DeeThree Exploration Ltd.
TSX : DTX
OTCQX : DTHRF

DeeThree Exploration Ltd.

August 13, 2014 08:00 ET

DeeThree Exploration Ltd. Announces 2014 Second Quarter Financial and Operating Results and Eleventh Consecutive Quarter of Growth

CALGARY, ALBERTA--(Marketwired - Aug. 13, 2014) - DEETHREE EXPLORATION LTD. ("DeeThree") ("Company") (TSX:DTX)(OTCQX:DTHRF) is pleased to release an operational update and its financial and operational results for the quarter ended June 30, 2014.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Financial and operational highlights for the interim period ended June 30, 2014 with comparative data for 2013 are set out below and should be read in conjunction with the financial statements and related management's discussion and analysis.

HIGHLIGHTS: BY THE NUMBERS

Three Months Ended June 30, Six Months Ended June 30,
2014 2013 Change 2014 2013 Change
(000s, except per share amounts) ($) ($) (%) ($) ($) (%)
Financial
Oil and natural gas revenues 80,560 39,882 102 146,203 70,372 108
Funds from operations (1) 43,167 22,437 92 78,703 39,225 101
Per share - basic 0.51 0.29 76 0.94 0.52 81
Per share - diluted 0.49 0.28 75 0.91 0.51 78
Cash flow from operating activities 44,103 21,876 102 67,710 39,876 70
Net income 18,133 6,800 167 26,815 6,173 334
Per share - basic 0.21 0.09 133 0.32 0.08 300
Per share - diluted 0.21 0.09 133 0.31 0.08 288
Capital expenditures (2) 74,288 39,286 89 146,600 80,844 81
Working capital deficit (3) 116,064 86,338 34 116,064 86,338 34
Shareholders' equity 410,944 253,336 62 410,944 253,336 62
(000s)
Share Data
At period-end 88,832 76,474 16 88,832 76,474 16
Weighted average - basic 84,654 76,363 11 83,300 74,784 11
Weighted average - diluted 87,772 79,049 11 86,198 77,355 11
Operating(4)
Production
Natural gas (mcf/d) 12,967 10,093 28 12,675 10,186 24
Crude oil (bbls/d) 8,033 4,550 77 7,392 4,239 74
NGLs (bbls/d) 550 346 59 558 317 76
Total (boe/d) 10,744 6,578 63 10,063 6,254 61
Average wellhead prices
Natural gas ($/mcf) 5.02 3.79 32 5.49 3.61 52
Crude oil and NGLs ($/bbl) 95.51 81.34 17 92.81 76.96 21
Combined average ($/boe) 82.39 66.62 24 80.27 62.17 29
Netbacks
Operating netback ($/boe) 50.64 40.57 25 49.05 38.01 29
Funds flow netback ($/boe) 44.14 37.40 18 43.18 34.59 25
Gross (net) wells drilled
Gas (#) - -- 1 (1.00 ) - --
Oil (#) 10 (10.00 ) 5 (5.00 ) 100 (100 ) 24 (23.97 ) 12 (11.22 ) 100 (114 )
Standing (#) -- 2 (2.00 ) -- -- 2 (2.00 ) --
Dry and abandoned (#) -- 1 (1.00 ) -- 2 (2.00 ) 2 (1.97 ) -- (2 )
Total (#) 10 (10.00 ) 8 (8.00 ) 25 (25 ) 27 (26.97 ) 16 (15.19 ) 69 (78 )
Average working interest (%) 100 100 -- 100 95 5
(1) Funds from operations and funds from operations per share are not recognized measures under International Financial Reporting Standards (IFRS). Refer to the commentary in the Management's Discussion and Analysis under "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, is not a recognized measure under IFRS.Please refer to the commentary under "Non-GAAP Measurements" for further discussion.
(4) For a description of the boe conversion ratio, refer to the commentary in the Management's Discussion and Analysis under "Other Measurements".
  • Increased average production of 10,744 boe/d (80% oil and NGLs and 20% natural gas), an increase of 63% over the same quarter of 2013 and a 15% increase over the first quarter of 2014.

  • Increased average oil and NGL production of 8,583 bbls/day, an increase of 75% or 3,687 bbls/day over the same quarter of 2013 and a 17% or 1,275 bbls/day increase over the first quarter of 2014.

  • Increased operating netback of $50.64 per boe from $40.57/boe in the same quarter of 2013 and $47.21 per boe in the first quarter of 2014, an increase of 25% and 7%, respectively.

  • Increased funds flow from operations of $43.2 million, an increase of 92% increase over the same quarter of 2013 and a 21% increase over the first quarter of 2014.

  • Increased funds from operations on a fully diluted per share basis of $0.49, a 75% increase over the same quarter of 2013 and 19% over the first quarter of 2014.

  • Exited the quarter with total net debt of $116.1 million, representing a debt to annualized cash flow ratio of 0.67:1.

Operational Update

Record second quarter production was driven by strong drilling results in the Belly River play, which is becoming the Company's key growth asset. Capital spending totaled $74.3 million with $51.7 million on drilling & completions (68% of drilling capital was directed to wells drilled and completed in the current period), $10.5 million on facilities, $4.1 million on tie-ins and $7.4 million on land acquisitions.

Belly River

The Company's second quarter production growth was largely driven by growth in the Belly River play, which averaged 5,987 boe/d, up 25% quarter over quarter. This is the first quarter in which volumes from the Belly River play exceeded Alberta Bakken volumes. Accelerated growth is projected in the Belly River play as the play takes on a lower risk, exploitation profile. DeeThree remains very active in the area with three rigs currently in operation.

DeeThree drilled the first successful well into the Basal Belly River 'A' sand on its Belly River play during the second quarter. This is the 7th sand to demonstrate commerciality on the play and expands the scope and scale of the Belly River resource. In addition, DeeThree further extended the known scope of the "C" sand with successful horizontal wells on farm-in lands both to the north and to the south of the core area. As a result, this highly prolific portion of the Belly River oil pool has increased in size to 12 sections of land.

DeeThree continues to expand infrastructure in pace with production growth. A total of $5 million was spent in the second quarter of 2014 to secure equipment to increase oil processing capacity to 12,000 bbls/d from 8,000 bbls/d. The Company anticipates completing the facility work by the end of the third quarter of 2014.

The Company continues to expand its land position on the Belly River play, adding 12 sections of land during the quarter.

Well results continue to perform at or above expectations. Field activity commenced approximately three weeks earlier than in 2013 due to an earlier spring break-up.

Alberta Bakken

Production averaged 4,193 boe/d in the second quarter of 2014, up 5% quarter over quarter. The bulk of the horizontal drilling activity on the Alberta Bakken play occurred later in the quarter. The resulting production increases will occur in the third quarter of 2014.

DeeThree is committed to enhancing oil recoveries and profitability on this long life oil resource. The natural gas injection enhanced oil recovery (EOR) scheme continues to show promising results. Second quarter capital expenditures included approximately $5 million for a larger gas compressor and high pressure pipeline infrastructure for the EOR which is scheduled to come on-stream prior to the end of September 2014.

DeeThree will test its 34.5 section land block to the west of the main Alberta Bakken development area during the third quarter of 2014 with one vertical well and one horizontal well.

Outlook

DeeThree projects strong quarter over quarter growth with targeted production for the third quarter of 2014 of 12,000 - 12,500 boe/d. Our balance sheet remains strong with the closing of a bought deal financing in the second quarter for total net proceeds of $69.5 million and an increase to our syndicated credit facility from $165 million to $235 million.

We continue to build two high quality oil assets while maintaining a responsible level of debt that provides us with financial flexibility. We will continue to focus on per share growth in production, reserves, funds flow and net asset value and remain confident that we will achieve our 2014 target exit production rate of 13,000 - 13,500 boe/d (82% crude oil & NGLs).

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, 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.

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.

Non-GAAP Measures. The term cash flow does not have any standardized meaning as prescribed by GAAP and, therefore, is considered non-GAAP measures. Cash flow is calculated based on cash flow from continuing operating activities before changes in non-cash working capital. Management believes that cash flow is a supplemental measure and utilizes it as a key measure to assess the ability of the Company to finance operating activities, capital expenditures and debt repayments. Cash flow as presented is not intended to represent cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP and should not be construed as an alternative to cash flow from operations.

Contact Information

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

    DeeThree Exploration Ltd.
    Martin Cheyne
    President and Chief Executive Officer
    (403) 263-9130