Bonavista Energy Corporation

Bonavista Energy Corporation

November 01, 2012 16:01 ET

Bonavista Energy Corporation Announces 2012 Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 1, 2012) - Bonavista Energy Corporation (TSX:BNP) is pleased to report to shareholders its interim consolidated financial and operating results for the three and nine months ended September 30, 2012.

Three months Nine months
ended September 30, % ended September 30, %
2012 2011 Change 2012 2011 Change
($ thousands, except per share)
Production revenues 188,610 264,349 (29 %) 609,470 759,247 (20 %)
Funds from operations(1) 82,291 134,772 (39 %) 268,652 402,460 (33 %)
Per share(1) (2) 0.48 0.84 (43 %) 1.59 2.53 (37 %)
Dividends declared(3) 56,416 50,834 11 % 161,320 148,182 9 %
Per share 0.36 0.36 - 1.08 1.08 -
Net income 2,484 31,166 (92 %) 49,760 140,505 (65 %)
Per share(4) 0.01 0.19 (95 %) 0.29 0.88 (67 %)
Adjusted net income(5) 10,563 16,358 (35 %) 41,514 122,389 (66 %)
Per share(4) 0.06 0.11 (45 %) 0.25 0.77 (68 %)
Total assets 3,898,043 3,771,975 3 %
Long-term debt, net of working capital 815,322 1,057,875 (23 %)
Long-term debt, net of adjusted working capital(6) 818,487 1,066,748 (23 %)
Shareholders' equity 2,300,294 2,051,230 12 %
Capital expenditures:
Exploration and development 90,320 123,756 (27 %) 325,153 372,515 (13 %)
Acquisitions/(dispositions), net 999 99,477 (99 %) (129,793 ) 96,400 (235 %)
Weighted average outstanding equivalent shares: (thousands)(4)
Basic 172,735 161,321 7 % 169,388 158,828 7 %
Diluted 174,423 162,457 7 % 170,375 159,968 7 %
(boe conversion - 6:1 basis)
Natural gas (mmcf/day) 238 266 (11 %) 248 251 (1 %)
Natural gas liquids (bbls/day) 13,424 13,319 1 % 13,910 12,305 13 %
Oil (bbls/day)(7) 12,383 13,941 (11 %) 13,198 13,786 (4 %)
Total oil equivalent (boe/day) 65,464 71,636 (9 %) 68,380 67,971 1 %
Product prices:(8)
Natural gas ($/mcf) 2.56 4.13 (38 %) 2.37 4.19 (43 %)
Natural gas liquids ($/bbl) 40.76 55.08 (26 %) 46.11 53.61 (14 %)
Oil ($/bbl)(7) 75.88 77.95 (3 %) 77.80 79.34 (2 %)
Operating expenses ($/boe) 9.04 9.60 (6 %) 9.20 8.98 2 %
General and administrative expenses ($/boe) 1.16 0.95 22 % 1.06 0.96 10 %
Cash costs ($/boe)(9) 13.47 13.86 (3 %) 13.47 13.31 1 %
Operating netback ($/boe)(10) 16.83 23.18 (27 %) 17.20 24.45 (30 %)


(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 Bonavista's dividend reinvestment plan (DRIP) and Bonavista's stock dividend program (SDP). For the three months ended September 30, 2012 approximately 1.4 million common shares were issued under the DRIP and SDP with an approximate value of $22.1 million. For the nine months ended September 30, 2012, approximately 3.4 million common shares were issued under the DRIP and SDP with an approximate value of $58.2 million.
(4) Basic net income per share calculations include exchangeable shares which are convertible into common shares on certain terms and conditions.
(5) Amounts have been adjusted to exclude unrealized gains and losses on financial instrument commodity contracts.
(6) Amounts have been adjusted to exclude associated assets or liabilities from financial instrument commodity contracts.
(7) Oil includes light, medium and heavy oil.
(8) Product prices include realized gains and losses on financial instrument commodity contracts.
(9) Cash costs equal the total of operating, transportation, general and administrative, and financing expenses.
(10) Operating netback equals production revenues including realized gains and losses on financial instrument commodity contracts, less royalties, operating and transportation expenses, calculated on a boe basis.
Share Trading Statistics
Three months ended
September 30, 2012 June 30,
March 31,
December 31, 2011
($ per share, except volume)
High 19.14 20.15 26.79 27.48
Low 15.46 13.76 19.77 19.88
Close 17.44 15.92 20.20 26.07
Average Daily Volume - Shares 596,502 720,519 593,273 392,532


Bonavista Energy Corporation ("Bonavista") is pleased to report to shareholders its financial and operating results for the three and nine months ended September 30, 2012. The unaudited financial statements and notes, as well as management's discussion and analysis, are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at and on Bonavista's website at

During the quarter, we witnessed continued volatility in commodity prices with a modest strengthening in both crude oil and natural gas prices. Despite a 17% increase in our realized third quarter natural gas price over the second quarter of 2012, the average year to date price in 2012 reflects its lowest level in over a decade. Compounding the challenged cash flow environment, equity valuations in our industry remain compressed owing to uncertain forward commodity prices and renewed concerns over the global economy. This environment created a counter-cyclical opportunity for Bonavista in the third quarter of 2012 in the form of a synergistic, complementary deep basin asset acquisition, negotiated at transaction metrics comparable to the capital efficiency of our organic program.

On August 28 2012, Bonavista announced the acquisition of certain natural gas weighted assets (the "Acquired Properties") located within its deep basin core area in west central Alberta. The acquisition which closed on October 1, 2012 for a cash purchase price of approximately $155 million is consistent with Bonavista's strategy of acquiring high quality, long reserve life assets with significant low-risk development potential. The Acquired Properties offer numerous development opportunities with a predictable, low cost production base consisting of 6,700 boe per day (94% natural gas weighted) that is well positioned for a gradual improvement in natural gas prices. To accommodate the acquisition and to fund organic growth opportunities in 2013 and beyond, Bonavista concurrently announced a bought deal equity financing of 20.9 million common shares for net proceeds of approximately $331 million.

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 model incorporating both growth and income. In response to the dramatic decrease in natural gas prices over the past year, Bonavista employed a strategy to preserve its balance sheet and its current dividend level by deferring exploration and development spending, implementing a dividend reinvestment plan and a stock dividend program and divesting of certain non-core assets. While we are pleased with the successful efforts undertaken to enhance our sustainability year to date, we are committed to maintaining this flexibility for the balance of 2012 and throughout 2013 being mindful of the continuing volatility.

Despite weak natural gas fundamentals, Bonavista experienced another successful quarter resulting from the consistent application of our business strategies. Other accomplishments for Bonavista in the third quarter of 2012 include:

  • Achieved average production volumes of 65,464 boe per day which were negatively impacted over the second quarter average by non-core asset divestitures of 1,900 boe per day that closed at the end of the second quarter and an incremental 1,000 boe per of unscheduled third party volume curtailments. Current production is approximately 74,000 boe per day after consideration of the above noted asset acquisition;
  • Invested $91.3 million in the third quarter of 2012 consisting of:
    • $77.8 million in drilling, completion and equipping expenditures;
    • $4.0 million in facility and pipeline infrastructure;
    • $3.9 million in workovers and recompletions;
    • $4.6 million in land and seismic acquisitions; and
    • $1.0 million in net acquisition and divestitures.
  • Drilled 30 wells with a 100% success rate with 19 wells targeting light oil prospects and the remainder targeting liquids rich natural gas;
  • Managed our exposure to forward commodity price fluctuations by adding to our hedge portfolio resulting in the protection of 34% of forecasted 2013 oil and natural gas liquids production (net of royalty) with an average floor price of $87.71 per bbl and average ceiling price of $101.05 per bbl and approximately 55% of forecasted 2013 natural gas production (net of royalty) with an average floor price of $2.76 per gj and average ceiling price of $3.18 per gj;
  • Generated funds from operations of $82.3 million ($0.48 per share) for the three months ended September 30, 2012. Bonavista distributed 42% of these funds to shareholders net of participation levels in our dividend reinvestment and stock dividend plans, with the remainder reinvested to continue growing our production and reserves base;
  • Attracted additional shareholder interest in our dividend reinvestment and stock dividend plans contributing to a current participation rate of 40%; and
  • Since 2003, when Bonavista introduced an income component to our total shareholder return, Bonavista has delivered cumulative dividends of over $2.3 billion or $25.83 per common share.

Accomplishments for Bonavista subsequent to the third quarter of 2012 include:

  • Negotiated the divestment of 600 boe per day of non-core, oil weighted, and high cost assets for proceeds of $46.0 million resulting in transaction metrics of $76,700 per boe per day. With an expected closing date of November 7, 2012, this asset sale will contribute to total 2012 divestiture proceeds of approximately $181 million which have collectively served to consolidate and concentrate our asset base.

Third quarter 2012 Operational Highlights

Hoadley Glauconite Liquids Rich Natural Gas

Bonavista drilled eight horizontal wells in the third quarter of 2012 continuing to take advantage of available processing capacity in our Wilson Creek and Willesden Green areas. Our initial pilot program with four wells per section continues to deliver production rates that meet or exceed our type curve expectations. Furthermore, the pilot wells have not, to this point, created any inter-well communication or production interference with offsetting horizontal wells. With the positive results experienced to date, Bonavista added a third down-spacing project in the third quarter of 2012 and is currently developing a fourth pilot to test the concept across a wider area of the trend.

In the third quarter of 2012, Bonavista entered into a long-term, fee-for-service processing agreement with a major midstream company that provides for long-term processing certainty and profitable volume growth in the Glauconite trend. This agreement reduces the cost of service on our collective production through the Rimbey facility and will increase our natural gas liquid recoveries when the planned process expansion is completed in 2014.

Since entering the play in 2008, Bonavista has taken an industry leading role in the development of the Hoadley Glauconite trend drilling 137 horizontal wells. During this timeframe, Bonavista increased its Glauconite drilling inventory from a modest 25 locations to the current level of 410 through property and land acquisitions, and a greater understanding of reservoir characteristics. Our current drilling inventory now represents approximately 10 years of development at our current pace of drilling.

With the attractive natural gas liquids yield, low operating costs and efficient production addition costs, Bonavista's Glauconite development program will remain a cornerstone of our organic development program. For 2013 we plan to spend approximately $120 million, drilling 43 horizontal wells.

West Central Cardium Light Oil

Bonavista drilled six horizontal wells in the third quarter of 2012 focusing our efforts on prospective acreage at Willesden Green in west central Alberta. Three of the six wells were non-operated and have been on production for one month at expected rates. Of the remaining three wells, two encountered mechanical problems while the third operated well is producing above our expectations. Our third quarter activities have increased our confidence of future prospectivity in the Willesden Green area by de-risking additional offsetting acreage.

Bonavista has drilled 75 wells since commencing our horizontal Cardium development program in 2009 as we delineate and de-risk our 300 net section Cardium land base. A greater understanding of the geology and a continual refinement in our drilling and completion techniques has aided in the identification of high productivity sweet spots and has increased our confidence in the economics of the play. Bonavista's successful drilling activity to date has enabled us to increase our inventory by 17% to 140 locations.

Bonavista has allocated approximately $60 million in its preliminary 2013 capital budget to drill 21 horizontal Cardium wells in the Willesden Green, Lochend and Harmattan strike areas.

Deep Basin Multi-zone Liquids Rich Natural Gas

Bonavista drilled one horizontal well in the third quarter of 2012 targeting liquids rich natural gas in the Bluesky formation at Pine Creek. Since entering this area of the deep basin in 2010, Bonavista has drilled nine Bluesky and 10 Rock Creek horizontal liquids rich natural gas wells while concurrently expanding the processing options for this development.

The results of our organic development program in the deep basin area to date provided the confidence to purchase the aforementioned Acquired Properties. Integration of the Acquired Properties has doubled Bonavista's operational presence and expanded our multi-zone development opportunities in the area which will lead to enhanced overall efficiencies for future development. Since our original evaluation of the Acquired Properties in August 2012, we have doubled our inventory levels to 60 high impact horizontal drilling locations targeting the Bluesky, Wilrich and Notikewin formations. While pursuing these immediate opportunities on the Acquired Properties, Bonavista continues to evaluate other productive horizons on the assets including the Rock Creek, Gething, Cadomin and Second White Specs.

Bonavista will allocate approximately $65 million of its preliminary 2013 capital budget to drill 15 horizontal wells in the Bluesky, Rock Creek, Wilrich and Montney formations.

Other Opportunities

In the third quarter, Bonavista successfully de-risked two of our emerging resource plays: a Viking light oil play at Provost in eastern Alberta and a liquids rich natural gas play in the Ellerslie formation in west central Alberta. Bonavista completed four horizontal Viking oil wells at Provost in the quarter for a total of six horizontal wells drilled to date. Average first month production results of 60 boe per day per well are in line with type curve estimates. Importantly, Bonavista has gained cost efficiencies through certain drilling and completion enhancements which improve the economics of future development. Bonavista expects to spend approximately $25 million in 2013, drilling 20 horizontal Viking wells. Similarly, Bonavista drilled two horizontal Ellerslie wells in west central Alberta in the third quarter doubling our total wells drilled to date in this liquids rich formation. First month production results are encouraging with an estimated average initial production rate of 650 boe per day per well and a natural gas liquids yield of 140 bbls per mmcf of which 25% is condensate and butane. Bonavista will allocate approximately $25 million in 2013, drilling 5 horizontal wells as we continue to delineate our Ellerslie land base of approximately 90 net sections.

Bonavista's Montney program at Blueberry in northeast British Columbia remains in a delineation phase. Bonavista intends to drill four to six wells over the next two years to quantify the resource opportunity across our 55 net section land base. While encouraged by the high natural gas liquids yield exhibited by the six horizontal wells drilled to date, development economics are challenged in the current low natural gas price environment. Bonavista plans to pursue a two well drilling program in 2013 focused on capital cost and well performance optimization.

Bonavista's 2013 capital program also incorporates the pursuit and observation of several other emerging resource play opportunities including the Banff, Fahler, Notikewin, Wabamun, Pekisko, Charlie Lake, Second White Specs and the Duvernay as we unlock opportunities across our land base in the Western Canadian Sedimentary Basin.

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 past 15 years. We have steadily improved the quality and maintained a high level of investment activity on our asset base, increasing production by approximately 110% since converting to an energy trust in July 2003 and a further 8% since converting back to a corporation at the end of 2010. These results stem from the operational, technical and financial focus of our people with 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 as they 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, and a predictable production base that continues to grow at a healthy pace. Our production base is currently 62% weighted 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 ensures positive operating netbacks in most operating environments. Furthermore, our assets are predominantly operated by Bonavista, providing control over the pace of operations and optimum influence over our operating and capital cost efficiencies.

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 13% of the equity of Bonavista, resulting in the alignment of interests with all shareholders.


As we approach the final months of 2012, Bonavista will remain focused on completing its organic development program and the successful integration of the deep basin assets acquired at the beginning of the fourth quarter of 2012. Considering the continued success of our divestiture activities, Bonavista's 2012 capital budget has been reduced to approximately $390 million. This budget is comprised of an exploration and development program of $400 million, and acquisition spending, net of divestiture proceeds, of $10 million. After accounting for production volumes divested year to date and approximately 1,000 boe per day of shut-in dry natural gas production throughout the year, we expect average 2012 production volumes of approximately 69,600 boe per day.

Current natural gas prices have nearly doubled from the lows experienced in the spring of 2012, which has led to a more favourable pricing outlook for 2013. While natural gas production levels in the US remain elevated, overall supply has remained flat for the past 12 months unlike the growth trends witnessed over the previous five years. Importantly, strong demand for natural gas from power generation and other industrial sources reduced surplus storage levels as we approach the higher demand winter months. Notwithstanding this degree of optimism, downside commodity pricing risks remain present, causing us to continue with our active hedging program for both oil and natural gas production thereby reducing future cash flow volatility and preserving our capital program.

Bonavista's Board of Directors has approved a preliminary 2013 capital budget of between $400 and $450 million, an increase in our exploration and development spending of approximately 13% over 2012. We have currently identified up to $50 million of non-core assets for disposition in 2013 which, if successful, would result in net spending at the lower end of the aforementioned range. This program forecasts the drilling of between 125 and 135 wells and 2013 production averaging between 72,500 and 74,500 boe per day, representing approximately 6% year over year growth using the mid-point of the range. As in years past, we will continue to monitor the economic landscape, commodity prices and our drilling results and adjust our capital spending levels as conditions warrant. Although we have not budgeted for any acquisition spending, we remain attentive to a growing number of acquisition opportunities within our core regions which complement our operational efficiency and enhance our drilling inventory. Overall, our long term business strategy remains intact with a commitment to deliver a balance of corporate growth and income through our monthly dividend.

Bonavista's inventory of approximately 1,500 drilling locations represent about 12 years of organic growth opportunities based on our 2013 drilling forecast. Approximately 90% of these locations target high impact, repeatable resource prospects and approximately 65% generate attractive economics that exceed a 2:1 recycle ratio at current commodity prices.

We would like to thank our employees for their commitment to organizational success in the third quarter of 2012 and our shareholders for their continual support. 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.

Bonavista will be hosting an Analyst Day November 21, 2012 at 8:30 am Mountain Time (10:30 am Eastern Time) to provide an update on its activities. We invite all interested parties to listen to the live webcast of the presentation which may be accessed directly on the Bonavista website at or at the following URL:


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