinued operations - Real Estate 117 110 230 249
7,957 12,096 19,699 26,632
Asset retirement expenditures during period (771 ) (114 ) (1,142 ) (499 )
Net change in non-cash working capital 9,092 (27,680 ) 18,271 773
Cash provided by (used in) operating activities 16,278 (15,698 ) 36,828 26,906
FINANCING ACTIVITIES
Issue of shares, net of issue costs 686 - 1,805 354
Cash settlement of options (8 ) (39 ) (115 ) (95 )
Dividends (5,698 ) (7,139 ) (12,967 ) (16,656 )
Increase (decrease) in bank indebtedness (4,698 ) 27,552 (7,599 ) 20,021
Real estate repayment of mortgages (41 ) (61 ) (82 ) (122 )
Net change in non-cash working capital (418 ) (65 ) (326 ) (65 )
Cash provided by (used in) financing activities (10,177 ) 20,248 (19,284 ) 3,437
INVESTING ACTIVITIES
Oil and gas property acquisitions (41 ) (114 ) (56 ) (9,247 )
Oil and gas property disposals - 45 47 47
Oil and gas evaluation and exploration (17 ) (7 ) (557 ) (2,140 )
Oil and gas development expenditures (3,227 ) (5,852 ) (13,639 ) (17,117 )
Purchase of other assets (295 ) (192 ) (324 ) (310 )
Net change in non-cash working capital (2,496 ) 1,596 (2,964 ) (1,505 )
Cash used in investing activities (6,076 ) (4,524 ) (17,493 ) (30,272 )
Increase in cash during the period 25 26 51 71
Cash, beginning of period - - - -
Change in cash within assets held for sale (25 ) (26 ) (51 ) (71 )
Cash, end of period - - - -
Supplemental information:
Cash taxes paid 121 27 1,617 49
Cash interest paid 2,280 574 1,216 901

An electronic copy of this press release may be obtained on AvenEx's SEDAR profile at www.sedar.com.

AvenEx Energy Corp. was created to provide stable, sustainable dividends to shareholders while providing modest growth. AvenEx is focused on energy with two distinct business units, namely Oil & Gas development and production and crude oil and LPG marketing and logistics.

AvenEx trades on the TSX under the symbol AVF.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The securities offered have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

Forward Looking Statements

Certain statements contained herein including, without limitation, financial and business prospects and financial outlook, the effect of government announcements, proposals and legislation, plans in its Oil & Gas Division regarding hedging, wells to be drilled, wells to be completed, expected or anticipated production rates, suspension of development of the Corporation's gas properties, timing of expected production increases and results, the weighting of production between different commodities, expected commodity prices, exchange rates, production expenses, transportation costs, operating costs and other costs and expenses, maintenance of productive capacity, capital expenditures, focus of the Oil & Gas Division on oil development in the core areas of Randell, Cranberry and East Pembina; plans in the Elbow River Marketing Limited Partnership ("Elbow River") business regarding plans for its ongoing Liquefied Petroleum Gas ("LPG") business, anticipated results in Elbow River in the third quarter of 2012 and terms of investment in and capacity of the rail handling facility; plans in the Real Estate Division for the timing and completion of selling assets (and proceeds to be received from such sales), repayment of the mortgages on the assets and the nature of capital expenditures; the timing and method of financing these businesses, target payout ratio and dividend policy may be forward looking statements.

Words such as "may", "will", "should", "could", "anticipate", "believe", "expect", "intend", "plan", "potential", "continue", "targeted" and similar expressions may be used to identify these forward looking statements. These statements reflect management's current beliefs and are based on information currently available to management. Forward looking statements involve significant risk and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward looking statements including, but not limited to, risks associated with oil and gas exploration: development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers and the inability to retain drilling rigs and other services; risks associated with its Elbow River business including, but not limited to, counterparty risk in default, operational risks, hedging, access to credit, competitor risk, seasonality and impact of the global recession on overall economic activity; and risks associated with the Real Estate Division including, but not limited to the impact the overall economy has on valuations, future delinquencies, access to mortgages and impact on interest rates; as well as the risks associated with AvenEx's incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources and the risk factors outlined under "Risks and Uncertainties" and elsewhere herein. The recovery and reserve estimates of AvenEx's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements.

Forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. Although AvenEx believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because AvenEx can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which AvenEx operates; the timely receipt of any required regulatory approvals; the ability of AvenEx to obtain qualified staff, equipment and services in a timely and cost efficient manner; divisional results; the ability of operators to operate the field in a safe, efficient and effective manner; the ability of AvenEx to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development of exploration; the timing and costs of pipeline, storage and facility construction and expansion and the ability of AvenEx to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which AvenEx operates; and the ability of AvenEx to successfully market its products, fluctuations in foreign exchange or interest rates and stock market volatility, credit risk and the ability to realize on collateral in the event of default, failure of counter parties to perform on contracts, fluctuation in the value of real property, failure to produce income or revenue from real estate, failure of tenants to meet lease obligations, increase in property taxes and mortgage, maintenance, insurance, operating costs and decreases in occupancy and rental rates, and fixed costs in relation to variable revenue streams. Readers are cautioned that the foregoing list of factors is not exhausted.

Forward looking statements and other information contained herein concerning the Oil & Gas Division, Elbow River's business, the Real Estate Division and AvenEx's general expectations concerning these industries are based on estimates prepared by each Division's management and from using data from publicly available industry sources as well as from reserve reports, market research and industry analysis and on assumptions based on data and knowledge of these industries which AvenEx believes to be reasonable. However, this data is inherently imprecise, although generally indicative of relative market positions, market shares and performance characteristics. While AvenEx is not aware of any misstatements regarding any industry data presented herein, these industries involve risks and uncertainties and are subject to change based on various factors.

These forward looking statements are made as of the date hereof and AvenEx assumes no obligation to update or review them to reflect new events or circumstances except as required by applicable securities laws.

Non-IFRS Financial Measures

Funds from continuing operations, funds from continuing operations per share, funds from operations, funds from operations per share, net back and working capital (deficiency) are not recognized measures under IFRS. Funds from operations is calculated by taking cash provided by operating activities on the statement of cash flows adjusted for the effect of changes in non-cash working capital and asset retirement costs incurred. Working capital (deficiency) is calculated by taking current assets less current liabilities excluding balances relating to assets held for sale. Operating netbacks per BOE equal total petroleum and natural gas revenue net of transportation expenses and realized gains on commodity contracts per BOE less royalties per BOE and operating expenses per BOE. Operating netbacks as used in the MD&A do not have any standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures of other entities. Operating netbacks are a useful measure to compare AvenEx's operations with those of its peers). Dividend Payout Ratio is calculated by dividing the dividends by the funds from operations. Management believes that these measures are useful supplemental measures to analyze operating performance as they demonstrate AvenEx's ability to generate the funds from operations necessary to fund future dividends and capital investments. AvenEx's method of calculating these measures may differ from other issuers, and accordingly, they may not be comparable to measures used by other issuers. Investors should be cautioned that these measures should not be construed as an alternative to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS.

"BOE" means barrel of oil equivalent on the basis of 6 Mcf of natural gas to 1 Bbl of oil. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf to 1 Bbl based on an energy equivalent conversion method primarily applicable at the burner top and does not represent a value equivalency at the well head. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly difference from the energy equivalency of 6 to 1, utilizing a conversion on 6 to 1 basis may be misleading as an indication of value.

The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • AvenEx Energy Corp.
    William Gallacher
    President & CEO
    (403) 237-9949
    (403) 237-0903 (FAX)

    AvenEx Energy Corp.
    Gary H. Dundas
    Vice-President, Finance and CFO
    (403) 237-9949
    (403) 237-0903 (FAX)

    AvenEx Energy Corp.
    Suite 300, 808 - 1st Street S.W.
    Calgary, Alberta T2P 1M9
    www.avenexenergy.com