DeeThree Exploration Ltd.
TSX : DTX
OTCQX : DTHRF

DeeThree Exploration Ltd.

November 05, 2014 21:04 ET

DeeThree Exploration Ltd. Announces 2014 Third Quarter Financial and Operating Results and Twelfth Consecutive Quarter of Growth

CALGARY, ALBERTA--(Marketwired - Nov. 5, 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 September 30, 2014.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

Financial and operational highlights for the interim period ended September 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 available for review at www.deethree.ca and www.sedar.com.

  • Achieved average record production of 12,294 boe/d (82% oil and NGLs and 18% natural gas), up 4,721 boe/d or 62% from the same quarter of last year and 1,550 boe/d or 14% from the second quarter of 2014.
  • Increased average oil and NGL production to 10,061 bbls/day, an improvement of 65% or 6,088 bbls/day over the same quarter of 2013 and 17% or 1,478 bbls/day increase over the second quarter of 2014.
  • Decreased operating costs in the third quarter of 2014 to $9.63/boe, a 8% decrease from $10.46/boe in the same period last year and a 12% decrease from $11.00/boe in the second quarter of 2014.
  • Generated funds flow from operations of $52.7 million, an increase of $23.3 million or 79% over the same quarter last year and $9.6 million or a 22% increase over the previous quarter of 2014.
  • Increased funds from operations on a fully diluted per share basis of $0.57, a 54% increase over the same quarter of 2013 and 16% over the second quarter of 2014.
  • At quarter end, the Company was drawn $107.5 million on an available $235 million credit facility. Subsequent to quarter end the credit facility was increased to $310 million with the Company's existing syndicate of banks.
  • Exited the quarter with total net debt of $148.3 million, representing a debt to annualized cash flow ratio of 0.70:1.
HIGHLIGHTS: BY THE NUMBERS
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 Change 2014 2013 Change
(000s, except per share amounts) ($ ) ($ ) (% ) ($ ) ($ ) (% )
Financial
Oil and natural gas revenues 87,188 55,754 56 233,391 126,126 85
Funds from operations (1) 52,720 29,410 79 131,423 68,635 91
Per share - basic 0.59 0.38 55 1.54 0.91 69
Per share - diluted 0.57 0.37 54 1.49 0.88 69
Cash flow from operating activities 62,290 32,073 94 130,000 71,949 81
Net income 21,106 8,570 146 47,921 14,743 225
Per share - basic 0.24 0.11 118 0.56 0.20 180
Per share - diluted 0.23 0.11 109 0.54 0.19 184
Capital expenditures (2) 84,985 74,969 13 231,585 155,813 49
Working capital deficit (3) 148,329 131,295 13 148,329 131,295 13
Shareholders' equity 433,613 263,800 64 433,613 263,800 64
(000s) (# ) (# ) (% ) (# ) (# ) (% )
Share Data
At period-end 88,832 76,690 16 88,832 76,690 16
Weighted average - basic 88,832 76,550 16 85,151 75,379 13
Weighted average - diluted 91,958 79,608 16 88,160 78,105 13
Operating(4)
Production
Natural gas (mcf/d) 13,395 8,910 50 12,918 9,756 32
Crude oil (bbls/d) 9,322 5,765 62 8,043 4,753 69
NGLs (bbls/d) 739 323 129 619 319 94
Total (boe/d) 12,294 7,573 62 10,814 6,698 61
Average wellhead prices
Natural gas ($/mcf) 4.39 2.33 88 5.11 3.22 59
Crude oil and NGLs ($/bbl) 88.32 96.08 (8 ) 91.05 84.69 8
Combined average ($/boe) 77.09 80.03 (4 ) 79.05 68.97 15
Netbacks (1)
Operating netback ($/boe) 49.50 48.11 3 49.21 41.86 18
Funds flow netback ($/boe) 46.57 42.11 11 44.47 37.45 19
Gross (net) wells drilled
Gas (#) -- -- -- 1 (1.00 ) -- --
Oil (#) 11 (10.97 ) 12 (11.97 ) (8) (-8 ) 35 (34.93 ) 26 (25.19 ) 35 (39 )
Dry and abandoned (#) 1 (1.00 ) -- -- 3 (3.00 ) 2 (1.97 ) 50 (52 )
Total (#) 12 (11.97 ) 12 (11.97 ) -- 39 (38.93 ) 28 (27.16 ) 39 (43 )
Average working interest (%) 100 100 -- 100 97 3
(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".

Operational Update

The Company's record third quarter production was driven by strong drilling results. In addition to record production, DeeThree also achieved major milestones in the development of its Brazeau Belly River property and Alberta Bakken property.

Major facility and pipeline projects were completed in DeeThree's Brazeau Belly River property that significantly increased capacity available for future growth. The Company also took delivery, installed and brought on-stream a built-for-purpose gas injection compressor that has expanded its natural gas injection enhanced oil recovery ("EOR") project in its Alberta Bakken property beyond the pilot phase.

With its ongoing exploration program, the Company drilled a successful seven mile step out to its existing Alberta Bakken pool, significantly expanding its drilling inventory and the pool's ultimate resource potential.

Capital spending totaled $85 million in the third quarter, with $56.5 million on drilling & completions, $14.6 million on major facility expansions, $4.4 million on tie-ins, $8.9 million on minor acquisitions and land and $0.6 million on capitalized G&A and other assets.

Belly River

Production averaged 6,884 boe/d in the third quarter of 2014, up 15% quarter over quarter. Throughout the third quarter, the Company drilled 7 gross (6.97 net) wells with a 100% success rate, all of which are on stream.

Accelerated growth is projected for DeeThree's Belly River property as the play continues to evolve and move to a lower risk, development profile. DeeThree remains very active on its Belly River property with three rigs currently in operation.

During the third quarter of 2014, DeeThree acquired an additional 12,000 net acres in Brazeau. The Company has identified an additional 40 horizontal drilling locations on this acreage bringing the total inventory to approximately 440 drilling locations and its land base to a total of 116,800 net acres.

Wells drilled in 2014 continue to outperform previous drilled wells, as demonstrated in the table below and outlined in the Company's updated presentation (located on DeeThree's website at www.deethree.ca).

Completion
Date
IP 30
(boe/d)
IP 60
(boe/d)
IP 90
(boe/d)

Current
Well #1 24-Jan-14 586 517 461 133
Well #2 2-Feb-14 205 197 183 75
Well #3 1-Feb-14 528 383 364 220
Well #4 20-Feb-14 1,083 804 693 232
Well #5 25-Feb-14 645 444 396 175
Well #6 22-Feb-14 815 619 523 159
Well #7 19-Mar-14 403 350 328 284
Well #8 21-Mar-14 1,257 920 701 183
Well #9 24-Mar-14 968 801 690 358
Well #10 15-Jun-14 365 279 248 147
Well #11 10-May-14 950 742 629 294
Well #12 29-Jun-14 666 524 433 315
Well #13 7-Jul-14 692 634 538 525
Well #14 23-Jul-14 275 227 N/A 93
Well #15 3-Aug-14 878 886 N/A 1,165
Well #16 6-Aug-14 973 881 N/A 646
Well #17 30-Aug-14 1,249 N/A N/A 613
Note: Based on production days.

Based on these results and in anticipation of further production gains, DeeThree continues to expand its 100% owned infrastructure. During the quarter, DeeThree expanded its oil and gas processing capacity at its central pipeline-connected battery to 12,000 bbls/d from 8,000 bbls/d previously.

Alberta Bakken

Production averaged 4,879 boe/d in the third quarter of 2014, up 19% quarter over quarter due to continued strong results in our core development area. The Company drilled 4 gross (4.0 net) horizontal wells throughout the quarter, all of which are on stream.

DeeThree is committed to enhancing oil recoveries and profitability on this long life oil resource. Effective July 31, 2012 the Company's independent reserve engineering firm, Sproule Associates Limited evaluated the discovered and undiscovered oil resources of the Company's Bakken Alberta property. The Company has since delineated most of the resource identified in this evaluation with its ongoing drilling program.

With significant long term upside available by increasing ultimate oil recovery, the Company implemented a natural gas injection EOR pilot project over some of the original wells on the property. As a result of the outcome of the EOR pilot project, the Company has expanded the scope of the EOR project by the addition of two injectors and the installation of high pressure gas injection pipelines throughout the pool for future injectors. A built-for-purpose high pressure gas injection compressor designed to re-inject most of the produced gas from the pool was also brought on-stream in September. The Company is currently waiting for regulatory approval for a fourth gas injector well and has undertaken an independent reservoir study to help optimize the effectiveness of the EOR scheme.

DeeThree recently acquired a 100% working interest in up to 34.5 contiguous sections (22,080 acres) of land located to the west, directly on trend and between its existing Alberta Bakken production and the previous discovery wells. The land is strategic to the Company and its future plans as it was the last remaining block of land available between the Company's original Alberta Bakken discovery well from 2012 and the existing core oil pool that has now been demonstrated to exceed 70 sections.

The Company drilled a discovery well on these recently acquired lands in the third quarter of 2014, testing a five meter thick pay section identified in a vertical strat test well. This well was a seven mile step out from DeeThree's existing Alberta Bakken production. The horizontal well was successfully drilled and 1,400 meters of Bakken pay was successfully fracture stimulated, placing 155 tonnes of sand over 16 stages using an energized water based system. After stimulation the well was flowed/swabbed for cleanup for approximately nine days with a final average rate of approximately 70 bbls/d of 34 API sweet reservoir oil and 75 mscf/d of natural gas. The Company is excited by this sweet light oil discovery making it successful in its first step in significantly expanding its prospective lands for Bakken oil production. The Company expects to modify well lengths, frac size and well placement in future to optimize results from the large "oil in place" resource. This discovery well is anticipated to substantially increase the resource potential of the Company's Alberta Bakken property, with a number of new drilling locations having been identified. The Company's productive Alberta Bakken oil fairway now stretches approximately 30 miles and consists of a contiguous 100% working interest land base. The near term development plan will be focused on the lands between the discovery well and the core development area to the East and will benefit from the initial 5% Crown royalty holiday. The Company plans to drill additional wells in the near future on its Alberta Bakken property to rapidly bring these lands in to development.

To view the accompanying map, visit the following link:

http://media3.marketwire.com/docs/DTX_Alberta_Bakken.jpg

Risk Management

DeeThree has 4,000 bbls/d of crude oil hedged in the current quarter and for the remainder of 2014 and 2,000 bbls/day of crude oil hedged for calendar 2015.

Outlook

As we near the end of 2014, the Company is pleased with the results achieved to date. The Company is expecting to average approximately 13,000 boe/d in the fourth quarter of 2014 and will meet or exceed our previously announced exit guidance of 13,000 - 13,500 boe/d. Total capital expenditures for the year are estimated to be $290 - $295 million. This includes approximately $30 million on acquisitions and land and approximately $27 million on facilities, including investing in the Bakken secondary recovery initiative and additional capacity for future production growth. These expenditures were not contemplated in the Company's original 2014 budget and will benefit the Company for years to come.

The Company is well positioned to execute its long term plans with extensive drilling inventory and newly expanded infrastructure with ample productive capacity. DeeThree anticipates continued commodity price volatility moving into 2015 and will carefully manage capital expenditures to maintain prudent debt levels and a strong balance sheet.

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 for fourth quarter production, the amount of capital expenditures for 2014, wells anticipated to be drilled, the quantity of reserves and resources, expectations regarding DeeThree's ability to continually add to production and 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. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect DeeThree's operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed www.sedar.com.

This forward-looking information represents DeeThree's views as of the date of this news release 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 three month period ended September 30, 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.
    Jonathan Fleming
    V.P. Capital Markets
    (403) 984-6328

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