Crew Energy Inc.
TSX : CR

Crew Energy Inc.

November 12, 2013 08:00 ET

Crew Energy Announces Third Quarter 2013 Financial and Operating Results

CALGARY, ALBERTA--(Marketwired - Nov. 12, 2013) - Crew Energy Inc. ("Crew" or the "Company") (TSX:CR) of Calgary, Alberta is pleased to present its operating and financial results for the three and nine month periods ended September 30, 2013.

Highlights

  • Funds from operations were $42.0 million or $0.35 per share, a 6% increase over the third quarter of 2012. Excluding the impact of the Company's hedging program, funds from operations were $51.6 million or $0.42 per share;
  • Third quarter production was 28,016 boe per day or 7% higher than the third quarter of 2012 and 3% higher than the second quarter of 2013;
  • The Company closed the acquisition of 81 sections of Montney rights in northeast British Columbia increasing the Company's land position to 377 net sections adding 15 TCFE of Total Petroleum Initially in Place ("TPIIP") bringing the Company's total independently evaluated Montney resource to 91 TCFE as previously reported in the Company's July 9, 2013 press release;
  • Crew extended the condensate rich window of the Montney formation with its last four wells drilled, which, after three to nine day in line production test periods, produced at an average rate per well of 8.8 mmcf per day with 334 bbls per day of condensate at an average flowing casing pressure of 2,168 psi;
  • We completed the expansion of the Septimus gas plant ahead of schedule and on budget with the Company continuing the front-end engineering work on realizing 180 mmcf per day of processing capacity from the area over the next four years;
  • An active third quarter drilling program has allowed the Company to ramp up production at Lloydminster to over 6,500 boe per day and at Septimus, from 6,000 boe per day in January to over 9,000 boe per day currently;
  • Subsequent to the end of the quarter, Crew completed a $150 million senior unsecured note offering.
Financial
($ thousands, except per share amounts)
Three months
ended
September 30, 2013
Three months ended
September 30, 2012
Nine months
ended
September 30, 2013
Nine months
ended
September 30, 2012
Petroleum and natural gas sales 118,173 92,269 320,233 315,290
Funds from operations (note 1) 42,035 39,410 124,310 139,494
Per share - basic 0.35 0.33 1.02 1.16
- diluted 0.35 0.33 1.02 1.15
Net loss (843 ) (17,947 ) (20,882 ) (270 )
Per share - basic (0.01 ) (0.15 ) (0.17 ) (0.00 )
- diluted (0.01 ) (0.15 ) (0.17 ) (0.00 )
Exploration and Development expenditures 68,435 44,443 164,035 203,618
Property acquisitions (net of dispositions) 33,203 (5,872 ) 42,149 (10,162 )
Net capital expenditures 101,638 38,571 206,184 193,456
Capital Structure($ thousands) As at
September 30, 2013
As at
December 31, 2012
Working capital deficiency (note 2) 38,185 48,522
Bank loan 338,908 242,834
Net debt 377,093 291,356
Bank facility 430,000 400,000
Common Shares Outstanding (thousands) 121,635 121,620

Notes:

(1) Funds from operations is calculated as cash provided by operating activities, adding the change in non-cash working capital, decommissioning obligation expenditures and the transportation liability charge. Funds from operations is used to analyze the Company's operating performance and leverage. Funds from operations does not have a standardized measure prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculations of similar measures for other companies.

(2) Working capital deficiency includes only accounts receivable less accounts payable and accrued liabilities.

Operations Three months
ended
September 30,
2013
Three months
ended
September 30, 2012
Nine months
ended
September 30,
2013
Nine months
ended
September 30, 2012
Daily production (note 1)
Princess and other oil (bbl/d) 3,910 5,210 4,465 5,971
Lloydminster oil (bbl/d) 6,030 5,223 5,819 5,806
Natural gas liquids (bbl/d) 2,912 3,153 2,993 3,023
Natural gas (mcf/d) 90,981 76,169 82,547 80,865
Oil equivalent (boe/d @ 6:1) 28,016 26,281 27,035 28,277
Average prices (notes 1 & 2)
Princess and other oil ($/bbl) 90.40 68.58 75.62 73.90
Lloydminster oil ($/bbl) 83.80 61.20 67.99 63.89
Natural gas liquids ($/bbl) 58.24 44.73 54.90 51.13
Natural gas ($/mcf) 2.82 2.43 3.34 2.27
Oil equivalent ($/boe) 45.85 38.16 43.39 40.69
Netback ($/boe)
Revenue 45.85 38.16 43.39 40.69
Realized commodity hedging gain (loss) (3.71 ) 1.53 (2.05 ) 2.62
Royalties (10.31 ) (7.53 ) (8.80 ) (9.26 )
Operating costs (11.21 ) (11.22 ) (11.32 ) (11.58 )
Transportation costs (1.29 ) (1.41 ) (1.27 ) (1.39 )
Operating netback (note 3) 19.33 19.53 19.95 21.08
G&A (1.66 ) (1.76 ) (1.85 ) (1.78 )
Interest on bank debt (1.35 ) (1.48 ) (1.26 ) (1.29 )
Funds from operations 16.32 16.29 16.84 18.01
Drilling Activity
Gross wells 37 26 79 89
Working interest wells 36.3 24.0 76.1 83.4
Success rate, net wells 97 % 100 % 99 % 99 %

Notes:

(1) Princess, Alberta oil (20° to 26° API oil) has historically been classified as medium or conventional oil. Effective December 31, 2012 Crew's reserves attributable to its Princess property have been classified as heavy oil to accord with definitions in the royalty regulations in Alberta. Princess and other oil production and pricing are shown separately from Lloydminster heavy oil volumes for clarity and comparison with historical classification.

(2) Average prices are before deduction of transportation costs and do not include hedging gains and losses.

(3) Operating netback equals petroleum and natural gas sales including realized hedging gains and losses on commodity contracts less royalties, operating costs and transportation costs calculated on a boe basis. Operating netback and funds from operations netback do not have a standardized measure prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculations of similar measures for other companies.

OVERVIEW

Third quarter production averaged 28,016 boe per day slightly ahead of Crew's 2013 budget plan and 3.3% over the second quarter. The successful installation of the fourth compressor at Septimus late in the third quarter combined with positive third quarter drilling results in Septimus, Lloydminster and Princess has resulted in field estimated production levels averaging 29,000 boe per day in the last two weeks of October, on track with our long-term growth plan.

Capital focus for the quarter was on exploiting the Company's heavy oil asset base, continuing to grow the Company's drilled inventory of Septimus wells to feed the gas plant expansion, continued refining of the Company's Septimus well completion programs to reduce costs and improve performance and increasing Crew's inventory of high quality Montney land. Exploration and development expenditures were $68.4 million as the Company's drilling program kicked in after spring breakup resulting in the drilling of 37 (36.3 net) wells at a 97% success rate. Crew also previously announced the acquisition of the third tranche of Montney acreage (81 net sections) in northeast British Columbia for $35.2 million which closed in the third quarter, to bring the Company's total net acreage position to 377 sections.

The results of our most recent Septimus step-out wells further supports the Company's longer term growth strategy primarily focused on the large Montney oil and gas resource the Company has acquired over the last six years. We recognize that despite having four attractive operating areas, the size, scope, results, and growth potential of the Company's Montney resource represents the clearest path to building shareholder value over the long term.

FINANCIAL

The Company has improved its financial flexibility with the October issuance of $150 million of senior unsecured notes issued at an interest rate of 8.375%. The notes have a fixed term of seven years and are not callable by the Company for three years without penalty and thereafter at a set early payment premium. The Company's revised credit facility of $420 million combined with the term debt provides the Company with borrowing capacity of $570 million and the flexibility to move forward with its plan.

Crew's third quarter funds from operations increased 7% over the third quarter of 2012 to $42 million or $0.35 per share. Excluding the impact of the Company's hedging program, funds from operations were $51.6 million or $0.43 per share. Third quarter funds flow benefited from stronger oil prices including narrower West Texas Intermediate ("WTI") to Western Canadian Select ("WCS") differentials. This increase was offset by natural gas prices that averaged $1.02 per mcf lower in the third quarter compared to the second quarter. Funds from operations were negatively impacted by a $9.6 million ($3.71 per boe) realized hedging loss resulting from losses on the Company's WTI and WCS risk management program.

Capital spending for the quarter included the $35.2 million final tranche of Montney land acquisition in northeast British Columbia. This was the third and final tranche of a total acquisition that saw the Company acquire approximately 200 sections of Montney acreage proximal to its core Montney development in the Septimus, British Columbia area for total consideration of $77.2 million over a six month period. This acquisition was complementary to a successful third quarter exploration and development program that saw the Company spend $68.4 million focusing on development of liquids rich natural gas from the Montney formation at Septimus and heavy oil in the Lloydminster area of Saskatchewan. Quarter-end net debt totaled $377 million which would represent a 55% drawing on the Company's bank facility pro-forma the issuance of the $150 million term debt.

The Company's hedging strategy is focused on protecting against significant declines in commodity prices that would negatively impact the cash flow needed to fund the Company's on-going capital program. Crew currently has hedged approximately 35 mmcf per day of fourth quarter 2013 natural gas production at a fixed average price of approximately $3.24 per mcf. The Company also protects its liquids production from a significant decline in WTI and WCS pricing. Crew has approximately 6,750 bbl per day of fourth quarter 2013 liquids production protected against a decline in WTI pricing at a fixed price of approximately $94.70 per barrel. The Company has hedged the differential between WTI and WCS pricing on 4,250 barrels per day at differential price of $22.67 for the fourth quarter. Crew has begun building its hedge position to provide a base level of cash flow for 2014. The Company currently has hedged approximately 22.5 mmcf per day of natural gas for 2014 at a price of approximately $3.81 per mcf, 3,374 barrels per day of WTI oil hedged at an average floor price of approximately $97.25 per barrel with additional hedges fixing the differential between WTI and WCS pricing on an average of 1,372 barrels per day at a differential of $23.18 per barrel.

OPERATIONS UPDATE

Septimus/Tower, British Columbia

Crew successfully commissioned and started the fourth compressor at the Company's operated Septimus gas plant late in the third quarter which contributed to record average production for the quarter of 7,682 boe per day. Current production is approximately 9,000 boe per day based on field estimates which represents an 84% utilization rate of the 65 mmcf per day capacity of the Septimus plant. Construction is underway on the 22.5 km 10" pipeline from the western edge of the field that will allow the Company to utilize the full capacity of the Septimus gas plant in the first quarter of 2014. With the increase in volumes, operating costs have been reduced by 11% from $6.30/boe in the first quarter to $5.60/boe for the third quarter and the Company would expect this trend to continue as plant capacity is reached and cost reduction initiatives are implemented through the first quarter of 2014.

Crew drilled four (3.3 net) wells in the quarter including two (1.3 net) Septimus Montney step-out wells located approximately five kilometers from existing Crew production and one exploratory well at Altares. The last four (3.3 net) wells Crew has drilled and completed at Septimus have averaged 8.8 mmcf per day per well and have had very high condensate rates averaging 334 bbls per day of condensate for an average yield of 38 bbls per mmcf at an average flowing casing pressure of 2,168 psi. These rates are more than two times the current Crew Septimus Montney type well. The Montney exploratory well at Altares was drilled to a total depth of 4,210m (2,301m horizontal section) and is anticipated to be completed as part of the Company's 2014 budget.

Lloydminster, Alberta/Saskatchewan

Crew's Lloydminster area had its busiest quarter since the asset was acquired in July 2011. The Company drilled 29 (29.0 net) wells including 21 vertical and 8 horizontal wells. Highlights include the four (4.0 net) Lloydminster zone horizontal wells which are producing at an average rate of 90 bopd (20% above the assigned type curve), and the six (6.0 net) vertical wells which are producing at an average rate of 52 bopd (15% above the assigned type curve) from the Colony formation. Production for the quarter averaged 6,080 boe per day with approximately 640 boe per day behind pipe as of the end of the quarter. Current production is approximately 6,500 boe per day based on field estimates with ten wells to bring on production before year-end.

Deep Basin, Alberta

Deep Basin average production for the third quarter was 6,940 boe per day, an increase of 28% over the second quarter, as there were no material outages at third party facilities and the Company continued to benefit from the strong performance of a Falher horizontal well drilled in the Kakwa area in the fourth quarter of 2012. Current productive capacity is between 6,000 to 6,500 boe per day which will be subject to pipeline apportionment and third party processing restrictions of up to 1,500 boe per day throughout the fourth quarter.

Princess, Alberta

Production for the third quarter averaged 4,600 boe per day. Crew had a very modest capital program in the third quarter drilling three (3.0 net) horizontal wells with two of the wells targeting the Mannville and one targeting the Pekisko formation. After stabilizing, production from two Mannville wells was approximately 610 boe per day resulting in current Princess production between 5,000 and 5,200 boe per day. The Company has identified 30 locations on Crown land targeting the Mannville group. Optimization of Crew's 11 Pekisko waterfloods (approximately 40% of the developed Pekisko resource) is ongoing, with four of the floods showing marked response, four requiring modifications to the injection schemes to optimize response and three are in the early phase of injection and have not yet responded to water injection. Crew is evaluating additional pools for water injection in 2014.

OUTLOOK

Crew has had a very productive past nine months. We have added 200 sections to our British Columbia Montney land base and have refocused the Company in a play that is exhibiting continuous improvements in production rates and Expected Ultimate Recoveries ("EUR") as well as lower costs. We have progressively increased corporate production this year from 25,961 boe per day in the first quarter to 27,109 boe per day in the second quarter and 28,016 boe per day in the third quarter, expecting to average approximately 27,500 boe per day for 2013 and remain on track to exit the year producing more than 29,000 boe per day. Our efforts to focus on the development of the Montney at Septimus have been rewarded with 50% growth in ten months from 6,000 boe per day to over 9,000 boe per day currently. We are forecasting to increase production in the area to 10,000 to 11,000 boe per day in the first quarter of 2014.

Natural gas prices have rebounded to around $3.40 per mcf from the low $2.00 per mcf level during the third quarter. Oil prices on the other hand have dropped to the US$94.00 per bbl level and the differential between WTI and WCS prices has widened to approximately $40 per bbl. Our hedging program has partially protected us from this drop with 4,250 bbls per day of oil swapped at a $22.67 discount to CDN$ WTI and 6,750 bbls per day of oil swapped at CDN $94.70 per bbl allowing for an effective price of $72.03 per bbl on 4,250 bbls per day in the fourth quarter.

We will maintain our 2013 exploration and development budget of $219 million which will be funded by funds from operations, existing credit facilities and non-core asset dispositions. Our capital program is dynamic and will be monitored and adjusted to market conditions.

With the recently closed $150 million senior unsecured note offering, Crew has a line of sight to continue to fund our Montney production growth objectives through 2016 when we currently anticipate the Montney asset to become free cash flow positive. Out of the 91 TCFE of TPIIP assigned to Crew's lands, we only have 4.5% or 4.1 TCFE of Best Estimate Contingent Resource assigned to the Montney play which is comprised of over 900 estimated drilling locations. Despite having four attractive operating areas, we view our Montney resource to be truly "world class" and believe this asset has the size, scope and growth visibility representing the clearest path to building shareholder value over the long-term.

We look forward to an active fourth quarter and first quarter of 2014 and to reporting our 2014 budget and objectives in January 2014.

Cautionary Statements

Forward-Looking Information and Statements

This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" "forecast" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: the volume and product mix of Crew's oil and gas production; production estimates including 2013 forecast average and exit production and first quarter 2014 production estimates at Septimus; future oil and natural gas prices and Crew's commodity risk management programs; future liquidity and financial capacity; future results from operations and operating metrics; anticipated reductions in operating costs; future costs, expenses and royalty rates; future interest costs; the exchange rate between the $US and $Cdn; future development, exploration, acquisition and development activities and related capital expenditures and the timing thereof; the number of wells to be drilled, completed and tied-in and the timing thereof; the amount and timing of capital projects; increased processing capacity at Septimus; estimates regarding drilling inventory on Crew's Montney lands, forecast rates of return, five year drilling plans and long range production targets in respect of Crew's Montney resource; the total future capital associated with development of reserves and resources; and methods of funding our capital program, including possible non-core asset divestitures and asset swaps.

Forward-looking statements or information are based on a number of material factors, expectations or assumptions of Crew which have been used to develop such statements and information but which may prove to be incorrect. Although Crew 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 Crew can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which Crew operates; the timely receipt of any required regulatory approvals; the ability of Crew to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which Crew has an interest in to operate the field in a safe, efficient and effective manner; the ability of Crew 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 and exploration; the timing and cost of pipeline, storage and facility construction and expansion and the ability of Crew to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Crew operates; the ability of Crew to successfully market its oil and natural gas products. There are a number of assumptions associated with the potential of resource volumes including the quality of the Montney reservoir, future drilling programs and the funding thereof, continued performance from existing wells and performance of new wells, the growth of infrastructure, well density per section, and recovery factors and discovery and development necessarily involves known and unknown risks and uncertainties, including those identified in this press release.

The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to defer materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; the early stage of development of some areas in the Evaluated Areas; the potential for variation in the quality of the Montney formation; changes in the demand for or supply of Crew's products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Crew or by third party operators of Crew's properties, increased debt levels or debt service requirements; inaccurate estimation of Crew's oil and gas reserve and resource volumes; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time-to-time in Crew's public disclosure documents (including, without limitation, those risks identified in this news release and Crew's Annual Information Form).

The forward-looking information and statements contained in this news release speak only as of the date of this news release, and Crew does not assume any obligation to publicly update or revise any of the included forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Test Results and Initial Production Rates

A pressure transient analysis or well-test interpretation has not been carried out and thus certain of the test results provided herein should be considered to be preliminary until such analysis or interpretation has been completed. Test results and initial production rates disclosed herein may not necessarily be indicative of long term performance or of ultimate recovery.

Resource Estimates

This news release contains references to estimates of oil and gas classified as Total Petroleum Initially In Place ("TPIIP") in the Montney region in northeastern British Columbia which are not, and should not be confused with, oil and gas reserves. Such estimates are based upon independent resource evaluations effective as at April 30, 2013 and May 31, 2013, respectively, prepared in accordance with the Canadian Oil and Gas Evaluation Handbook. Such estimates are subject to a number of cautionary statements, assumptions, risks, positive and negative factors relevant to the estimates and contingencies, the details of which were set forth in Crew's previously disseminated press release dated July 9, 2013. Accordingly, readers are referred to and encouraged to review the sections entitled "Montney Resource Evaluation", "Definitions of Oil and Gas Resources and Reserves" and "Information Regarding Disclosure on Oil and Gas Reserves, Resources and Operational Information" in the July 9, 2013 press release for applicable definitions, cautionary language, explanations and discussion of resources estimated herein, all of which is incorporated herein by reference.

Crew is an oil and gas exploration and production company whose shares are traded on The Toronto Stock Exchange under the trading symbol "CR".

Financial statements and Management's Discussion and Analysis for the three and nine month periods ended September 30, 2013 and 2012 will be filed on SEDAR at www.sedar.com and are available on the Company's website at www.crewenergy.com.

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