Bonavista Energy Corporation

Bonavista Energy Corporation

August 02, 2012 16:23 ET

Bonavista Energy Corporation Announces 2012 Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 2, 2012) - Bonavista Energy Corporation (TSX:BNP) is pleased to report to shareholders its interim consolidated financial and operating results for the three and six months ended June 30, 2012.

Three months Six months
ended June 30, % ended June 30, %
2012 2011 Change 2012 2011 Change
($ thousands, except per share)
Production revenues 193,826 256,100 (24%) 420,860 494,898 (15%)
Funds from operations(1) 81,726 138,621 (41%) 186,361 267,688 (30%)
Per share(1) (2) 0.49 0.88 (44%) 1.11 1.70 (35%)
Dividends declared(3) 52,721 48,860 8% 104,904 97,348 8%
Per share 0.36 0.36 - 0.72 0.72 -
Net income 3,553 77,318 (95%) 47,276 109,339 (57%)
Per share(4) 0.02 0.49 (96%) 0.28 0.70 (60%)
Adjusted net income(5) (10,015) 48,341 (121%) 30,951 106,032 (71%)
Per share(4) (0.06) 0.31 (119%) 0.19 0.67 (72%)
Total assets 3,877,344 3,580,097 8%
Long-term debt, net of working capital 1,108,488 1,096,842 1%
Long-term debt, net of adjusted
working capital(6)
1,121,314 1,095,476 2%
Shareholders' equity 1,990,893 1,870,228 6%
Capital expenditures:
Exploration and development 81,039 107,253 (24%) 234,833 248,759 (6%)
(dispositions), net
(72,584) 11,855 (712%) (130,792) (3,077) 4,151%
Weighted average outstanding
equivalent shares: (thousands)(4)
Basic 167,767 157,398 7% 167,219 157,129 6%
Diluted 168,582 158,488 6% 168,080 158,252 6%
(boe conversion - 6:1 basis)
Natural gas (mmcf/day) 254 246 3% 253 244 4%
Natural gas liquids (bbls/day) 13,689 11,838 16% 14,156 11,790 20%
Oil (bbls/day)(7) 13,426 13,260 1% 13,611 13,707 (1%)
Total oil equivalent (boe/day) 69,506 66,037 5% 69,854 66,107 6%
Product prices:(8)
Natural gas ($/mcf) 2.18 4.23 (48%) 2.28 4.23 (46%)
Natural gas liquids ($/bbl) 46.58 55.80 (17%) 48.67 52.76 (8%)
Oil ($/bbl)(7) 74.52 84.44 (12%) 78.68 80.06 (2%)
Operating expenses ($/boe) 9.17 8.81 4% 9.28 8.64 7%
General and administrative expenses ($/boe) 1.07 0.94 14% 1.01 0.96 5%
Cash costs ($/boe)(9) 13.47 13.14 3% 13.46 13.00 4%
Operating netback ($/boe)(10) 15.77 25.84 (39%) 17.37 25.15 (31%)


(1) Management uses funds from operations to analyze operating performance, dividend coverage and leverage. Funds from operations as presented does not have any standardized meaning prescribed by IFRS and therefore it may not be comparable with the calculations of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with IFRS. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures and interest expense. Funds from operations per share is calculated based on the weighted average number of shares outstanding consistent with the calculation of net income per share.

(2) Basic funds from operations per share calculations include exchangeable shares which are convertible into common shares on certain terms and conditions.

(3) Dividends declared includes both cash dividends and common shares issued pursuant to the Corporation's dividend reinvestment plan (DRIP) and the Corporation's stock dividend program (SDP). For the three months ended June 30, 2012 approximately 1.3 million common shares were issued under the DRIP and SDP with an approximate value of $19.9 million. For the six months ended June 30, 2012, approximately 2.0 million common shares were issued under the DRIP and SDP with an approximate value of $36.1 million.

(4) Basic net income per share calculations include exchangeable shares which are convertible into common shares on certain terms and conditions.

(5) Amounts have been adjusted to exclude unrealized gains and losses on financial instrument commodity contracts.

(6) Amounts have been adjusted to exclude associated assets or liabilities from financial instrument commodity contracts.

(7) Oil includes light, medium and heavy oil.

(8) Product prices include realized gains and losses on financial instrument commodity contracts.

(9) Cash costs equal the total of operating, transportation, general and administrative, and financing expenses.

(10) Operating netback equals production revenues including realized gains and losses on financial instrument commodity contracts, less royalties, operating and transportation expenses, calculated on a boe basis.

Share Trading Statistics
Three months ended
June 30,
March 31,
December 31, 2011 September 30, 2011
($ per share, except volume)
High 20.15 26.79 27.48 29.98
Low 13.76 19.77 19.88 20.08
Close 15.92 20.20 26.07 23.56
Average Daily Volume - Shares 720,519 593,273 392,532 370,453


Bonavista Energy Corporation ("Bonavista") is pleased to report to shareholders its financial and operating results for the three and six months ended June 30, 2012.

Beginning in the fourth quarter of 2011, North American natural gas prices steadily deteriorated, falling approximately 60% before reaching a ten year low of $1.43 per GJ in April 2012. This challenging environment was compounded in the second quarter of 2012 by a 20% decline in crude oil prices to US$84.96 per bbl and a 10% decline in Bonavista's average natural gas liquids price to $42.66 per bbl at quarter end. Bonavista has responded to this dramatic commodity price volatility in 2012 by reallocating capital expenditures, divesting of certain non-core properties, implementing a dividend reinvestment and stock dividend plan and curtailing higher cost dry natural gas production. Specific to our non-core asset divestiture activity, Bonavista sold $58.5 million of non-core properties in the first quarter of 2012 and a further $72.7 million in the second quarter totaling $131.2 million to date in 2012.

Bonavista's key business objectives include the employment of an efficient capital program, a disciplined approach to cost control and a focus on full cycle profitability within a sustainable business model. While we are pleased with the successful efforts undertaken to enhance our sustainability year to date, we will remain flexible with our capital budget, dividend levels and non-core divestiture program throughout the balance of the year.

Despite the challenging commodity price environment and resulting cash flow constraints in our business, Bonavista experienced another successful quarter operationally, resulting from the consistent application of our disciplined business strategies. Specific accomplishments for Bonavista in the second quarter of 2012 include:

  • Increased production volumes by 5% to 69,506 boe per day from 66,037 boe per day in the second quarter of 2011. These production rates were achieved despite being impacted by 800 boe per day of dry natural gas curtailments and 850 boe per day of short term ethane recovery inefficiencies at two non-operated facilities. Current production is approximately 68,000 boe per day after consideration of 1,900 boe per day of asset dispositions that closed at the end of the second quarter of 2012;
  • Invested $81.0 million in exploration and development activities in the second quarter of 2012 consisting of:
    • $61.6 million in drilling, completion and equipping expenditures;
    • $11.4 million in facility and pipeline infrastructure; and
    • $8.0 million in land and seismic acquisitions.
  • Divested of 1,900 boe per day of non-core assets during the quarter for proceeds of $72.7 million resulting in attractive divestiture metrics of $38,200 per boe per day given their higher cost and production profile characteristics;
  • Drilled 21 wells with a 95% success rate with 11 wells targeting light oil prospects and the remainder targeting liquids rich natural gas;
  • Managed our exposure to forward oil price fluctuations by adding to our hedge portfolio resulting in the protection of 59% of forecasted crude oil production (net of royalty) for the August through December 2012 time period with an average floor price of $85.19 per bbl and average ceiling price of $109.76 per bbl and approximately 25% for 2013 with an average floor price of $87.57 per bbl and average ceiling price of $101.05 per bbl;
  • Managed our exposure to forward natural gas price fluctuations by adding to our hedge portfolio resulting in the protection of approximately 44% of forecasted natural gas production (net of royalty) for the August through October 2012 time period with an average floor price of $2.45 per GJ and average ceiling price of $2.60 per GJ and approximately 36% for 2013 with an average floor price of $2.85 per GJ and average ceiling price of $3.24 per GJ;
  • Generated funds from operations of $81.7 million ($0.49 per share) for the three months ended June 30, 2012. Bonavista distributed 40% of these funds to shareholders net of a 38% participation rate in the dividend reinvestment and stock dividend plans, with the remainder reinvested to continue growing our production and reserves base; and
  • Since 2003, when Bonavista introduced an income component to our total shareholder return, Bonavista has delivered cumulative dividends of over $2.2 billion or $25.47 per common share.

Second quarter 2012 Operational Highlights

Hoadley Glauconite Liquids Rich Natural Gas

Bonavista drilled 10 horizontal wells in the second quarter of 2012 focusing our efforts in Wilson Creek and Willesden Green where ample processing capacity exists. Average first month production rates remain consistent with our existing type curve expectations including two pilot projects testing a drilling density of four wells per section. These successful down-spacing tests did not exhibit any inter-well communication during completion operations and initial results do not suggest any production interference with offsetting horizontal wells. Bonavista believes these initial results could enhance the estimated ultimate recovery of certain areas within the Hoadley reservoir with incremental capital allocation.

Bonavista continues to allocate development expenditures to this play even in the current low natural gas price environment owing to its attractive natural gas liquids yield, low operating costs and favourable production addition costs. Our type well generates a 39% rate of return and a recycle ratio of 3.0 times at current strip commodity prices.

Approximately 40% of our remaining 2012 drilling budget will be allocated to the Glauconite trend drilling approximately 13 net horizontal wells in the second half of 2012. Bonavista's Glauconite development program remains a cornerstone of our asset portfolio with a current drilling inventory of 410 horizontal locations.

West Central Cardium Light Oil

Bonavista drilled eight horizontal light oil wells targeting the Cardium formation in west central Alberta. Bonavista focused its efforts in the second quarter of 2012 on prospective acreage at Harmattan where five horizontal wells were drilled. Our continued focus on capital efficiency has led to a 10% cost reduction with our Harmattan, drilling program through the application of pad drilling and slickwater completion techniques.

Bonavista has drilled 68 wells since commencing our horizontal Cardium development program resulting in increased average initial production rates and estimated recoverable reserves per well. These improving results have evolved from a greater understanding of the geology and a refinement in our drilling and completion techniques. Our current inventory of 120 horizontal locations remains stable despite the drilling activity to date as we continue to delineate our 300 net section Cardium land base.

Our type well generates a rate of return of 28% and offers an attractive recycle ratio of 2.3 times using current strip commodity prices. Bonavista will allocate approximately 30% of our remaining drilling budget in the second half of 2012, drilling approximately 11 net horizontal wells.

Deep Basin Multi-zone Liquids Rich Natural Gas

Bonavista completed its 2012 development program in this multi-zone area of the deep basin near Edson, Alberta in the first quarter to accommodate the area's winter access characteristics. We are pleased with the production results of our eight Bluesky and 10 Rock Creek liquids rich natural gas wells drilled since entering the area in 2010 and look forward to successful follow-up efforts in 2013 and beyond. Bonavista maintains a current inventory level of 120 locations in this multi-zone area with exposure to five formations including the Bluesky, Rock Creek, Montney, Notikewin and Wilrich horizons.

Blueberry Montney Liquids Rich Natural Gas

Bonavista completed its 2012 delineation program at Blueberry in the first quarter of 2012 confirming the extension of a condensate-rich reservoir across our land base. With six horizontal wells currently on production including four in the Upper Montney and two in the Lower Montney, Bonavista continued to monitor the production performance of the reservoir throughout the second quarter of 2012. The six wells currently placed on production have delivered average first month production rates of 480 boe per day per well consisting of 300 bbl per day of natural gas liquids, 60% of which is free condensate. Bonavista's current delineation plan involves drilling four to six wells over the next two years to retain ownership of our 55 net section land base, allowing us to prudently advance a long term development plan focused on resource recovery and capital cost optimization.

Emerging Opportunities

Bonavista currently owns 400 net sections of Duvernay rights in the greater Pembina area of west central Alberta. Bonavista continues to closely monitor industry activity within the Duvernay while assessing various options to maximize the value of this potentially significant liquids rich resource.

Additionally, Bonavista is encouraged with the results of its initial Second White Specks horizontal well drilled and completed in the first half of 2012. This light oil well, which has been on production for a total of three months, averaged 140 boe per day consisting of 110 bbls per day of 38° API oil and associated natural gas liquids in the first month of production. We will continue to monitor the results of this well as we plan for additional delineation of this resource in 2013.

In addition to the Duvernay and the Second White Specks formations, we continue to evaluate additional emerging resource opportunities. To date in 2012, Bonavista has tested the Belly River, Halfway, Viking and the Ellerslie formations in west central Alberta. We are encouraged by the results achieved to date on all these plays and will continue to evaluate other light oil or liquids rich natural gas prospects that are emerging on our land base.

Strengths of Bonavista Energy Corporation

Beginning in 1997, with an initial restructuring to create a high growth junior exploration company, throughout the energy trust phase between July 2003 and December 2010, and now operating as a dividend paying corporation, Bonavista remains committed to the same strategies that have resulted in our tremendous success over the last 14 years. We have maintained a high level of investment activity on our asset base, increasing production by approximately 100% since converting to an energy trust in July 2003 and a further 5% since converting back to a corporation at the end of 2010. These results stem from the operational, technical and financial focus of our people, their attention to detail, and their entrepreneurial approach to generating low risk, highly profitable projects within the Western Canadian Sedimentary Basin. Our experienced technical teams have a solid understanding of our assets and they continue to exercise the discipline and commitment required to deliver long-term value to our shareholders. We actively participate in undeveloped land acquisitions, property purchases and farm-in opportunities, which have all enhanced the quality and quantity of our extensive drilling inventory. These activities have led to low cost reserve additions, lengthening of our reserve life index, and a predictable production base that continues to grow at a healthy pace. Our production base is currently weighted 59% towards natural gas and is geographically focused within select, multi-zone regions primarily in Alberta and British Columbia. The low cost structure of our asset base maintains attractive operating netbacks in most operating environments. In addition, our asset base is predominantly operated by Bonavista, providing control over the pace of operations and ensuring that operating and capital cost efficiencies are consistently optimized.

Our team brings a successful track record of executing low to medium risk development programs, including both asset and corporate acquisitions, along with sound financial management. Our Board of Directors and management team possess extensive experience in the oil and natural gas business. They have successfully guided our organization through many different economic cycles utilizing a proven strategy consisting of disciplined cost controls and prudent financial management. Directors, management and employees also own approximately 14% of the equity of Bonavista, resulting in the alignment of interests with all shareholders.


As we enter the second half of 2012, Bonavista continues to focus on its organic development opportunities that offer the highest economic return while selectively advancing a number of emerging opportunities towards the full development phase. Despite the volatility in commodity prices that we have witnessed over the past several months, there is evidence of structural improvements in our industry that provide some degree of optimism. We are currently experiencing service cost improvements that should enhance capital efficiencies as we proceed through 2012 and enter 2013. Additionally, while AECO natural gas prices are likely to face further storage capacity pressures in the remaining summer months, the supply response in western Canada to lower prices has been meaningful and should lead to improved supply/demand fundamentals. Although natural gas production levels in the United States remain high, there has been a significant reduction in natural gas drilling and a robust demand response from the power generation market which is providing price support. In the case of oil and natural gas liquids prices, while there are recurring fears of a global economic downturn, market forces are providing a price range that offers a reasonable economic return on our development activities. In this regard, we believe the outlook for commodity prices is improving and as a result, we have extended our hedging program for both oil and natural gas production through 2014 to reduce future cash flow volatility.

Given the success of our divestiture program year to date, our 2012 capital budget has been reduced to approximately $245 million which is comprised of an exploration and development program of $375 million offset by net divestiture proceeds of $130 million. After accounting for production volumes divested year to date and approximately 1,100 boe per day of currently shut-in natural gas production, we expect this capital program to result in 2012 production volumes of between 68,000 and 69,000 boe per day. Overall, our long term business strategy remains intact with a commitment to deliver a balance of corporate growth and income through our monthly dividend. We remain concerned about sustained low natural gas prices and the more recent decrease in oil and natural gas liquids pricing. While we have preserved the current dividend level through a combination of capital spending adjustments, shareholder participation in our dividend reinvestment and stock dividend plans and non-core asset divestitures, we will continue to closely monitor the current dividend level throughout the remainder of 2012.

Bonavista has elected to maintain its dividend reinvestment program indefinitely as a complement to the recently incorporated stock dividend plan.

Bonavista's inventory of approximately 1,400 future drilling locations represents over 10 years of organic growth opportunities. Approximately 90% of these locations target high impact, unconventional resource prospects and approximately 60% generate attractive economics that exceed a 2:1 recycle ratio at current strip commodity prices. Additionally, given commodity price weakness and current stock market volatility, there has been an increase in the number of acquisition opportunities available and we will remain attentive to those opportunities which can complement operational efficiencies in our core areas while adding quality drilling prospects.

We would like to thank our employees for their persistent efforts in the second quarter of 2012 and our shareholders for their continual support. Bonavista wishes to announce that Johannes Thiessen, Sr. Vice President, and Thomas Mullane, Sr. Vice President, have recently resigned from the Corporation. Mr. Thiessen and Mr. Mullane were recently leading the New Ventures group at Bonavista and contributed significantly to the past success of the Corporation. We wish them both success in their future endeavors. Since our inception in 1997, we have consistently applied the same core strategies that have enabled Bonavista to weather many changes in our business environment and have proven to add shareholder value over the long term. Our core philosophy and key operating strategies have proven to work well throughout all phases of the business cycle and we look forward to continually creating long-term value for our shareholders. Our team is very committed to this vision.


Corporate information provided herein contains forward-looking information. The reader is cautioned that assumptions used in the preparation of such information, particularly those pertaining to cash dividends, production volumes, commodity prices, operating costs and drilling results, which are considered reasonable by Bonavista at the time of preparation, may be proven to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein and the variations may be material. There is no representation by Bonavista that actual results achieved during the forecast period will be the same in whole or in part as those forecast.

Bonavista is a mid-sized energy corporation committed to maintaining its emphasis on operating high quality oil and natural gas properties, providing moderate growth and delivering consistent dividends to its shareholders and ensuring financial strength and sustainability.

Contact Information

  • Keith A. MacPhail
    Chairman & CEO

    Jason E. Skehar
    President & COO

    Glenn A. Hamilton
    Senior Vice President & CFO

    Bonavista Energy Corporation
    1500, 525 - 8th Avenue SW
    Calgary, AB T2P 1G1
    (403) 213-4300