SOURCE: Canamax Energy Ltd.

Canamax Energy Ltd.

April 09, 2015 08:00 ET

Canamax Announces Financial and Operating Results for the Four and Ten-Month Periods Ended December 31, 2014

(Not for dissemination in the United States of America)

CALGARY, AB--(Marketwired - April 09, 2015) - Canamax Energy Ltd. ("Canamax" or the "Company") (TSX VENTURE: CAC) is pleased to announce the Company's financial and operational results for the fiscal period ended December 31, 2014.

Highlights -- ten-month period ended December 31, 2014

Canamax continued to execute its aggressive growth plan during 2014 after re-focusing operations to western Canada (and out of Colombia, South America) during the fall of 2013. Canamax has grown production from 5 boe/d in August 2013 to a December 2014 monthly production rate of approximately 1,000 boe/d. During September 2014, the Company's Board of Directors approved a change in year-end from February 28 to December 31 which has resulted in a ten-month stub period ending December 31, 2014.

During the ten-month period ended December 31, 2014, Canamax completed two financings for net proceeds of $12.0 million (in April and May) and established a $10.0 million bank loan facility. These funds, in combination with cash flow from operations, were deployed in the Company's $20.2 million net capital program during the period which included several strategic property acquisitions. Below are some of the significant highlights during the period ended December 31, 2014:

  • Drilled and completed 8 (net 8.0) successful vertical, Montney oil wells at Flood and 1 (net 0.7) successful horizontal, Cardium well at Wapiti;
  • Closed two "tuck-in" acquisitions and the buy-out of a gross overriding royalty at Flood which increased production, improved netbacks and added strategic land positions and gas compression facilities;
  • Successfully re-completed a number of existing wells (such wells obtained through the above acquisitions) including 3 (net 3.0) wells at Flood in the Montney and 1 (net 1.0) well at Retlaw in the Glauconite formation;
  • Completed the construction of a central gathering system at Flood and the expansion of battery and water disposal facilities in the area. These facilities are expected to reduce operating costs and improve future netbacks; and
  • Closed the acquisition of Ki Exploration Inc. ("Ki") in April 2014 for total consideration of $7.3 million (which included the assumption of net debt and issue of common shares and warrants) which added approximately 330 boe/d of production.

As a result of this successful capital program, Canamax recorded the following period over period results (i.e., ten-months December 31, 2014 compared to year ended February 28, 2014):

  • Increased average production by 403% from 173 boe/d to 870 boe/d;
  • Increased funds from continuing operations from $0.25 million ($0.02 per share) to $3.7 million ($0.10 per share);
  • Increased Proved plus Probable ("2P") reserves by 111% to 5.4 million boe (68% oil and NGL's) and increased Proved ("1P") reserves by 104% to 3.2 million boe (65% oil and NGL's) at the respective period ends; and
  • Increased the value of 2P reserves by 73% to $67.0 million (NPV10) and increased the value of 1P reserves by 49% to $38.3 million (NPV10) between the respective period ends despite a reduction in forecasted commodity prices.

Highlights -- four-month period ended December 31, 2014

As a result of the change in year-end, the Company's final fiscal period in 2014 was comprised of the four-months ended December 31, 2014. During this period Canamax reported the following:

  • Average production of 930 boe/d (55% oil and NGL's);
  • Funds from continuing operations of $1.4 million ($0.03 per share) on field operating netbacks of $20.39 per boe; and
  • Net capital expenditures of $10.2 million related primarily to the following:
    • drilling and completion of 6 (net 6.0) vertical wells at Flood, and 1 (net 0.7) horizontal well at Wapiti. The Wapiti well was placed on production test for six days during December and then shut-in. This well was later tied-in and placed on production in March 2015;
    • Re-completion of 2 (net 2.0) wells at Flood;
    • the construction of significant infrastructure at Flood including the central gathering system and expanded battery and water disposal facilities;
    • acquisition of strategic undeveloped land in Wapiti and Brazeau; and
    • offset by proceeds of $2.4 million related to the disposal of the Delta West property (50 bbls/d of medium oil).

The production and cash flow figures during the four-month period were lower than expected as existing and newly drilled wells at Flood were shut-in for periods of time awaiting tie-in to the new gathering system. All of the Flood wells were tied into the gathering system by December 31 and the wells were re-activated during January 2015. Canamax exited December 31, 2014 with a working capital deficit of $6.8 million (with $nil drawn on the Company's $10.0 million loan facility).

Financial and Operational Summary

         
($000 except share, per share and per boe amounts)        
   Four months ended
December 31, 2014
(4)
 Ten months ended
 December 31, 2014
Year ended
February 28, 2014
Financial        
Revenue  5,210  13,106 2,959
Operating netback (1)  2,314  6,337 1,711
         
Funds from continuing operations (1) (2)  1,394  3,677 251
- per share  0.03  0.10 0.02
         
Net loss - continuing operations (2)  (383)  (1,533) (183)
- per share  (0.01)  (0.04) (0.01)
Net loss - discontinued operations (2)  -  - (551)
- per share  -  - (0.03)
         
Net capital expenditures (3)  10,221  20,249 7,280
         
Net proceeds from financings  -  11,987 6,951
Proceeds from share purchase warrant and stock option exercises  200  967 1,209
Cash and working capital (deficit) - end of period  (6,829)  (6,829) 118
         
Weighted average shares outstanding (in 000)  41,916  38,653 16,639
Common shares outstanding - end of period (in 000)  41,960  41,960 26,994
 
Operating        
Average Daily Production        
Oil and NGL's (bbls/d)  510  444 68
Natural gas (mcf/d)  2,523  2,558 631
Oil equivalent (boe/d)  930  870 173
Average Price      
Oil and NGL's ($/bbl)  64.99  72.51 74.81
Natural gas ($/mcf)  3.81  4.14 4.78
Oil equivalent ($/boe)  45.94  49.14 46.86
         
Royalties ($/boe)  4.26  6.26 11.60
Operating and transportation expenses ($/boe)  21.29  19.15 8.17
Operating netback ($/boe) (1)  20.39  23.73 27.09
(1)See "Non-IFRS Measures".
(2)During the year ended February 28, 2014, Canamax terminated its Colombian operations (including shutting down the office in Bogota and terminating all staff) to focus on operations in western Canada. The Colombian operations have therefore been reflected as discontinued operations in the prior period.
(3)Net capital expenditures reflect drilling, completion, facility and undeveloped land expenditures combined with property acquisitions net of property disposals.
(4)Given the unique nature of the current four-month fiscal period and the low activity levels in the prior year, a comparative "quarterly" period has not been provided.
  

As a result of the acquisitions and drilling success in 2014, Canamax has continued to execute on its strategy of building core areas with high working interest and significant development upside. Below is a summary of each of these core areas as at April 8, 2015:

  • At Flood, the Company now has a working interest in a total of 67.5 (net 59.0) sections. This includes a 100% working interest in 55 contiguous sections with 16 producing Montney oil wells, gas compression and sales line facilities and gathering and water disposal infrastructure in place. With this infrastructure, future wells can be drilled and easily tied in with significantly improved rates of return. There is a significant number of potential vertical and horizontal Montney well locations on this property. 
  • At Wapiti, the Company recently acquired an additional section in the area and now has 3 (net 2.4) sections in the heart of the area's Cardium oil play with production from 2 (net 1.4) horizontal Cardium wells. An additional 9 (net 7.5) horizontal Cardium locations have been identified on these lands.
  • At Brazeau River, the Company has a 100% working interest in various zones of 2.75 sections and a 100% interest in 3 producing wells (Rock Creek / Gething gas and Cardium oil). A number of potential Belly River oil, Cardium oil and Wilrich gas locations have been identified on this property. During early March, an interruption in service on a major TransCanada pipeline in the Brazeau area resulted in many producers being required to reduce delivered sales gas volumes.  As a result, Canamax has shut-in approximately 150 boe/d (70% natural gas) of production at Brazeau.  TransCanada has stated that it expects the pipeline issue to be rectified by September 2015.
  • At Retlaw (acquired as part of the Ki acquisition), the Company has 51.1 (net 31.9) sections with 75% of the area production (primarily natural gas) operated by Canamax. During 2014, Canamax successfully re-completed one of the acquired gas wells in the Glauconite oil channel. Additional Glauconite opportunities have been identified in this area.

Outlook

Given the current low commodity price environment for oil and natural gas, Canamax continues to focus on managing its capital and operating expenditures with the objective of maintaining its production base and protecting the balance sheet. The Company continues to evaluate potential strategic acquisition and consolidation opportunities.

As previously announced, and as part of Canamax's objective to efficiently deploy capital, the Company recently entered into a royalty arrangement that calls for a third party to fund $2.55 million of the capital costs to drill, complete and tie-in 6 vertical wells (the "Royalty Wells") at Flood. In exchange for the funding, the third party will receive a gross overriding royalty ("GORR") on the Royalty Wells (which are required to be drilled by September 30, 2015). This transaction allows the Company to conserve its capital spend on the Royalty Wells and improve its rate of return on these wells.

Canamax has set an initial capital budget for 2015 expenditures of $4.0 million, which includes new 2015 capital expenditures of $3.0 million plus approximately $1.0 million of carryover costs from 2014 capital projects. The new 2015 expenditures relate primarily to the Company's share of drilling and completion costs of the 6 Royalty Wells, plus already completed strategic land acquisitions at Flood and Wapiti. The carryover costs from 2014 include Flood infrastructure costs and tie-in costs of the new Wapiti well. 

Non-IFRS Measures

This press release refers to certain financial measures that are not determined in accordance with IFRS such as "funds from continuing operations", "funds from continuing operations per share", "operating netback" and "operating netback per boe". These terms do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. The Company uses these measures to help evaluate its performance.

Management uses funds from continuing operations to analyze performance and considers this a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments. Funds from continuing operations has been defined by the Company as net loss from continuing operations plus non-cash items (depletion and depreciation, accretion of decommissioning obligations, share based compensation, gain on sale of properties, gain on bargain purchase, exploration and evaluation expenses, other income (expenses) and deferred income taxes) and excludes expenditures on decommissioning obligations, expensed transaction costs and the change in non-cash working capital related to operating activities. The Company also presents funds from continuing operations per share whereby amounts per share are calculated using weighted average shares outstanding, consistent with the calculation of earnings per share. Funds from continuing operations is reconciled to cash flow from operating activities under the heading "Reconciliation of Funds from Continuing Operations".

Operating netbacks are determined by deducting royalties and operating expenses from oil and gas revenue. Operating netbacks are typically on a per boe basis and are used in operational and capital allocation decisions. 

Reconciliation of Funds from Continuing Operations

The reconciliation from cash flow from operating activities as reported in the audited consolidated financial statements to funds from continuing operations is as follows:

        
(in $000's) Four months ended
 December 31, 2014
 Ten months ended
 December 31, 2014
Year ended
February 28, 2014
Cash flow from operating activities - continuing operations (per financial statements) 6,449  3,120 (422)
Add (deduct):     
Change in non-cash working capital (5,118)  45 582
Transaction costs-acquisitions 63  512 91
Funds from continuing operations 1,394  3,677 251
     

About Canamax

Canamax is a junior oil and gas company in the business of consolidating micro-cap oil and gas companies and exploiting low risk development opportunities in the Western Canadian Sedimentary Basin.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Reader Advisories

Certain information in this press release constitutes forward-looking statements under applicable securities law. Any statements that are contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as "may", "should", "anticipate", "expects", "seeks", "potential", "plans", "estimates", and similar expressions. Specific forward-looking statements included in this press release include comments related to expected production rates, cashflow and earnings, reserve estimates, debt levels, and completion of drilling programs, facilities, infrastructure and tie-ins for the Company's production.

Forward-looking statements necessarily involve known and unknown risks and uncertainties, including, without limitation, the impact of general economic conditions, the risks and liabilities inherent in oil and natural gas operations; marketing and transportation; loss of markets; volatility of commodity prices; currency and interest rate fluctuations; environmental risks; competition; incorrect assessment of the value of acquisitions; failure to realize the anticipated benefits of acquisitions or dispositions; inability to access sufficient capital from internal and external sources; changes in legislation, including but not limited to income tax, environmental laws and regulatory matters, including changes in how they are interpreted and enforced; changes in incentive programs related to the oil and natural gas industry generally; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. Readers are cautioned that the foregoing list of factors is not exhaustive.

Readers are cautioned not to place undue reliance on forward-looking statements. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits that the Company will derive from them. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

The forward looking statements contained in this press release are made as of the date of this press release, and Canamax does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by securities law.

Conversion

BOE's may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Contact Information

  • For further information contact:

    Brad Gabel
    President & CEO
    (587) 349-5186

    Chris Martin, CA
    Vice President, Finance & CFO
    (587) 349-5186

    Website - www.canamaxenergy.ca