C&C Energia Ltd.
TSX : CZE

May 10, 2011 08:30 ET

C&C Energia Ltd.: First Quarter 2011 Operating and Financial Results

CALGARY, ALBERTA--(Marketwire - May 10, 2011) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

C&C Energia Ltd. ("C&C Energia" or the "Corporation") (TSX:CZE) is pleased to report its unaudited interim operating and financial results for the three months ended March 31, 2011.

C&C Energia reported strong results for the first quarter 2011 despite production curtailments in January and February due to truck transportation and offloading terminal access issues as well as a national truckers strike (as described in more detail in our February 28 and April 7, 2011 press releases). As previously reported, production in January and February was curtailed by approximately 30%, (or approximately 2,000 barrels of oil per day ("bopd")) reducing 2011 first quarter production by approximately 1,370 bopd to 5,426 bopd, a 19% increase over the first quarter of 2010. Production at the end of the quarter was approximately 7,100 bopd. Funds flow from operations for the three months ended March 31, 2011 was US$23.0 million.

C&C Energia has a strong balance sheet with a US$64.7 million adjusted working capital surplus (including US$74.3 million in cash) and no debt at the end of the first quarter. On May 9, 2011, the Corporation closed a previously announced acquisition (the "Acquisition") of certain oil and gas properties in Colombia, (the "Acquired Assets"). The purchase price of the Acquisition was US$89.0 million (subject to certain customary closing adjustments which increased the final purchase price to US$91.4 million), payable in cash, with an effective date of January 1, 2011. The Acquisition was funded with the proceeds of an underwritten public offering of subscription receipts which raised gross proceeds of Cdn$100.4 million at an issue price of Cdn$12.10 per subscription receipt. The Underwriters have provided notice to the Corporation of the exercise in full of the over-allotment option to purchase an additional 1,245,000 common shares of the Corporation at a price of Cdn$12.10 per common share (the "Over-Allotment Option"). The Corporation's net proceeds from the exercise of the Over-Allotment Option will be used to fund a portion of the Corporation's 2011 exploration and development program, including with respect to the Acquired Assets. The closing of the Over-Allotment Option exercise is expected to occur on or about May 12, 2011.

As a result of the Acquisition, the Corporation's current production is approximately 9,300 bopd and Proven reserves and Proven plus Probable reserves (as of year-end 2010) have increased to 11.47 mm barrels and 17.52 mm barrels, respectively.

FINANCIAL and OPERATIONAL HIGHLIGHTS
(All references to $ are to United States dollars unless otherwise noted.)
Three months ended March 31
(unaudited)20112010
Financial (thousands of US$, except share and per share amounts)
Oil revenues (net)48,06921,729
Funds flow from operations (1)22,9799,204
Per share – basic ($)0.420.21
Per share – diluted ($)0.410.21
Net income(1,042)2,839
Per share – basic ($)(0.02)0.07
Per share – diluted ($)(0.02)0.06
Capital expenditures34,19716,090
Total assets319,677175,994
Total long-term financial liabilities78,37435,296
Adjusted working capital surplus (2)64,7266,439
Common shares outstanding
Basic54,297,50343,150,029
Diluted59,522,50544,630,701
Weighted average common shares outstanding
Basic54,297,50343,150,029
Diluted56,136,40144,630,701
Operational
Average production (3)
Crude oil (bbls/d)5,4264,571
Average reference price
WTI ($ per bbl)94.4978.83
Operating netback ($ per bbl) (4)
Average realized price (5)96.0170.51
Royalties13.0811.10
Production expenses17.7014.08
Transportation expenses9.698.16
Operating netback55.5437.17
Notes:
(1) Funds flow from operations before changes in other non-cash items. Funds flow from operations is not a measure recognized by GAAP. See "GAAP and Non-GAAP Measures" below.
(2) Current assets less current liabilities excluding risk management and deferred taxes. Adjusted working capital surplus is not a measure recognized by GAAP. See "GAAP and Non-GAAP Measures" below.
(3) Actual production sold for the three months ended March 31, 2011 was 5,563 bopd (2010 – 3,424 bopd).
(4) Excludes impact of risk management contracts. See "GAAP and Non-GAAP Measures" below.
(5) Effective January 1, 2010, the Corporation began selling its Cravoviejo block oil production to HOCOL S.A. ("HOCOL"), a subsidiary of Ecopetrol. The sales agreement with HOCOL differs from previous sales agreements in that title transfer occurs when the oil is exported through the Covenas terminal, compared to previous agreements where title transfer occurred when the oil was delivered to the pipeline loading station. As a result, the Corporation will report higher revenue and higher transportation expenses compared to such amounts in periods prior to January 1, 2010.

The Corporation is currently completing the preparation of its first quarter 2011 unaudited financial statement and management's discussion and analysis, and intends to file such documents on SEDAR at www.sedar.com by May 13, 2011.

HIGHLIGHTS

  • Drilling results and operating efficiencies increased production for the three months ended March 31, 2011 to 5,426 bopd versus 4,571 for the comparative period in 2010. Curtailments related to transportation disruptions impacted production in January and February by approximately 2,000 bopd, however production at the end of the first quarter was approximately 7,100 bopd.
  • On May 9, 2011, the Corporation closed a previously announced acquisition of certain oil and gas properties in Colombia. Current post-closing production is approximately 9,300 bopd.
  • Funds flow from operations more than doubled as compared to the first quarter of 2010 to US$23.0 million.
  • Operating netbacks increased by 49% to US$55.54 per barrel over the period ending March 31, 2010.
  • During the quarter, the Corporation drilled 4 wells (3.3 net wells) with 2 dry holes and 2 oil wells, (2 and 1.3 net wells, respectively).
  • The Zopilote No. 1 well tested a combined rate of 1,800 bopd from two reservoirs and represents a significant new field discovery in the southwest portion of the Cravoviejo block.

OPERATIONAL REVIEW

C&C Energia has 9 blocks (7 operated) in Colombia with a total of 766,514 acres (586,909 net acres). The Corporation's lands are located in the Llanos Basin (4 blocks), Middle Magdalena Valley (2 blocks), and Putumayo Basin (3 blocks). Post the recently announced acquisition, the Corporation has 9 blocks (8 operated) with a total of 678,301 net acres.

During the first quarter of 2011, the Corporation invested approximately $34.9 million. Drilling and completion accounted for the majority of the capital invested at approximately $24.7 million.

Llanos Basin

All of the Corporation's current production is on the Cravoviejo block and Cachicamo block with approximately 76% of current production (post acquisition) at the Corporation's operated Cravoviejo block. In the first quarter of 2011, the Corporation drilled and completed 2 oil wells and drilled 2 dry holes at Cravoviejo and Cachicamo. C&C Energia is currently constructing centralized production facilities at its Carrizales field with start-up by mid-year 2011.

The Corporation plans at least 8 additional wells at Cravoviejo and 1 at Cachicamo for the balance of 2011. These are comprised of 1 water injection well, 4 development locations and 4 exploration tests. Primary oil targets are the C-5, C-7, Gacheta, Ubaque, Mirador and Guadalupe formations. Also, in the central Llanos, the Corporation has identified several structural prospects on 3D seismic on the Pajaro Pinto and Llanos 19 blocks. These prospects will begin to be evaluated in 2011 with up to three exploration tests are planned.

With increasing production levels in Colombia as a whole, and the Llanos basin in particular, production disruptions have been routinely encountered by many producers due to a lack of tanker trucks to transport product. The Corporation is currently engaged in a variety of activities to allow it to better manage delivery of its production, including contracting additional trucks dedicated to move the Corporation's oil production to offloading points. While the Corporation expects that these disruptions will not have a lasting impact on the Corporation's production, there can be no assurance that further trucking availability and union issues will not continue to affect the Corporation's production in 2011 and thereafter.

Middle Magdalena Valley

As announced in the Corporation's March 14, 2011 press release, the Morpho-1 well was placed on production. The well remains on production producing an average of 70 bopd of 38°API gravity oil with a 1-2% water cut. Current plans are to leave Morpho-1 on an extended production test. Also, as announced in the Corporation's April 7, 2011 press release, The Baco-1 exploration well on the Morpho block (50% working interest) in the Middle Magdalena Valley has been suspended due to low flow rates and water production after a long term production test.

Putumayo Basin

The Corporation plans at least 3 (2.5 net) wells and both 2D and 3D seismic programs in 2011 to initially evaluate several prospects identified on three blocks in the Putumayo Basin, Coati, Andaquies, and Putumayo 8. These blocks comprise 279,715 acres (216,728 net acres).

Pipeline takeaway capacity in Colombia, and particularly in the Llanos Basin, has become constrained as the country's production continues to grow. The Corporation subscribed for a small participation of up to 0.5% in the new pipeline construction project, the Oleoducto Bicentenario de Colombia (the "OBC") operated by Ecopetrol, which will link the Llanos basin oil production to the Cano Limon oil pipeline system. Construction on this project at the Banadia oil terminal has been completed and construction on the OBC pipeline awaits environmental permit approvals. The Corporation's capital commitment is approximately $5.2 million. In addition, the Corporation will fund its equity interest in the pipeline's ongoing operating costs and be eligible to receive any dividends declared by the Board of the project.

CAPITAL & OUTLOOK

The Corporation had approved a previously announced capital investment budget for 2011 of between US$130 and US$145 million. The Corporation will invest funds on the following operations: seismic, approximately US$5 million; development drilling and completions, approximately US$25 million; facilities, workovers and equipping, approximately US$40 million; exploratory drilling, approximately US$50 to US$65 million and; US$10 million for various other projects. Post the Acquisition, the Corporation is reviewing its capital investment budget and it is anticipated to increase the 2011 budget by approximately US$30 to US$35 million. As a result of the Acquisition, average production for 2011 is expected to range between 8,400 and 8,700 bopd. With a strong balance sheet and robust cash flow, the Corporation has sufficient resources to fund its ongoing programs.

ABOUT C&C ENERGIA LTD.

The Corporation, through its subsidiary Grupo C&C Energia (Barbados) Ltd., is engaged in the exploration for, the development and production of, oil resources in Colombia. Its strategy is to develop producing oil assets by appraising and developing existing discoveries and exploring in areas assessed by management to be of low to moderate risk. Now with a total of 9 blocks (8 operated post the recent acquisition) and over 678,301 net acres in Colombia, management of the Corporation considers the Corporation to have considerable upside for future production and reserve growth.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This press release contains forward-looking information within the meaning of applicable Canadian securities laws that involves known and unknown risks and uncertainties. Forward-looking information typically contains statements with words such as "anticipate", "estimate", "expect", "potential", "could", "will", "plans" or similar words suggesting future outcomes. The Corporation cautions readers and prospective investors in the Corporation's securities to not place undue reliance on forward-looking information as by its nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent risks and uncertainties, which could cause actual results to differ materially from those anticipated by C&C Energia.

Forward-looking information in this press release includes, but is not limited to, the Corporation's expected timing for filing its unaudited interim financial statements and MD&A information concerning expectations of the Corporation's future production growth, the Corporation's expectations for average annual production to the end of 2011, the Corporation's capital program for the remainder of 2011, plans for the construction of production facilities, the Corporation's drilling plans in each of its principal properties, plans for obtaining seismic data, the expectations of the Corporation regarding the potential resolution of oil transportation and delivery issues in the Llanos Basin and the other areas in which it operates, the planned development of the OBC pipeline project, and the Corporation's expectations regarding the planned closing of the over allotment option in connection with its equity financing. These forward-looking statements are subject to assumptions regarding the Corporation's operations and the operating environment in Colombia. In particular, estimates of 2011 production and the Corporation's expected drilling plans and capital expenses are based on the assumptions that the Corporation's plans will be completed without any undue difficulty, that costs will not rise significantly and that events will not cause disruptions in the delivery of the Corporation's oil production to market. The Corporation's capital program and drilling and seismic plans are subject to change if circumstances change or if management of the Corporation determines that other business plans are more appropriate. The Corporation's expectations regarding the resolution of production issues in the Llanos Basin and elsewhere are subject to changes in circumstance or new developments that the Corporation cannot foresee.

Forward-looking information involves significant known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated by C&C Energia including, but not limited to, general risks associated with the oil and gas industry (e.g. operational risks in exploration; inherent uncertainties in interpreting geological data; changes in plans with respect to exploration or capital expenditures; the uncertainty of estimates and projections in relation to costs and expenses and health, safety and environmental risks, potential risks arising from trucking and other delivery disruptions), the risk of commodity price and foreign exchange rate fluctuations, the uncertainty associated with the negotiating with the ANH or with other third parties in countries other than Canada and the risk associated with international activity. The forward-looking information included in this news release is expressly qualified in its entirety by this cautionary statement. The forward-looking information included herein is made as of the date hereof and C&C Energia assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances, except as required by law.

GAAP and Non-GAAP Measures

Effective January 1, 2011, C&C Energia adopted International Financial Reporting Standards ("IFRS"). The Corporation's interim condensed consolidated financial statements and the 2010 comparative information has been prepared under IFRS which are generally accepted accounting principles ("GAAP") for publically accountable enterprises in Canada "(Canadian GAAP").

This report makes reference to the terms "funds flow from operations", "operating netbacks", "netbacks" and "adjusted working capital", which are not recognized measures under Canadian GAAP and do not have a standardized meaning prescribed by Canadian GAAP. Accordingly, the Corporation's use of these terms may not be comparable to similarly defined measures presented by other companies. Funds flow from operations includes all cash flows from operating activities before changes in non-cash working capital. Operating netback is determined by dividing oil sales revenues less royalties, production expenses and transportation expenses by sales volumes. Management considers operating netback important as it is a measure of profitability per barrel sold and reflects the quality of production. Netbacks are calculated by subtracting royalties, production expenses, transportation expenses, administrative expense, interest and taxes paid by the Corporation from crude oil revenue and dividing by sales volume. Adjusted working capital surplus includes current assets less current liabilities excluding risk management and future taxes and is used to evaluate the Corporation's financial leverage. Management uses these non-GAAP measurements for its own performance measures and to provide its shareholders and potential investors with a measurement of the Corporation's efficiency and its ability to fund a portion of its future growth expenditures.

This news release does not constitute an offer to sell or the solicitation of an offer to buy any securities of C&C in the United States. The common shares to be issued by the Corporation described in this news release have not been and will not be registered under the United States Securities Act of 1933, as amended, or the securities laws of any state and may not be offered, sold or delivered in the United States absent an exemption from registration.

Contact Information

  • C&C Energia Ltd.
    Richard A. Walls
    President and Chief Executive Officer
    403-262-6046

    C&C Energia Ltd.
    Ken Hillier
    Chief Financial Officer
    403-262-6046