Crown Point Energy Inc.
TSX VENTURE : CWV

Crown Point Energy Inc.

May 23, 2017 18:16 ET

Crown Point Announces Operating and Financial Results for the Three Months Ended March 31, 2017

CALGARY, ALBERTA--(Marketwired - May 23, 2017) - Crown Point Energy Inc. (TSX VENTURE:CWV) ("Crown Point", the "Company" or "we") today announced its operating and financial results for the three months ended March 31, 2017.

Copies of the Company's unaudited condensed interim consolidated financial statements and Management's Discussion and Analysis ("MD&A") filings for the three months ended March 31, 2017 are being filed with Canadian securities regulatory authorities and will be made available under the Company's profile at www.sedar.com and on the Company's website at www.crownpointenergy.com. All dollar figures are expressed in United States dollars ("USD") unless otherwise stated.

In the following discussion, the three months ended March 31, 2017 may be referred to as "Q1 2017", the comparative three months ended March 31, 2016 referred to as "Q1 2016", and the previous three months ended December 31, 2016 referred to as "Q4 2016".

OPERATIONAL UPDATE

Tierra del Fuego Concession ("TDF")

In Q4 2016, the Company requested a two year extension of the December 31, 2016 commitment dates for drilling one exploration well on each of the Rio Cullen and La Angostura Concessions. Approval of the extension was received from both the Secretary of Energy and Governor of the Province, however the approval was not ratified prior to the Christmas recess of the Provincial Legislature on December 15, 2016. Accordingly, the Company and its partners commenced preparation of the two drilling sites (RC x-1002 in Rio Cullen and SM x-1001 in La Angostura) in late December 2016. SM x-1001 was drilled and cased in Q1 2017 and RC x-1002 commenced drilling in March 2017 and was cased in April 2017. Perforation and testing of both wells is planned to commence in June 2017.

The Company fulfilled the Rio Cullen concession expenditure commitment during Q1 2017 and expects to fulfill the La Angostura concession expenditure commitment by June 30, 2017.

Prospect identification and evaluation to develop additional exploitation, step out and appraisal locations on the Las Violetas Concession is ongoing.

Cerro de Los Leones Concession

The Company has a 100% working interest in the 100,907 acre area covered by the Cerro de Los Leones ("CLL") Concession Permit, which is located in the northern portion of the Neuquén Basin in the Province of Mendoza, Argentina.

In Q4 2016, the Company applied for an extension to the Period 2 exploration period which was to expire on May 21, 2017. The extension was requested to allow the Company time to acquire 234km2 of 3-D seismic and drill one exploration well. In March 2017, the Mendoza provincial government formally agreed to extend the deadline to acquire seismic until January 22, 2018 and informally agreed to extend the commitment to drill one exploration well for an unspecified period following the acquisition of seismic.

The Company is seeking a partner in the CLL concession to share future capital costs and provide capital cost recovery opportunities on existing and previous capital projects.

OUTLOOK

Crown Point estimates a total of $12.3 million of capital expenditures for 2017 comprised of $3.5 million of expenditures on the TDF concessions and $8.8 million of expenditures on the CLL concession (which will be reduced if the Company obtains a partner at CLL). Crown Point expects to meet these obligations, along with its other anticipated expenses, using funds flow from operations, expected proceeds from Petróleo Plus bonds as well as additional debt and/or equity financings and potential joint venture arrangements.

The Company anticipates the following activities to occur during Q2 2017 and Q3 2017 at a total estimated cost of $11 million:

  • Acquisition of 234 km2 of 3-D seismic on the CLL concession to fulfill the work commitment for the second exploration period.
  • Completion of geological and seismic work on the Las Violetas concession to build a drilling inventory on the Rio Chico and Los Flamencos eastern extensions, Puesto Quince and the south flank of the Las Violetas gas pool.
  • Recomplete and stimulate one shut-in well in the Las Violetas gas pool and two shut-in wells in the San Luis gas pool.
  • Completion and testing of the RC x-1002 well on the Rio Cullen Concession and the SM x-1001 well on the La Angostura Concession in TDF.

DEVELOPMENTS IN ARGENTINA

Political and Economic Developments

Since December 2015, the President of Argentina, Mauricio Macri, has undertaken several measures to stabilize the Argentine economy and rebuild trust and confidence. Some of these measures include: relaxing of currency controls, reaching an agreement with holdout creditors, lifting restrictions to capital inflow/outflow, returning to the international capital markets, removing or reducing export duties, gradually removing import restrictions, correcting exchange rates and subsidies, and reestablishing relations with countries that have traditionally been Argentina's business and political partners. Recent impacts of these changes include an increase in interest rates by the Central Bank of Argentina to control inflation; a decrease in Argentina's inflation rate, although it still remains high; and a stabilization of the ARS/USD exchange rate. The Argentine government continues its efforts to attract investment in Argentina, particularly in the energy sector, and the response from foreign investors has been positive.

Following his election, President Macri replaced the Secretaría de Energía with the Ministry of Energy and Mines and appointed Juan Jose Aranguren, the former CEO of Shell´s Argentine branch, as the Minister. The reorganization of Argentina's Federal Administration for Energy underlines the strategic importance of the energy industry to the Macri government. One of the first acts of the Ministry of Energy and Mines was the implementation of measures to gradually reduce subsidized natural gas and electricity residential rates over a three year period.

Commodity Price Developments - Crude Oil

In January 2017, at the request of the Government of Argentina, an agreement to converge the Medanito and Escalante oil prices with international Brent pricing over the coming months (the "Pricing Agreement") was signed by a majority of producers and refiners in Argentina. Under the terms of the Pricing Agreement, local refiners will pay $59.40 per bbl for Medanito crude oil and $48.30 per bbl for Escalante crude oil in January 2017 and the prices will be gradually decreased every month until they reach $55 per bbl and $47 per bbl, respectively, in July 2017. Prices in effect in July 2017 will then be applicable until December 31, 2017, when the terms of the Pricing Agreement are set to expire. The Pricing Agreement will remain in place until December 31, 2017 unless (1) the Brent price falls below $45 per bbl for ten consecutive days or (2) the Argentinian peso depreciates more than 20%, in which case the Pricing Agreement will be renegotiated. Further, the Pricing Agreement outlines that should Brent remain higher than $1.00 above the monthly Medanito floor price for ten consecutive days, the Pricing Agreement will be suspended and the Brent price will be adopted.

Oil from Crown Point's TDF concessions is sold at a discount to the Medanito crude oil price. Under the terms of the Pricing Agreement and taking the discount into account, the Company expects to receive an average of $47.85 per bbl for its TDF oil in 2017.

Commodity Price Developments - Natural Gas

On October 6, 2016, the Ministry of Energy and Mines issued Resolution 212/2016 which specified that new prices for residential users would commence on October 7, 2016 with a 300% to 400% increase limit to prices set in the comparative period of the previous year, depending on the type of residential user, and a 500% increase limit for small and medium-sized companies. The Company expects to receive an average of $3.73 per mcf for its TDF gas in 2017.

SUMMARY OF FINANCIAL INFORMATION

(expressed in $, except shares outstanding) March 31
2017
December 31
2016
Working capital (711,630 ) 194,679
Exploration and evaluation assets 7,911,447 6,336,658
Property and equipment 24,640,947 26,442,251
Total assets 38,946,401 39,023,203
Non-current financial liabilities (1) 283,618 427,761
Share capital 116,003,355 116,003,355
Total common shares outstanding 164,515,222 164,515,222
Three months ended
March 31
(expressed in $, except shares outstanding) 2017 2016
Oil and gas revenue 2,773,174 3,676,349
Net loss (567,457 ) (1,343,778 )
Net loss per share (2) (0.00 ) (0.01 )
Cash flow from (used by) operations 634,124 792,862
Cash flow per share - operations (2) 0.00 0.00
Funds flow from (used by) operations (3) 371,031 831,235
Funds flow per share - operations (2)(3) 0.00 0.01
Weighted average number of shares 164,515,222 164,515,222
(1) Non-current financial liabilities are comprised of bank debt. The total amount outstanding at March 31, 2017 is $2,258,382 of which $1,974,764 is classified as current and $283,618 is long-term (December 31, 2016 - $2,376,639; $1,948,878 current and $427,761 long-term).
(2) All per share figures are based on the basic weighted average number of shares outstanding in the period. The effect of options is anti-dilutive. Per share amounts may not add due to rounding.
(3) "Funds flow from (used by) operations" and "Funds flow per share" are non-IFRS measures. See "Non-IFRS Measures" in the "Advisory" section of this press release and in the Company's March 31, 2017 MD&A for a reconciliation of these measures to the nearest comparable IFRS measures.

TDF Operating Netback

The Company's operating netback was lower in Q1 2017 as compared to Q1 2016 due primarily to a decrease in oil and gas revenue per BOE and an increase in operating costs per BOE.

Three months ended
March 31
2017 2016
Sales Volumes and Revenues
Light oil bbls per day 94 266
NGL bbls per day 36 12
Natural gas Mcf per day 6,423 7,107
BOE per day 1,200 1,462
Per BOE
Oil and gas revenue ($) 25.68 27.64
Royalties ($) (4.73 ) (5.13 )
Operating costs ($) (11.26 ) (10.48 )
Operating netback ($) 9.69 12.03

TDF Sales and Production Volumes

During Q1 2017, the Company's average daily sales volumes were 1,200 BOE per day, down 15% from 1,412 BOE per day in Q4 2016 and down 18% from 1,462 BOE per day in Q1 2016 due mainly to lower sales of inventoried volumes of oil in Q1 2017 combined with natural declines.

TDF average daily production volumes for Q1 2017 were 1,298 BOE per day, down 2% from 1,329 BOE per day in Q4 2016 and down 9% from 1,421 BOE per day in Q1 2016. The decrease in Q1 2017 daily production volumes is due to the natural decline of wells.

Operating Costs

Operating costs are higher in Q1 2017 as compared to Q1 2016 due mainly to increased contract operator costs caused by increased operating activity, as well as higher costs related to company labor and supervision and access rights.

General and Administrative ("G&A") Expenses

G&A expenses were 2% lower in Q1 2017 compared to Q1 2016. The decrease in Q1 2017 G&A expenses is due to a reduction in staffing levels, the closing of the Calgary office and cost savings achieved in the Argentina offices.

About Crown Point

Crown Point Energy Inc. is an international oil and gas exploration and development company headquartered in Calgary, Canada, incorporated in Canada, trading on the TSX Venture Exchange and operating in South America. Crown Point's exploration and development activities are focused in two of the largest producing basins in Argentina, the Austral basin in the province of Tierra del Fuego and the Neuquén basin, in the province of Mendoza. Crown Point has a strategy that focuses on establishing a portfolio of producing properties, plus production enhancement and exploration opportunities to provide a basis for future growth.

Advisory

Certain Oil and Gas Disclosures: Barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (6 Mcf) to one barrel (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 in Argentina as compared to the current price of natural gas in Argentina 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. "Mcf" means thousand cubic feet. "bbls" means barrels. "km" means kilometers. "3-D" means three dimensional. "Q2" means the second quarter. "Q3" means the third quarter. This press release also contains other industry benchmarks and terms, including "operating netbacks" (calculated on a per unit basis as oil, natural gas and natural gas liquid revenues less royalties, transportation and operating costs), which is a non-IFRS measure. Management believes this measure is a useful supplemental measure of the Company's profitability relative to commodity prices. Readers are cautioned, however, that operating netbacks should not be construed as an alternative to other terms such as net income as determined in accordance with IFRS as measures of performance. Crown Point's method of calculating this measure may differ from other companies, and accordingly, may not be comparable to similar measures used by other companies.

Non-IFRS Measures: This press release contains the term "funds flow from (used by) operations" which should not be considered an alternative to, or more meaningful than, operating cash flows from (used by) operations as determined in accordance with IFRS as an indicator of the Company's performance. Funds flow from (used by) operations and funds flow from (used by) operations per share (basic and diluted) do not have any standardized meanings prescribed by IFRS and may not be comparable with the calculation of similar measures used by other entities. Management uses funds flow from (used by) operations to analyze operating performance and considers funds flow from (used by) operations to be a key measure as it demonstrates the Company's ability to generate cash necessary to fund future capital investment. Funds flow from (used by) operations per share is calculated using the basic and diluted weighted average number of shares for the period consistent with the calculations of earnings per share. A reconciliation of funds flow from (used by) operations to cash flows from (used by) operations is presented in the March 31, 2017 MD&A which will be made available under the Company's profile at www.sedar.com.

Forward looking information: Certain information set forth in this document is considered forward-looking information, and necessarily involves risks and uncertainties, certain of which are beyond Crown Point's control, including: under "Operational Update - Tierra del Fuego Concession", the operations that the Company intends to conduct on certain of its TDF assets and the planned timing thereof and the benefits that the Company expects to derive therefrom; under "Operational Update - Cerro de Los Leones Concession", the operations that the Company intends to conduct on certain of its CLL assets and the expected timing thereof and the benefits that the Company expects to derive therefrom and the intention to seek a partner at CLL; under "Outlook", our estimated capital expenditures for fiscal 2017 and Q2 and Q3 2017 combined, the allocation of expenditures between our TDF and CLL concessions, the elements of our capital program for these periods, our estimates of the costs to complete the elements of the program and the timing thereof, and our expectations for how we will fund our capital programs; under "Developments in Argentina - Political and Economic Developments", our expectations for policies that the Government of Argentina will pursue going forward (including the implementation of gradual increases in natural gas prices) and their potential impact on the oil and gas industry in Argentina generally and the Company in particular; and under "Developments in Argentina - Commodity Price Developments - Crude Oil / Natural Gas", our expectations regarding the impact that the Argentine government's evolving energy policies and reforms may have on commodity prices in Argentina, including the Company's estimates with respect to its realized commodity prices for 2017.
Such risks include but are not limited to: the failure to satisfy work commitments and the resulting loss of exploration and exploitation rights and, in the case of CLL, the obligation to pay the value of such unsatisfied work commitments to the provincial government; risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation; risks associated with operating in Argentina, including risks of changing government regulations (including the adoption of, amendments to, or the cancellation of government incentive programs or other laws and regulations relating to commodity prices, taxation, currency controls and export restrictions, in each case that may adversely impact Crown Point), risks that new government initiatives will not have the consequences the Company believes (including the benefits to be derived therefrom), the risk that the Company may not receive any bonds in consideration of its Petróleo Plus and Gas Plus credits, expropriation/nationalization of assets, price controls on commodity prices, inability to enforce contracts in certain circumstances, the potential for a hyperinflationary economic environment, and other economic and political risks; loss of markets and other economic and industry conditions; volatility of commodity prices; currency fluctuations; imprecision of reserve estimates; environmental risks; competition from other producers; inability to retain drilling services; incorrect assessment of value of acquisitions and failure to realize the benefits therefrom; delays resulting from or inability to obtain required regulatory approvals; the lack of availability of qualified personnel or management; stock market volatility and ability to access sufficient capital from internal and external sources; and economic or industry condition changes. Actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that Crown Point will derive therefrom.
With respect to forward-looking information contained herein, the Company has made assumptions regarding: the impact of increasing competition; the general stability of the economic and political environment in Argentina; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the costs of obtaining equipment and personnel to complete the Company's capital expenditure program; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Company to obtain financing on acceptable terms when and if needed; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration activities; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Company to secure adequate product transportation; future oil and natural gas prices; costs of operational activities in Argentina (including in respect of the operations described herein); currency, exchange and interest rates; the regulatory framework regarding royalties, commodity price controls, import/export matters, taxes and environmental matters in Argentina; and the ability of the Company to successfully market its oil and natural gas products. Additional information on these and other factors that could affect Crown Point are included in reports on file with Canadian securities regulatory authorities, including under the heading "Risk Factors" in the Company's most recent annual information form, and may be accessed through the SEDAR website (www.sedar.com). Furthermore, the forward-looking information contained in this document are made as of the date of this document, and Crown Point does not undertake any obligation to update publicly or to revise any of the included forward looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities law.

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

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