Delphi Energy Corp.

TSX : DEE


Delphi Energy Corp.

May 14, 2014 19:32 ET

Delphi Energy Reports Record Quarterly Results

CALGARY, ALBERTA--(Marketwired - May 14, 2014) - Delphi Energy Corp. (TSX:DEE) ("Delphi" or the "Company") is pleased to announce record financial and operational results for the quarter ended March 31, 2014.

First Quarter 2014 Highlights

  • Increased production to a record average 10,302 barrels of oil equivalent per day ("boe/d") in the first quarter of 2014, an increase of 37 percent over the comparative quarter in 2013 and an increase of 15 percent over the fourth quarter of 2013;

  • Improved cash netbacks per barrels of oil equivalent ("boe") in the first quarter of 2014 by 59 percent to $22.02 per boe over the comparative quarter of 2013, resulting in record funds from operations of $20.4 million, a 118 percent increase over the first quarter of 2013 and an 80 percent increase over the fourth quarter of 2013;

  • Increased the borrowing base of the senior credit facilities by $30.0 million to $170.0 million upon completion of the lenders' annual review, resulting in total credit capacity of $190.0 million;

  • On an annualized, first quarter funds from operations basis, Delphi decreased its net debt to funds from operations ratio to 1.9:1 from 3.0:1 at the end of 2013;

  • Increased average field condensate production by 249 percent to 1,455 barrels per day ("bbls/d") in comparison to the first quarter of 2013;

  • Increased the average natural gas liquid ("NGL") and field condensate yield by 44 percent to 69 barrels per million cubic feet ("bbls/mmcf") compared to the first quarter of 2013. Field and plant condensate yield was 44 bbls/mmcf or 64 percent of the total 69 bbls/mmcf;

  • Increased Montney production from 1,530 boe/d in the first quarter of 2013 to 5,770 boe/d in the first quarter of 2014, an increase of 277 percent. The Bigstone Montney project contributed 56 percent of the Company's production during the first quarter of 2014 compared to 21 percent during the comparative quarter of 2013;

  • Montney liquids yield was 101 bbls/mmcf in the first quarter of 2014 with field and plant condensate representing 75 percent of the liquids yield and the balance of the liquids yield split between butane at 10 percent and propane at 15 percent;

  • Successfully drilled three gross (three net) Montney wells as part of the Company's capital program and completed, tied-in and brought on production 1.97 net Montney wells in East Bigstone;

  • Expanded the capacity of its 100 percent owned compression and dehydration facility in East Bigstone from 30.0 million cubic feet per day ("mmcf/d") to 45.0 mmcf/d and doubled the field condensate storage to 6,000 barrels; and

  • Recently completed pipeline connections to deliver its Montney production at Bigstone to SemCAMS K3 processing facility.
Operational Highlights
Three Months Ended March 31, 2014
Production 2014 2013 % Change
Field condensate (bbls/d) 1,455 417 249
Natural gas liquids (bbls/d) 1,493 1,189 26
Crude oil (bbls/d) 242 318 (24 )
Total crude oil and natural gas liquids 3,190 1,924 66
Natural gas (mcf/d) 42,673 33,574 27
Total (boe/d) 10,302 7,520 37
Financial Highlights ($ thousands except per unit amounts)
Three Months Ended March 31, 2014
2014 2013 % Change
Petroleum and natural gas sales 49,046 21,763 125
Realized sales price per boe 47.45 32.04 48
Funds from operations 20,409 9,383 118
Per boe 22.02 13.87 59
Per share - Basic 0.13 0.06 117
Per share - Diluted 0.12 0.06 100
Net earnings 723 56 1,191
Per boe 0.78 0.08 875
Per share - Basic 0.00 0.00 -
Per share - Diluted 0.00 0.00 -
Capital invested 37,410 23,956 56
Disposition of properties - (3,172 ) -
Net capital invested 37,410 20,784 80
Acquisition of undeveloped properties - 13,664 -
Total capital invested 37,410 34,448 9
March 31, 2014 December 31, 2013 % Change
Net debt (1) 155,015 138,340 12
Total assets 485,625 451,680 8
Shares outstanding (000's)
Basic 154,426 153,254 1
Diluted 166,156 166,106 -

(1) Defined as the sum of long term and subordinated debt plus (minus) the working capital deficit (surplus) excluding the current portion of the fair value of the financial instruments.

MESSAGE TO SHAREHOLDERS

Delphi continues to focus on its Montney development at Bigstone, increasing the Company's cash generating capability through the growth of its liquids-rich production, towards a self-funded capital program.

Revenue generated during the first quarter of 2014 increased to $49.0 million, a 125 percent increase over the comparative quarter of 2013 which had revenues of $21.8 million. Funds from operations in the first quarter of 2014 were $20.4 million or $0.13 per basic share and $0.12 per diluted share compared to $9.4 million or $0.06 per basic and diluted share in the comparative quarter of 2013. The increase in funds from operations is primarily due to an increase in field condensate, natural gas liquids and natural gas production and an improvement in commodity prices in the first quarter of 2014, particularly natural gas prices.

Production volumes for the three months ended March 31, 2014 averaged a record 10,302 boe/d, an increase of 37 percent over the comparative quarter in 2013 and an increase of 15 percent over the fourth quarter of 2013. Two wells were brought on-stream in the quarter with the second one being brought on production later in the quarter upon completing the expansion of Delphi's 100 percent owned Montney compression and dehydration facility to 45 mmcf/d. Production from the Montney project at Bigstone increased to an average 5,770 boe/d in the first quarter of 2014, up 277 percent from 1,530 boe/d in the first quarter of 2013.

The Company's production portfolio for the first quarter of 2014 was weighted two percent to crude oil, 14 percent to field condensate, 14 percent to natural gas liquids and 70 percent to natural gas. This compares to a production portfolio for the comparative quarter of 2013 weighted four percent to crude oil, six percent to field condensate, 16 percent to natural gas liquids and 74 percent to natural gas. For the first quarter of 2014, Delphi's field condensate production increased 249 percent to 1,455 bbls/d and NGL production increased 26 percent to 1,493 bbls/d compared to the first quarter of 2013. Plant and field condensate production increased from 732 bbls/d to 1,881 bbls/d over this same comparative period.

The liquids-rich nature of the Montney production continues to strengthen the Company's cash generating capability, with Montney operating netbacks (excluding all commodity risk management contracts) of $35.82 per boe during the first quarter of 2014. With the growth Delphi has achieved in Montney production, opportunities are being pursued to further increase the Montney operating netbacks through lower operating and transportation costs and improved marketing arrangements yielding better NGL and condensate pricing.

Net capital expenditures in the first quarter were $37.4 million, which primarily included the drilling of three Montney horizontal wells and the completion and tie-in operations of three Montney horizontal wells. During the first quarter, the Company incurred $9.3 million on infrastructure to expand its Montney facility to 45 mmcf/d, increase field condensate storage to 6,000 bbls/d and install pipeline connections to deliver its Montney natural gas and natural gas liquids to SemCAMS K3 processing facility.

During the first quarter, the Company received a $30.0 million increase in the borrowing base of its senior credit facilities to $170.0 million upon completion of the lenders' annual review. As at March 31, 2014, the Company had net debt of $155.0 million on total credit facilities of $190.0 million. On an annualized first quarter funds from operations basis, Delphi's net debt to funds from operations ratio was 1.9:1, down from 3.0:1 at the end of 2013. Net debt includes subordinated and bank debt plus working capital deficiency excluding the fair value of financial instruments.

Operations

Bigstone Montney Program

The Company finished the planned winter drilling season ahead of schedule as a result of improved spud to spud cycle times. This enabled Delphi to accelerate the drilling of two additional wells that will be ready for completion operations after spring break-up. This positions the Company to manage a potential extended wet spring break-up period with minimal impact to market guidance production volumes and potentially increase the capital program later in the year. Delphi took advantage of pad drilling operations to drill the two additional wells from the common 1-19-60-22W5M surface pad. The 8-21-60-22W5M ("8-21") well (100 percent working interest) has reached a total depth of 5,580 metres with a horizontal lateral in the Montney of 2,692 metres. Drilling operations on the 2-7-60-22W5M well concluded shortly after the end of the first quarter.

At East Bigstone, Delphi has now drilled a total of 14 horizontal wells in the Montney formation, nine of which were completed with the slickwater hybrid fracturing technique, after completing the first three wells with conventional oil fracturing techniques in early 2012. The strong performance of the slickwater frac wells have become the basis for the Company's revised type well assumptions previously announced with the Company's 2013 year end results. The revised type well reflects a 34 percent increase in the IP30 production rate and a 40 percent increase in the initial total field condensate and plant NGL yield compared to the old type well. Wells #10 through #13 in the table below were drilled as part of the Company's winter capital program, with two of the wells (#10 and #11) now completed, equipped and tied-in.

The remaining two wells are planned to be completed later in the second quarter or early in the third quarter, subject to access to the field after spring break-up.

To view the table associated with this release titled "Initial Production (IP) Rate Well Performance", please visit the following link: http://media3.marketwire.com/docs/Delphi.jpg.

Delphi's 15-24-60-23W5M ("15-24") well has now been on production for 180 days and has produced at an average rate of approximately 1,059 boe/d (40 percent field condensate and plant NGL's) over this time period. The 15-24 well compares favourably to the revised type well (IP180 of 1,083 boe/d) but the rate at day 180 of 824 boe/d exceeds the revised type well rate at day 180 by ten percent (746 boe/d) showing how this well, despite a lower initial rate (IP30), has converged to the revised type well after six months of production.

The Company's 2-1-60-23W5M ("2-1") well, drilled from the same surface location as 15-24, has now been on production for 30 days and has produced at an average rate of approximately 634 boe/d. Total liquids, including estimated NGL plant recoveries, averaged 142 bbls/mmcf of which 72 percent was field produced condensate. The Company remains encouraged by the strong frac water clean-up rates and high liquids yield of the well and continues to evaluate the early time production performance of the well as more load frac water is recovered.

2014 Guidance

The 2014 capital program contemplates drilling and completing six extended-reach Montney horizontal wells and the start of the seventh prior to year-end utilizing the existing drilling rig. The expected improvement in AECO pricing and continued growth in volumes of the higher netback Montney production is expected to result in significant growth in funds from operations compared to 2013. This is expected to lead to a financial transformation of the Company in 2014 with the net debt to annualized fourth quarter funds from operations ratio decreasing to 2.1:1 by the end of the year.

The Company anticipates second quarter production to be affected by downtime for scheduled maintenance and turnarounds. Production for the second quarter is expected to be 9,500 boe/d to 10,000 boe/d while average annual and exit production is reaffirmed as stated below.

2013 Actuals 2014 Guidance % Change
Average Annual Production (boe/d) 8,241 10,000 - 10,500 24 %
Exit Production Rate (boe/d) 9,638 11,500 - 12,000 22 %
AECO Natual Gas Price (Cdn $ per mcf) $ 3.17 $ 4.00 26 %
WTI Oil Price (US $ per bbl) $ 98.00 $ 95.50 (3 %)
Net Capital Program ($ million) $ 82.3 $ 71.0 - $78.0 (10 %)
Funds from Operations ($ million) $ 39.1 $ 60.0 - $65.0 60 %
Net Debt at December 31 ($ million) $ 138.3 $ 143.0 - $150.0 6 %
Net Debt / Q4 FFO (Annualized) 3.0 2.1 (30 %)

Outlook

Delphi continues to focus on its Montney production and reserves base at Bigstone as it transforms to a self-funded growth business model. The Company has a total of eleven Montney horizontal wells on production in East Bigstone, with eight of those having been completed with the refined drilling and completion techniques yielding a step change in the economics of the Montney play in the Bigstone area.

The Company's success at East Bigstone increased corporate production to over 11,000 boe/d (29 percent NGL's and light oil) in April 2014 with two Montney wells drilled and ready for completion operations after spring break-up. Both of these wells are on an existing wellsite reducing the time and cost of completion and tie-in operations. In addition, the Company's 12-17 well in the southern portion of East Bigstone, which had been completed with a slickwater frac late in 2013, is planned to be tied-in and brought on production in the third quarter.

Corporate production volumes will be affected by turnaround and maintenance outages in mid 2014. The anticipated effect of the outages to the Company have been accounted for in current market guidance.

With the large development inventory assembled on 125 sections of Montney lands together with ownership in strategic infrastructure, the Company has never been better positioned with an asset capable of long term sustainable growth.

In 2014, the operational and financial transformation of the Company will continue, as strong cash netbacks and low -cost production and reserve additions from the growth in the Montney reshape the financial strength of the Company, creating a platform for self-funded long term growth.

Delphi's 5-year growth plan from 2014 to 2018 contemplates production growth to 28,000 boe/d by 2018, with targeted annual production per share growth of 28 percent and annual cash flow per share growth of 48 percent. Capital spending over the next five years to achieve that result under the plan is projected to be approximately $770 million, funded entirely from cash flow over the five year period to drill 70 Montney horizontal wells and fund the expansion of Delphi's 100 percent owned facility. The Company now has a project inventory that will provide economic growth beyond a 10-year horizon. Over this time period, the Company's balance sheet is forecast to continually strengthen, with internally generated cash flow funding the capital expenditures program on a go forward basis.

Recently, the Company initiated a public sale process of its greater Wapiti assets. Bids are due mid June 2014 on the asset package but there is no guarantee an acceptable bid will be received. The objective of selling these assets at an acceptable price is to initially reduce the Company's financial leverage and accelerate the development of the Montney at Bigstone.

On behalf of the Board of Directors and all the employees of Delphi, we would like to thank our shareholders for their continued support.

CONFERENCE CALL AND WEBCAST

A conference call and webcast to review Q1, 2014 results is scheduled for 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) on Thursday, May 15, 2014. The conference call number is 1-800-766-6630 or 416-340-8530. A brief presentation by David Reid, President and CEO and Brian Kohlhammer, Senior VP Finance & CFO, will be followed by a question and answer period. The conference call will also be broadcast live on the internet and may be accessed through the Delphi Energy website at www.delphienergy.ca

A taped rebroadcast will be available until 6:00 p.m. Mountain Time, Thursday, May 22, 2014. To access the rebroadcast, dial 1-800-408-3053 or 905-694-9451. The passcode is 8958485. It will also be available on Delphi's website. Delphi's first quarter 2014 financial statements and management's discussion and analysis are available on Delphi's website at www.delphienergy.ca and SEDAR at www.sedar.com.

Delphi Energy is a Calgary-based company that explores, develops and produces oil and natural gas in Western Canada. The Company is managed by a proven technical team. Delphi trades on the Toronto Stock Exchange under the symbol DEE.

Forward-Looking Statements. The release contains forward-looking statements and forward-looking information within the meaning of applicable Canadian securities laws. These statements relate to future events or the Company's future performance and are based upon the Company's internal assumptions and expectations. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "should", "believe", "intends", "forecast", "plans", "guidance", "budget" and similar expressions.

More particularly and without limitation, this release contains forward-looking statements and information relating to petroleum and natural gas production estimates and weighting, projected crude oil and natural gas prices, future exchange rates, expectations as to royalty rates, expectations as to transportation and operating costs, expectations as to general and administrative costs and interest expense, expectations as to capital expenditures and net debt, planned capital spending, future liquidity and Delphi's ability to fund ongoing capital requirements through operating cash flows and its credit facilities, supply and demand fundamentals for oil and gas commodities, timing and success of development and exploitation activities, cash availability for the financing of capital expenditures, access to third-party infrastructure, treatment under governmental regulatory regimes and tax laws and future environmental regulations.

Furthermore, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitable in the future.

The forward-looking statements and information contained in this release are based on certain key expectations and assumptions made by Delphi. The following are certain material assumptions on which the forward-looking statements and information contained in this release are based: the stability of the global and national economic environment, the stability of and commercial acceptability of tax, royalty and regulatory regimes applicable to Delphi, exploitation and development activities being consistent with management's expectations, production levels of Delphi being consistent with management's expectations, the absence of significant project delays, the stability of oil and gas prices, the absence of significant fluctuations in foreign exchange rates and interest rates, the stability of costs of oil and gas development and production in Western Canada, including operating costs, the timing and size of development plans and capital expenditures, availability of third party infrastructure for transportation, processing or marketing of oil and natural gas volumes, prices and availability of oilfield services and equipment being consistent with management's expect ations, the availability of, and competition for, among other things, pipeline capacity, skilled personnel and drilling and related services and equipment, results of development and exploitation activities that are consistent with management's expectations, weather affecting Delphi's ability to develop and produce as expected, contracted parties providing goods and services on the agreed timeframes, Delphi's ability to manage environmental risks and ha zards and the cost of complying with environmental regulations, the accuracy of operating cost estimates, the accurate estimation of oil and gas reserves, future exploitation, development and production results and Delphi's ability to market oil and natural gas successfully to current and new customers. Additionally, estimates as to expected average annual production rates assume that no unexpected outages occur in the infrastructure that the Company relies on to produce its wells, that existing wells continue to meet production expectations and any future wells scheduled to come on in the coming year meet timing and production expectations.

Commodity prices used in the determination of forecast revenues are based upon general economic conditions, commodity supply and demand forecasts and publicly available price forecasts. The Company continually monitors its forecast assumptions to ensure the stakeholders are informed of material variances from previously communicated expectations.

Financial outlook information contained in this release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this release should not be used for purposes other than for which it is disclosed.

Although the Company believes that the expectations reflected in such forward-looking statements and information are reasonable, it can give no assurance that such expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent known and unknown risks and uncertainties. Delphi's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits Delphi will derive therefrom. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the uncertainty of estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation, environmental risks, competition from others for scarce resources, the ability to access sufficient capital from internal and external sources, changes in governmental regulation of the oil and gas industry and changes in tax, royalty and environmental legislation. Additional information on these and other factors that could affect the Company's operations or financial results are included in the Company's most recent Annual Information Form and other reports on file with the applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

Readers are cautioned that the foregoing list of factors is not exhaustive. Furthermore, the forward-looking statements contained in this release are made as of the date of this release for the purpose of providing the readers with the Company's expectations for the coming y ear. The forward-looking statements and information may not be appropriate for other purposes. Delphi undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. The forward-looking statements contained in this release are expressly qualified in their entirety by this cautionary statement.

Basis of Presentation. For the purpose of reporting production information, reserves and calculating unit prices and costs, natural gas volumes have been converted to a barrel of oil equivalent (boe) using six thousand cubic feet equal to one barrel. A boe conversion ratio of 6:1 is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion conforms with the Canadian Securities Administrators' National Instrument 51-101 when boes are disclosed. Boes may be misleading, particularly if used in isolation.

As per CSA Staff Notice 51-327 initial test results and initial production performance should be considered preliminary data and such data is not necessarily indicative of long-term performance or of ultimate recovery.

Non-IFRS Measures. The release contains the terms "funds from operations", "funds from operations per share", "net debt", "operating netbacks" "cash netbacks" and "netbacks" which are not recognized measures under IFRS. The Company uses these measures to he lp evaluate its performance. Management considers netbacks an important measure as it demonstrates its profitability relative to current commodity prices and costs of production. Management uses funds from operations to analyze performance and considers it a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. Funds from operations is a non-IFRS measure and has been defined by the Company as cash flow from operating activities before accretion on long term and subordinated debt, decommissioning expenditures and changes in non-cash working capital from operating activities. The Company also presents funds from operations per share whereby amounts per share are calculated using weighted average shares outstanding consistent with the calculation of earnings per share. Delphi's determination of funds from operations may not be comparable to that reported by other companies nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. The Company has defined net debt as the sum of long term debt and subordinated debt plus/minus working capital excluding the current portion of the fair value of financial instruments. Net debt is used by management to monitor remaining availability under its credit facilities. Operating netbacks have been defined as revenue less royalties, transportation and operating costs. Cash netbacks have been defined as operating netbacks less interest and general and administrative costs. Netbacks are generally discussed and presented on a per boe basis.

For the calculation of finding, development and acquisition costs, recycle ratio and net asset value per share, refer to the Company's press release of crude oil and natural gas reserves information dated February 12, 2014.

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