Dundee Energy Limited

Dundee Energy Limited

October 29, 2012 18:33 ET

Dundee Energy Limited Announces Third Quarter 2012 Financial Results

TORONTO, ONTARIO--(Marketwire - Oct. 29, 2012) - Dundee Energy Limited (TSX:DEN) ("Dundee Energy" or the "Corporation") today announced its financial results for the three and nine months ended September 30, 2012. The Corporation's unaudited condensed interim consolidated financial statements, along with management's discussion and analysis have been filed on the System for Electronic Document Analysis and Retrieval ("SEDAR") and may be viewed under the Corporation's profile at www.sedar.com or the Corporation's website at www.dundee-energy.com.

  • Cash flow from operating activities, before changes in non-cash working capital items, decreased to $2.1 million in the third quarter of 2012 compared with $2.3 million in the third quarter of the prior year, reflecting lower realized prices on sales of oil and natural gas.

  • Production volumes for the third quarter of 2012 averaged 10,188 Mcf/d of natural gas and 721 bbls/d of oil and liquids.

  • Revenues, before royalty interests earned from oil and natural gas sales during the third quarter of 2012 were $8.7 million, representing an average price of $3.09/Mcf on sales of natural gas and an average price of $87.26/bbl on sales of crude oil and liquids.

  • Field netbacks were $0.92/Mcf from sales of natural gas and $57.83/bbl from sales of oil and liquids.

  • Capital expenditures during the third quarter of 2012 were $3.9 million.

  • Cash and available credit under the Corporation's credit facilities totalled $3.7 million at September 30, 2012.

  • Net loss attributable to owners of the parent for the quarter ended September 30, 2012 was $2.5 million compared with a net loss attributable to owners of the parent of $1.1 million incurred in the third quarter of 2011.


Production Volumes
Average daily volume during the three months ended September 30, 2012 2011
Natural gas (Mcf/d) 10,188 10,698
Oil (bbls/d) 696 697
Liquids (bbls/d) 25 24
Total (boe/d) 2,420 2,504
Revenue from Oil and Gas Sales
For the three months ended September 30, 2012 2011
Realized Realized
Sales Prices ($/unit) Sales Prices ($/unit)
Natural gas $ 2,892 3.09 $ 4,508 4.58
Oil 5,675 88.59 5,747 89.51
Liquids 119 51.07 129 58.59
8,686 10,384
Less: Royalties at 15% (2011 - 16%) (1,327 ) (1,627 )
Net sales $ 7,359 $ 8,757

Revenues from oil and gas sales, net of associated royalties, were $7.4 million in the third quarter of 2012, compared with revenues of $8.8 million earned in the same quarter of the prior year. Declining oil and gas prices represented $1.2 million of the decrease, while the decline in natural gas production volumes represented a further $0.2 million decrease in revenues.

Natural gas prices as reported by NYMEX fell below US$2.00/Mcf in April 2012, as relatively warmer winter weather diminished demand, at the same time as new discoveries and technological changes resulted in a surplus of supply. More recently, the price of natural gas has rebounded marginally to approximately US$3.08/Mcf at September 30, 2012, reflecting, in part, increased consumption of electrical energy powered by natural gas in response to unusually high summer temperatures. In reaction to these market conditions, the Corporation realized an average price on sales of natural gas of $3.09/Mcf during the three months ended September 30, 2012, a decrease of 33% from the average price of $4.58/Mcf realized in the same period of the prior year. The decline in the market price of natural gas is partially mitigated by the Corporation's proximity to the Dawn Hub, a leading provider of natural gas supply to the greater Toronto market area, which provides the Corporation with a positive basis differential from average industry benchmarks.

During the three months ended September 30, 2012, the Corporation realized an average price on sales of oil of $88.59/bbl (three months ended September 30, 2011 - $89.51/bbl), representing a 1% decline. During the first half of 2012, slowing global economic growth and uncertainties in the European Union's ability to contend with its financial challenges, exerted downward pressure on the price for crude oil. Global oil prices tightened somewhat in the third quarter of 2012, as field maintenance issues and labour disputes affected output of crude oil from the North Sea, compounded with concerns over Iran's nuclear development program, and stimulus measures proposed by the US and European central banks to address concerns over global economic growth.

Price Risk Management

The Corporation has entered into fixed price derivative contracts for the purpose of protecting its oil and natural gas revenue from the volatility of oil and natural gas prices and the volatility in Canadian to US foreign exchange rates. During the third quarter of 2012, the Corporation realized a loss of $0.4 million (third quarter of 2011 - gain of $1.5 million) from these arrangements.

At September 30, 2012, the Corporation had locked in pricing for 500 bbls/d of oil production through to December 31, 2012 at a weighted average rate of $101.20/bbl. It had also locked in pricing on 7,000 mbtu/day of natural gas through to December 31, 2012 at $3.84/MMbtu. These risk management contracts protect pricing on approximately 69% of the Corporation's oil and natural gas production.

Field Level Cash Flows
For the three months ended
September 30,
2012 2011
Natural Gas Oil and Liquids Total Natural Gas Oil and Liquids Total
Total sales $ 2,892 $ 5,794 $ 8,686 $ 4,508 $ 5,876 $ 10,384
Realized risk management gain 654 554 1,208 355 296 651
Royalties (449 ) (878 ) (1,327 ) (681 ) (946 ) (1,627 )
Production expenditures (2,245 ) (1,631 ) (3,876 ) (2,805 ) (1,952 ) (4,757 )
Field level cash flows $ 852 $ 3,839 $ 4,691 $ 1,377 $ 3,274 $ 4,651
Field Netbacks
For the three months ended
September 30,
2012 2011
Natural Gas Oil and Liquids Total Natural Gas Oil and Liquids Total
$/Mcf $/bbl $/boe $/Mcf $/bbl $/boe
Total sales $ 3.09 $ 87.26 $ 39.02 $ 4.58 $ 88.53 $ 45.07
Realized risk management gain 0.70 8.34 5.43 0.36 4.46 2.82
Royalties (0.48 ) (13.21 ) (5.96 ) (0.69 ) (14.25 ) (7.06 )
Production expenditures (2.39 ) (24.56 ) (17.41 ) (2.85 ) (29.42 ) (20.65 )
Field netbacks $ 0.92 $ 57.83 $ 21.08 $ 1.40 $ 49.32 $ 20.18

Capital Expenditures

During the three months ended September 30, 2012, the Corporation incurred capital expenditures of $3.9 million on oil and gas properties in southern Ontario.

In addition to its planned capital work program, the Corporation purchased an onshore drilling rig at an estimated cost of $3.3 million, of which $2.9 million had been spent to September 30, 2012. The Corporation anticipates the drilling rig will be assembled and operational in October. The rig will augment the offshore drilling and completion barge operation in Lake Erie as the personnel and a portion of the equipment are interchangeable. Owning the rig will enhance drilling efficiencies significantly and provide the Corporation with complete control over the timing and safety aspects of its operations. It will also provide the Corporation with a monetization opportunity, as the rig may be leased to third parties.

The Corporation's remaining 2012 work program is budgeted at $5.0 million. The Corporation's capital programs will continue to focus on onshore oil projects and will include a number of facility initiatives to optimize oil production from existing fields. Furthermore, the Corporation will drill three development wells to increase production and to replenish reserves. The Corporation plans to spend a further $1.1 million to reprocess onshore and offshore 2-D seismic data before year end.

The Corporation's current cash flows generated from ongoing operating activities, as well as amounts available pursuant to its credit facility, provide the Corporation with sufficient cash flow to support its planned capital expenditures. In the event that the Corporation determines that it wants to augment its currently planned capital expenditure and drilling program, the Corporation may consider alternative sources of capital, including potential debt or equity issuances.


The construction of the Castor Project is complete, and is now subject to testing and subsequent commissioning into the Spanish gas system.

During the second quarter of 2012, the Government of Spain announced certain regulatory modifications to the remuneration regime applicable to underground gas storage facilities. Under the previous regime, eligible capital invested was to be repaid over a 10 year period beginning immediately after the commencement of operations. Regulatory modifications increase the repayment period to 20 years. Furthermore, these regulatory modifications significantly curtail the provisional remuneration available to gas storage projects during the construction period.

Escal has determined that these regulatory modifications have an unfavourable impact to the Castor Project economics and the related project financing. Consequently, Escal has entered into discussions with the Government of Spain with a view to finding solutions that would re-establish the economic value of the project. Such discussions are ongoing, with the full knowledge and involvement of the lenders to the project. Accordingly, further borrowings pursuant to the project financing arrangements have been deferred until a satisfactory agreement has been reached between all parties.

In the interim, Escal has continued with the commissioning process. On July 6, 2012, Escal was granted the provisional commissioning certificate necessary to commence the injection of cushion gas into the Castor facilities. This key milestone signifies that the facility is ready for service, subject to the injection of cushion gas and certain subsequent performance testing. However, in light of the regulatory modifications discussed above, Escal has chosen to defer the acquisition of cushion gas until such time as an acceptable solution has been agreed upon with the Spanish government and the lenders to the Castor Project. Meanwhile, Escal is ensuring that the systems and components of the Castor facilities are carefully maintained.


At September 30, 2012, the Corporation held 32.2 million Series A Preference Shares of Eurogas International Inc. ("Eurogas International") at a nominal value. In June 2011, Eurogas International received approval from the Tunisian government for a one-year extension in respect of the Sfax permit to December 8, 2012. As a condition to the extension, Eurogas International and its joint venture partner committed to drilling one exploration well prior to the maturity date. If this drilling commitment is not completed, the joint venture partners may be subject to a compensation payment of up to US$12 million.

Eurogas International and its joint venture partner have identified three separate drilling locations which they consider prospective for containing oil reserves, each of which would, if drilled, meet the joint venture's current drilling commitment. In anticipation of commencing its drilling program, during the third quarter of 2012, the joint venture partners began a procurement process to identify a suitable drilling rig. In September 2012, the joint venture partners determined that they would not be able to secure the appropriate drilling rig in sufficient time to meet the joint venture's current drilling commitment and, as a result, the joint venture partners filed an application with the Tunisian Director General of Energy for a renewal of the Sfax permit for an additional three-year period. In addition, the joint venture requested an extension of the drilling commitment period to coincide with the renewal period. As of the date hereof, there can be no certainty that the Tunisian authorities will grant the three-year renewal to the Sfax permit, or concede on the deferral of the drilling commitment. Eurogas International received a commitment from Dundee Corporation to provide the necessary financial resources to enable Eurogas International to meet its drilling obligation pursuant to the terms of the Sfax permit, subject to certain conditions, including obtaining the consent of the Tunisian authorities to an extension of the Sfax permit.


The Corporation believes that important measures of operating performance include certain measures that are not defined under IFRS and as such, may not be comparable to similar measures used by other companies. While these measures are non-IFRS, they are common benchmarks in the oil and natural gas industry, and are used by the Corporation in assessing its operating results, including net earnings and cash flows.

  • "Field Level Cash Flows" are calculated as revenues from oil and gas sales, less royalties and production expenditures, adjusted for realized gains or losses on price management contracts.

  • "Field Netbacks" refers to field level cash flows expressed on a measurement unit or barrel of oil equivalent basis.


Dundee Energy Limited is a Canadian-based oil and natural gas company with a mandate to create long-term value for its shareholders through the exploration, development, production and marketing of oil and natural gas, and through other high impact energy projects. Dundee Energy holds interests, both directly and indirectly, in the largest accumulation of producing oil and gas assets in Ontario, in the development of an offshore underground natural gas storage facility in Spain and, through a preferred share investment, in certain exploration and evaluation programs for oil and natural gas offshore Tunisia. The Corporation's common shares trade on the Toronto Stock Exchange under the symbol "DEN".


Certain information set forth in these documents, including management's assessment of each of the Corporation's future plans and operations, contains forward-looking statements. Forward-looking statements are statements that are predictive in nature, depend upon or refer to future events or conditions or include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" or similar expressions. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Corporation's control, including: exploration, development and production risks; uncertainty of reserve estimates; reliance on operators, management and key personnel; cyclical nature of the business; economic dependence on a small number of customers; additional funding that may be required to execute on exploration and development work; the ability to obtain, sustain or renew licenses and permits; risks inherent to operating and investing in foreign countries; availability of drilling equipment and access; industry competition; environmental concerns; climate change regulations; volatility of commodity prices; hedging activities; potential defects in title to properties; potential conflicts of interest; changes in taxation legislation; insurance, health, safety and litigation risk; labour costs and labour relations; geo-political risks; risks relating to management of growth; aboriginal claims; volatility of the Corporation's share price; royalty rates and incentives; regulatory risks relating to oil and natural gas exploration; marketability and price of oil and natural gas; failure to realize anticipated benefits of acquisitions and dispositions; information system risk; and other risk factors discussed or referred to in the section entitled "Risk Factors" in the Corporation's Annual Information Form for the year ended December 31, 2011.

Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The Corporation's actual results, performance or achievement 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 the Corporation will derive from them. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Contact Information

  • Dundee Energy Limited
    Jaffar Khan
    President & CEO
    (403) 264-4985
    (403) 262-8299 (FAX)

    Dundee Energy Limited
    c/o Dundee Corporation
    21st Floor, Dundee Place
    1 Adelaide Street East
    Toronto, ON M5C 2V9