Crew Energy Inc.
TSX : CR

Crew Energy Inc.

August 04, 2016 16:00 ET

Crew Energy Inc. Announces Second Quarter 2016 Financial and Operating Results

CALGARY, ALBERTA--(Marketwired - Aug. 4, 2016) - Crew Energy Inc. (TSX:CR) ("Crew" or the "Company") is pleased to announce our operating and financial results for the three and six month periods ended June 30, 2016, and an update on the Company's continued progress developing our world-class Montney assets in northeast British Columbia ("NE BC"). Crew's Financial Statements and Notes, as well as Management's Discussion and Analysis ("MD&A") for the three and six month periods ended June 30, 2016 are available on our website and filed on SEDAR.

Q2 HIGHLIGHTS

  • Achieved production of 21,950 boe per day, 24% higher than the same period in 2015, and 8% lower than the previous quarter, reflecting reduced capital spending, lower activity levels and the continued shut-in of uneconomic production during the second quarter;
  • Generated funds from operations of $16.0 million ($0.11 per diluted share), 37% higher than the first quarter of 2016, primarily attributable to materially lower cash costs and improved oil and liquids pricing;
  • Lowered total cash costs per boe by 28% over the same period in 2015, highlighted by a 31% reduction in operating costs per boe, a 42% reduction in general & administrative expenses per boe, and a 62% reduction in royalties per boe year over year;
  • Successfully lowered operating costs to $6.04 per boe, 6% lower than the previous quarter, with operating costs at Septimus and West Septimus ("Greater Septimus") falling 9% from first quarter 2016 to average $4.02 per boe;
  • Completed our second quarter capital program investing $15.1 million in the quarter with approximately 84% allocated to drilling, completions, equipping and tie-in, including approximately $7.6 million that was directed to completing wells at Greater Septimus;
  • Continued to enhance drilling and completion techniques at Greater Septimus, achieving record low well costs between $3 and $3.5 million to drill, complete, equip and tie-in;
  • Improved completion design in three wells at West Septimus which materially improved flow test rates that averaged 11 mmcf per day over a five to eighteen day flow test period at an average flowing casing pressure of 1,120 psi;
  • Successfully completed a well at Septimus in a new Lower "B" Upper Montney Stratigraphic interval that achieved a production rate of 8.7 mmcf per day at an average flowing casing pressure of 1,730 psi at the end of a five day test period; and
  • Maintained ongoing financial flexibility and a strong balance sheet with quarter-end net debt that was $3.1 million lower than the previous quarter at $242.7 million, including $150 million of senior notes (including deferred financing costs) and $97.2 million of bank debt or 41% drawn on the Company's $235 million credit facility.

FINANCIAL & OPERATING HIGHLIGHTS:

FINANCIAL
($ thousands, except per share amounts)
Three months
ended
June 30, 2016
Three months
ended
June 30, 2015
Six months
ended
June 30, 2016
Six months
ended
June 30, 2015
Petroleum and natural gas sales 36,232 44,678 72,575 84,618
Funds from operations(1) 16,048 24,769 27,762 45,489
Per share - basic 0.11 0.18 0.20 0.34
- diluted 0.11 0.18 0.19 0.34
Net loss (16,815) (13,239) (23,610) (29,009)
Per share - basic (0.12) (0.09) (0.17) (0.22)
- diluted (0.12) (0.09) (0.17) (0.22)
Exploration and Development expenditures 15,096 54,694 32,859 145,786
Property acquisitions (net of dispositions) 16 1,226 972 1,484
Net capital expenditures 15,112 55,920 33,831 147,270
Capital Structure
($ thousands)
As at
June 30, 2016
As at
Dec. 31, 2015
Working capital (surplus)/deficiency(2) (1,479) 10,737
Bank loan 97,186 80,980
95,707 91,717
Senior Unsecured Notes 147,029 146,679
Total Net Debt 242,736 238,396
Current Debt Capacity(3) 385,000 400,000
Common Shares Outstanding (thousands) 142,714 141,067
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 accretion of deferred financing costs. 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 cash and cash equivalents plus accounts receivable less accounts payable and accrued liabilities.
(3) Current Debt Capacity reflects the bank facility of $235 million plus $150 million in senior unsecured notes outstanding.
Operations Three months
ended
June 30, 2016
Three months
ended
June 30, 2015
Six months
ended
June 30, 2016
Six months
ended
June 30, 2015
Daily production
Light crude oil (bbl/d) 285 435 294 545
Heavy crude oil (bbl/d) 2,362 4,035 2,580 4,383
Natural gas liquids (bbl/d) 3,015 2,342 3,187 2,202
Natural gas (mcf/d) 97,726 65,062 100,975 67,268
Total (boe/d @ 6:1) 21,950 17,656 22,890 18,341
Average prices (1)
Light crude oil ($/bbl) 48.33 63.64 42.67 55.04
Heavy crude oil ($/bbl) 37.47 52.60 28.24 44.02
Natural gas liquids ($/bbl) 35.12 36.21 30.29 32.00
Natural gas ($/mcf) 1.94 2.56 2.15 2.59
Oil equivalent ($/boe) 18.14 27.81 17.42 25.49
Notes:
(1) Average prices do not include gains and losses on financial instruments.
Three months
ended
June 30, 2016
Three months
ended
June 30, 2015
Six months
ended
June 30, 2016
Six months
ended
June 30, 2015
Netback ($/boe)
Revenue 18.14 27.81 17.42 25.49
Royalties (1.02) (2.65) (0.95) (2.31)
Realized commodity hedging gain 2.83 5.60 2.51 6.12
Operating costs (6.04) (8.81) (6.25) (9.05)
Transportation costs (2.38) (1.78) (2.44) (1.87)
Operating netback (1) 11.53 20.17 10.29 18.38
G&A (1.28) (2.22) (1.53) (2.20)
Interest on long-term debt (2.22) (2.54) (2.10) (2.47)
Funds from operations 8.03 15.41 6.66 13.71
Drilling Activity
Gross wells 1 6 5 12
Working interest wells 1.0 5.7 5.0 11.7
Success rate, net wells (%) 100% 100% 100% 100%
Notes:
(1) 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
Crew's second quarter 2016 was another successful period of advancing the execution of our Montney-focused strategy while managing through a volatile and uncertain commodity price environment. Our strategic priorities continue to be maintaining the strength of our balance sheet, retaining our high-quality land and resource value and progressing our steady and prudent growth trajectory. Our past actions and the recent steps we have taken contribute to Crew's healthy position in the current environment.

Our strong balance sheet is highlighted by unutilized credit capacity of approximately $138 million and affords Crew significant flexibility when making capital decisions. With continued reductions in drilling and service costs combined with Crew's operational efficiency enhancements, the costs to drill, complete and tie-in Montney wells have fallen below $3 million in certain circumstances. At Greater Septimus, type curves and drilling results have exceeded expectations and with lower capital costs, Crew's capital investments continue to generate attractive returns in the current environment.

Crew continued the transition to focus our operations in the NE BC Montney with the commencement of a formal process to monetize the value of our heavy oil assets in Alberta and Saskatchewan. A successful sale would effectively position Crew as a 'pure play' Montney producer with only 1,700 boe per day of non-Montney production in the portfolio.

FINANCIAL
Our conservative approach to managing Crew's balance sheet and maintaining funding flexibility has resulted in the Company's credit facility remaining stable with only 41% drawn at quarter end, representing approximately $138 million of available liquidity. At June 30, 2016, total net debt was $242.7 million, including a small working capital surplus and $150 million ($147.0 million net of deferred financing costs) of senior unsecured notes that are not due for repayment until the fourth quarter of 2020. Crew does not face any near-term debt maturities and has the financial flexibility to manage through sustained commodity price uncertainty.

During the second quarter, crude oil and natural gas liquids prices strengthened compared to the first quarter, as the global over-supply of liquids production began to narrow due to a lack of capital reinvestment. Natural gas prices remained weak throughout most of the quarter, impacted by high North American inventory levels related to the lack of cold weather this past winter. Natural gas prices began a recovery in the latter part of June as above normal North American summer temperatures have increased natural gas generated power demand, reducing market concerns of inventory congestion this summer. With improving longer-dated natural gas futures prices, Crew elected to continue to add 2017 natural gas hedges during the period.

Crew's access to the Alliance pipeline, our portfolio approach to natural gas marketing, improved liquids pricing and our significantly lower costs bolstered our funds from operations in the second quarter to $16.0 million ($0.11 per diluted share), an increase of 37% relative to the previous quarter. As a result of our marketing diversification strategy, Crew was able to effectively optimize our sales portfolio during the second quarter. Crew's realized natural gas price was $1.94 per mcf, representing a 39% premium over AECO daily benchmark pricing in the period. Our staff continued to pursue cost savings in all areas of our business resulting in a 5% quarter over quarter reduction and a 28% year over year reduction in cash costs per boe. This was highlighted by a 31% reduction in second quarter 2016 operating costs to $6.04 per boe and a 42% reduction in general and administrative costs to $1.28 per boe in comparison to the same period in 2015.

Crew's modest second quarter capital program was heavily focused on June completions that were geared towards ramping up production through the second half of 2016 as natural gas prices improve. This resulted in net capital spending of approximately $15.1 million, almost all of which was exploration and development expenditures ($14.4 million). Approximately 50% was directed to seven well completions at Greater Septimus and 34% was directed to drilling, equipping and tying-in wells. The balance was directed to workovers, land and other minor expenses. Second quarter 2016 capital expenditures were 16% lower than our quarterly budget, largely due to capital cost savings.

TRANSPORTATION & MARKETING
Consistent with Crew's ongoing market and operational diversification strategy, the Company was active in managing and optimizing our portfolio through the quarter, continuing to systematically layer in oil hedges for the balance of 2016 and additional gas hedges for 2017 to underpin funds from operations. We were able to capitalize on changing market conditions in the quarter, particularly the strengthening in ATP (Alliance Trading Pool) prices over AECO daily, and make portfolio adjustments to capture higher prices. As a result of Crew's firm Alliance transportation service, the Company has been able to diversify our gas marketing arrangements to improve realized gas pricing. During the second quarter the Company was notified that the Alliance pipeline will be shut-in for one week in October 2016, which will require the Company to shut-in all Montney volumes, reducing corporate production by approximately 1,600 boe per day in the fourth quarter. Optionality in our marketing and sales points affords Crew significant flexibility to respond to changing market conditions and positions the Company for our next phase of growth.

Crew's ongoing and systematic risk management program has resulted in the Company having hedge positions in place for the next eighteen months to mitigate price volatility. For the balance of 2016, we have currently hedged 52,305 gj per day of natural gas at a transportation adjusted equivalent price of $2.73 per gj ($2.88 per mcf), 1,125 bbls per day of liquids volumes hedged at an average price of CDN$65.37 per bbl and 250 bbls per day of WCS differentials locked in at US$13.75 per bbl. For 2017, Crew's total natural gas hedged position is 28,464 gj per day at a transportation adjusted equivalent price of $2.81 per gj ($2.96 per mcf). For liquids, we have 250 bbls per day of liquids volumes hedged at an average price of CDN$67.75 per bbl.

NE BC MONTNEY - GREATER SEPTIMUS OVERVIEW

Operations
Crew's second quarter 2016 average production at Greater Septimus totaled 17,131 boe per day representing approximately 78% of the Company's total production volumes. Volumes were 61% higher than the same period in 2015 and 6% lower compared to the previous quarter due to lower activity levels. The value of our Greater Septimus volumes is enhanced by continued increases in condensate production stemming from strong area well performance. Operating costs per boe at Greater Septimus declined 9% from the previous quarter to $4.02 as a result of continued cost reduction initiatives and are expected to further improve as volumes increase through the West Septimus facility. Project economics at Greater Septimus remain compelling and are supported by improving well results, continued cost reductions and enhanced pricing through our diversified market portfolio.

Montney Liquids-Rich Natural Gas

Production & Drilling Second
Quarter
2016
First
Quarter
2016
Fourth
Quarter
2015
Average Daily Production (boe/d) 17,131 18,149 14,321
Wells drilled (gross / net) - 4 / 4.0 5 / 5.0
Wells completed 7 3 6
Operating Netback($ per boe) Second
Quarter
2016
First
Quarter
2016
Fourth
Quarter
2015
Revenue 16.06 16.69 16.55
Royalties (0.69) (0.79) (0.72)
Operating costs (4.02) (4.43) (5.75)
Transportation costs (1.97) (2.21) (1.65)
Operating netback 9.38 9.26 8.43

Operationally, Crew's field activities moderated in the second quarter with activity primarily directed to completing seven (6.3 net) wells at Greater Septimus including the first three wells of an eight well pad at West Septimus. Those three wells were production tested over a five to 18 day period and achieved a per well average raw gas rate of 11 mmcf per day, at an average flowing casing pressure of 1,120 psi. These recent wells were completed with a proppant loading of one tonne per meter, a 100% increase over the previous completion design at West Septimus. Crew's move to utilize higher sand loading continues to demonstrate very positive initial production results. At Septimus, Crew completed two wells, including one well drilled in a recently discovered stratigraphic interval within the Upper Montney, the Lower "B" interval. This well achieved a raw gas rate of 8.7 mmcf per day at the end of a five day production test at an average flowing casing pressure of 1,730 psi, placing it as a top-decile well among initial test wells in Crew's Septimus field. The results from this Lower "B" well demonstrate that there are four distinct stratigraphic intervals within the Upper Montney that could potentially be developed at Greater Septimus.

Capital costs continued to decline during the first half of 2016 with improvements attributable to both Company efficiencies and overall cost structure. On two new wells at West Septimus Crew achieved record low costs which featured all-in well costs of approximately $3.0 million, primarily due to a reduction in drilling time. We continue to work on optimizing Crew's drilling and completion programs, with current data suggesting that a repeatable well cost in the $3.0 to $3.5 million range is achievable depending on length and frac intensity.

Through the end of the second quarter, Crew commenced the drilling of a three well pad located in the super liquids-rich area of West Septimus, with completion of these three wells planned for late August. Once completed, Crew will have eleven new wells on stream at West Septimus, positioning the Company for increased volumes into the fourth quarter and 2016 exit as we expect to utilize the full capacity of our 60 mmcf per day West Septimus facility.

Also during the quarter, Crew continued to prepare for the expansion of our West Septimus facility to reach 120 mmcf per day of processing capacity in 2017. Piping and instrument diagrams are 75% complete and will be ready shortly for design review. With a successful drilling program to date in the area and an evaluation of higher liquids production from Crew's current three well pad, work is under way to ensure the West Septimus facility expansion is engineered to effectively handle the higher liquids rate production that will support the Company's future growth. Crew anticipates the cost of the expansion to range between $15 and $20 million (net), subject to our facility partners' election to exercise their option to participate in the expansion.

NE BC MONTNEY - TOWER OVERVIEW
Crew's Montney Tower area continues to represent significant future development opportunities for the Company as crude oil prices strengthen. Crew has an inventory of four drilled and uncompleted wells at Tower which can be completed when prices and the operating regime are more conducive to generating competitive returns, which would also substantially increase our light oil production. The Company continues to monitor area activity with the view to implementing improvements in completion techniques which have resulted in increased initial production rates and ultimate recoveries from area wells.

LLOYDMINSTER, AB/SK OVERVIEW
One well was drilled at Lloydminster in the quarter in order to address a pending land expiry. Production from the area averaged 2,417 boe per day in the second quarter of 2016, reflecting approximately 700 boe per day of production that was offline through the majority of the quarter due to low commodity prices. With the rebound in oil prices during the second quarter, Crew's heavy oil assets realized a $15.77 per boe pre-hedge operating netback, over a 700% increase compared to the first quarter of 2016, highlighting how a modest improvement in commodity prices combined with low operating costs of $16.44 per boe can generate significant cash flow from this asset.

OUTLOOK
Crew's commitment to returns-based investments has prevailed through the past two years of commodity price challenges, with the majority of our activities being directed to our high-value, liquids-rich Greater Septimus area. As natural gas prices have strengthened into the third quarter, Crew has ramped up activity to increase production and position the Company to meet our forecast 2016 average production range of 23,000 to 25,000 boe per day after consideration for the recently confirmed fourth quarter Alliance pipeline shut-in, while aiming to balance capital expenditures with a strong financial position.

Crew's operational and market optionality and ongoing focus on preserving balance sheet strength will continue to enable the Company to make decisions that are in the long-term interests of our shareholders. We will continue to employ a portfolio approach to marketing and hedging which we believe contributes to more stable netbacks and returns. For 2017, we have approximately 24% of our estimated natural gas price exposure hedged, and will continue to systematically add to our hedge book. Our staff has successfully found ways to improve the efficiencies of our business and reduce costs over the past two years. Many of these efficiencies are expected to remain as commodity prices improve, enhancing the long-term profitability of our business.

Crew is the fourth largest Montney mineral rights holder in NE BC, with over 300,000 net acres, holding substantial future development potential to significantly increase production, reserves, asset value and funds from operations. At Greater Septimus, we have identified more than 600 drilling locations in the Upper Montney that will support an enhanced growth plan with the potential to triple the size of our Company. This growth opportunity does not reflect any Lower Montney development nor include development in areas other than Greater Septimus.

To support our medium to long-term growth, Crew is actively securing access to processing infrastructure and transportation capacity. Our West Septimus facility has incremental processing capacity to manage near term growth and the planned expansion of that facility in 2017 is important for Crew's medium-term Montney development, expected to reach over 35,000 boe per day of owned and operated capacity. Longer term, the Company plans to construct an additional 60 to 120 mmcf per day processing facility at Groundbirch which would support Crew's growth strategy targeting production of greater than 60,000 boe per day by 2019.

Crew's near-term priorities remain on preserving balance sheet strength while investing capital prudently to increase production while positioning the Company to ramp up activity levels at the most opportune time. Crew will continue to actively manage marketing and transportation arrangements, making adjustments to optimize sales points in order to achieve optimal pricing for our products. We have successfully driven field and corporate costs lower and continue to identify innovative ways to improve efficiencies. In the interests of ensuring responsible land and water usage, we continue to collaborate with other area operators to minimize and optimize the use of water, and engage in other initiatives to improve our environmental footprint while maximizing returns for our shareholders.

Crew is pleased with our ongoing performance to date and we look forward to expanding the Company's focus in the world-class Montney play in NE BC. We sincerely thank all of our employees and directors for their unwavering commitment and perseverance, and all of our shareholders for their support of our business.

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 estimated volumes and product mix of Crew's oil and gas production; 2016 forecast average production; estimates of 2016 year end net debt; 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; estimates of future well costs at Septimus; estimates of internal rates of return, anticipated reductions in operating costs and G&A expenditures and potential to improve ultimate recoveries, and outperform the assumptions used in our 2015 independent reserve evaluations; 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; estimated drilling locations at Greater Septimus and potential impact thereof; the number of wells to be drilled, completed and tied-in and the timing thereof; the amount and timing of capital projects including the potential expansion of our West Septimus facility and the estimated cost thereof; the total future capital associated with development of reserves and resources; the potential sale of our heavy oil assets in Saskatchewan and Alberta; long-term growth strategy and targeted production by 2019; 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 and the adequacy of cash flow to fund its planned expenditures; 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 and development of the Greater Septimus area 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 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 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.

BOE equivalent
Barrel of oil equivalents or BOEs 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of 6:1, utilizing a 6:1 conversion basis may be misleading as an indication of value.

Crew Energy Inc. is a dynamic, growth-oriented exploration and production company, focused on increasing long-term production, reserves and cash flow per share through the development of our world-class Montney resource. Crew is based in Calgary, Alberta and our 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 six month period ended June 30, 2016 and 2015 will be filed on SEDAR at www.sedar.com and are available on the Company's website at www.crewenergy.com.

Contact Information

  • Dale Shwed
    President and C.E.O.
    (403) 266-2088

    John Leach
    Senior Vice President and C.F.O.
    (403) 266-2088

    Rob Morgan
    Senior Vice President and C.O.O.
    (403) 266-2088
    investor@crewenergy.com