DeeThree Exploration Ltd.
TSX : DTX
OTCQX : DTHRF

DeeThree Exploration Ltd.

March 26, 2015 08:00 ET

DeeThree Exploration Ltd. Announces 2014 Financial Results and Operational Update

CALGARY, ALBERTA--(Marketwired - March 26, 2015) - DEETHREE EXPLORATION LTD. ("DeeThree" or the "Company") (TSX:DTX) (OTCQX:DTHRF) is pleased to release its financial and operational results for the year ended December 31, 2014. DeeThree has filed its audited financial statements for the year ended December 31, 2014 and related Management Discussion and Analysis with Canadian securities regulatory authorities. DeeThree's annual financial materials may be viewed in their entirety on www.sedar.com and on the Company's website at www.deethree.ca.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Financial and operational highlights for the three and twelve months ended December 31, 2014 with comparative data for 2013 are as follows:

Three Months Ended
December 31,
Year Ended
December 31,
2014 2013 Change 2014 2013 Change
(000s, except per share amounts) ($ ) ($ ) ( %) ($ ) ($ ) ( %)
Financial
Oil and natural gas revenues 69,957 51,865 35 303,348 177,991 70
Funds from operations (1) 41,773 24,660 69 173,196 93,295 86
Per share - basic 0.47 0.32 47 2.01 1.23 63
Per share - diluted 0.46 0.31 48 1.95 1.18 65
Cash flow from operating activities 54,239 25,499 113 184,239 97,448 89
Net income 28,312 3,305 757 76,233 18,048 322
Per share - basic 0.32 0.04 700 0.89 0.24 271
Per share - diluted 0.31 0.04 675 0.86 0.23 274
Capital expenditures (2) 64,964 56,072 16 296,549 211,885 40
Working capital deficit (3) 171,347 119,787 43 171,347 119,787 43
Shareholders' equity 463,509 311,070 49 463,509 311,070 49
(000s) (# ) (# ) ( %) (# ) (# ) ( %)
Share Data
At period-end 88,974 81,560 9 88,974 81,560 9
Weighted average - basic 86,860 77,872 10 86,088 76,009 13
Weighted average - diluted 90,671 81,060 12 88,763 78,892 13
Operating(4) ( %) ( %)
Production
Natural gas (mcf/d) 16,510 10,251 61 13,823 9,881 40
Crude oil (bbls/d) 9,275 6,547 42 8,353 5,205 60
NGLs (bbls/d) 815 369 121 668 332 101
Total (boe/d) 12,842 8,625 49 11,325 7,184 58
Average wellhead prices
Natural gas ($/mcf) 3.84 4.00 (4 ) 4.73 3.42 38
Crude oil and NGLs ($/bbl) 69.04 75.55 (9 ) 84.84 81.81 4
Combined average ($/boe) 59.21 65.37 (9 ) 73.38 67.88 8
Royalties ($/boe) (13.78 ) (16.21 ) (15 ) (16.60 ) (15.39 ) 8
Operating expenses($/boe) (7.45 ) (10.03 ) (26 ) (9.44 ) (9.91 ) (5 )
Transportation expenses ($/boe) (2.97 ) (1.75 ) 70 (2.18 ) (2.08 ) 5
Operating netback (5) 35.01 37.38 (6 ) 45.16 40.50 12
Funds flow netback (5) 35.32 31.03 13 41.86 35.51 18
Reserves
Proved (mboe) 35,354 26,285 35 35,354 26,285 35
Proved plus probable (mboe) 51,833 39,413 32 51,833 39,413 32
Total net present value- proved plus probable (10% discount, before taxes) ($000s) 893,934 703,716 27 893,934 703,716
27
Undeveloped land
Gross (#) 466,554 334,252 40 466,554 334,252 40
Net (acres) 437,728 311,268 41 437,728 311,268 41
Gross (net) wells drilled
Gas (#) -- (-- ) -- (-- ) -- 1 (1.00 ) -- (-- ) -- (-- )
Oil (#) 8 (8.0 ) 6 (6.0 ) 33 (33 ) 43 (42.93 ) 32 (31.19 ) 34 (38 )
Dry and abandoned (#) -- (-- ) 1 (1.0 ) 100 (100 ) 3 (3.00 ) 3 (2.97 ) -- (1 )
Total (#) 8 (8.0 ) 7 (7.0 ) 47 (46.93 ) 35 (34.15 ) 34 (37 )
Average working interest (%) 100 100 100 98 2

(1) Funds from operations, funds from operations per share, operating netbacks and funds flow net back are not recognized measures under International Financial Reporting Standards (IFRS). Refer to the commentary below under "Reader Advisory - Non-GAAP Measurements" for further discussion.

(2) Total capital expenditures, including acquisitions and excluding non-cash transactions. Refer to commentary in the Management's Discussion and Analysis under "Capital Expenditures and Acquisitions" for further information.

(3) Working capital deficit, which is calculated as current liabilities (excluding derivative financial instruments) and bank debt less current assets (excluding derivative financial instruments), is not a recognized measure under IFRS. Please refer to the commentary in this news release under "Reader Advisory - Non-GAAP Measurements" for further discussion.

(4) For a description of the boe conversion ratio, refer to the commentary below under " Reader Advisory - BOE Presentation".

(5) Operating netback and funds flow netback are calculated by dividing operating income and funds flow from operations by the sales volume in boe for the period then ended. Refer to the commentary below under "Reader Advisory - Non-GAAP Measurements" for further discussion.

OPERATIONAL UPDATE

Brazeau Belly River properties

Results have exceeded expectations and DeeThree has maintained production levels at its Brazeau Belly River properties with a minimum level of expenditure. The Company has constrained its spending in the first quarter of 2015 by drilling 3 gross (3.0 net) wells, two of which have been completed to date, compared to the 8 gross (8.0 net) wells originally planned to be drilled. Despite a scaled back drilling program, the average daily production volume from its Brazeau Belly River properties throughout the first three months of 2015 is anticipated to be between 8,200-8,400 BOE/d, in-line with the average daily production volumes of 8,284 BOE/d achieved in the fourth quarter of 2014.

The Company achieved its 10% cost reduction goal with the two wells drilled and completed this year costing approximately $5.0 million each per well. DeeThree is undertaking a further round of cost reductions with a goal to reduce drilling and completion costs to $4.5 million per well. Cost reductions are expected to be achieved as a result of both reduced service costs and process improvements in well design and program execution.

Alberta Bakken Properties

DeeThree's gas re-injection enhanced oil recovery project (the "EOR project") on its Alberta Bakken properties continues to deliver increasingly positive results. In July of 2013, approximately one year after the main oil pool was discovered, the EOR project began with the conversion of one of the best producing oil wells into a gas injector pilot. Soon after, offsetting oil wells experienced material improvement in their decline profile.

DeeThree expanded the EOR project in September 2014 with the addition of two more gas injectors and installation of permanent and scalable gas injection facilities. Subsequent to the start-up of this expansion, the Company has observed a material improvement in the decline profile over a larger area now totalling 14 square miles. Current gas injection into the project area is roughly 3 mmscf/d, which is approximately 70% of the associated gas produced from the Alberta Bakken property. DeeThree has received approval from the Alberta Energy Regulator to begin injecting into a fourth well in April 2015. A fifth injection well application is currently awaiting regulatory approval. By the end of the second quarter of 2015, it is anticipated that 100% of DeeThree's gas production from its Alberta Bakken properties will be injected into the oil pool. DeeThree has initiated steps to develop its 100% owned, low cost, non-associated gas supply from the Bow Island and Sunburst zones located over its Alberta Bakken Properties to supplement injection volumes for future voidage replacement.

Figure 1 illustrates the production profile from the core EOR area. As indicated, subsequent to gas injection volumes increasing, oil production declines have been arrested.

To view Figure 1, please visit the following link: http://media3.marketwire.com/docs/dee_graph.jpg

Early in the development of its Alberta Bakken discovery, DeeThree recognized the potential for increased recoveries through gas re-injection. The Bakken oil pool is under-saturated and produces gas with a high CO2 content. The Company believed that capital efficiencies could be improved by moving to a gas re-injection scheme rather than continuing with down spacing alone due to a combination of pressure maintenance and the CO2 component of the re-injected gas. After recording a positive response from the EOR pilot, DeeThree kicked off an extensive Petrel reservoir modelling project on the pool. Complementing the data from operation of its pilot EOR, Petrel computer modelling results show that recovery factors with a gas re-injection scheme can significantly increase oil recoveries from DeeThree's Alberta Bakken properties.

Overall, DeeThree remains very encouraged with the results from its Alberta Bakken EOR scheme and is committed to its full scale implementation. DeeThree will continue to advance development of the oil pool at a measured pace, matching drilling activity and subsequent production increases with its ability to replace voidage through the EOR project. DeeThree expects that this will allow it to maintain lower base declines, maximize oil recoveries, and ultimately provide the highest capital returns from the oil pool.

Reader Advisory

Forward-Looking Statements. Certain statements contained in this press release may constitute forward-looking statements. These statements relate to future events or DeeThree's future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. DeeThree believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon by investors. These statements speak only as of the date of this press release and are expressly qualified, in their entirety, by this cautionary statement.

In particular, this press release contains forward-looking statements, pertaining to the following: projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, the effectiveness of the EOR project, oil and natural gas production levels, capital expenditure programs, treatment under governmental regulatory and taxation regimes, expectations regarding DeeThree's ability to raise capital and to continually add to reserves through acquisitions and development, and projections of market prices and costs.

With respect to forward-looking statements contained in this press release, DeeThree has made assumptions regarding, among other things: the legislative and regulatory environments of the jurisdictions where DeeThree carries on business or has operations, the impact of increasing competition, and DeeThree's ability to obtain additional financing on satisfactory terms.

DeeThree's actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; uncertainties associated with estimating reserves; uncertainties associated with DeeThree's ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel.

This forward-looking information represents DeeThree's views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. DeeThree has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. . Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

Non-GAAP Measurements. This news release contains the terms "funds from operations" and "funds from operations per share", which should not be considered an alternative to or more meaningful than cash flow from (used in) operating activities as determined in accordance with IFRS. These terms do not have any standardized meaning under IFRS. DeeThree's determination of funds from operations and funds from operations per share may not be comparable to that reported by other companies. Management uses funds from operations to analyze operating performance and leverage, and considers funds from operations to be a key measure as it demonstrates the Company's ability to generate cash necessary to fund future capital investments and to repay debt, if applicable. Funds from operations is calculated using cash flow from operating activities as presented in the statement of cash flows, before changes in non-cash working capital. DeeThree presents funds from operations per share whereby per share amounts are calculated using weighted-average shares outstanding, consistent with the calculation of earnings per share.

The Company considers corporate netbacks to be a key measure as they demonstrate DeeThree's profitability relative to current commodity prices. Corporate netbacks are comprised of operating and funds flow netbacks. Operating netback is calculated as the average sales price of the Company's commodities, less royalties, operating costs and transportation expenses. Funds flow netback starts with the operating netback and further deducts general and administrative costs, finance expense and unrealized gains on financial instruments, and then adds any finance income and realized gains on financial instruments, if applicable. No IFRS measure is reasonably comparable to netbacks. See "Netbacks (per unit)" in the Company's management's discussion and analysis for the year ended December 31, 2014 filed on www.sedar.com for the netback calculations.

Working capital deficit, which represent current assets less current liabilities, excluding current derivative financial instruments, is used to assess efficiency, liquidity and the Company's general financial strength. No IFRS measure is reasonably comparable to working capital deficit.

Test Rates. Test rates are not necessarily indicative of long-term performance or of ultimate recovery. Neither a pressure transient analysis nor a well-test interpretation has been carried out and the data should be considered to be preliminary until such analysis or interpretation has been done.

BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Contact Information

  • DeeThree Exploration Ltd.
    Michael Kabanuk
    Executive Chairman
    (403) 984-6335

    DeeThree Exploration Ltd.
    Jonathan Fleming
    V.P. Capital Markets
    (403) 984-6328