Dundee Energy Limited

Dundee Energy Limited

October 25, 2013 17:01 ET

Dundee Energy Limited Announces Third Quarter 2013 Financial Results

TORONTO, ONTARIO--(Marketwired - Oct. 25, 2013) - Dundee Energy Limited ("Dundee Energy" or the "Corporation") (TSX:DEN) today announced its financial results for the three and nine months ended September 30, 2013. 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.

  • Net loss attributable to owners of the parent for the quarter ended September 30, 2013 was $1.5 million, compared with a net loss attributable to owners of the parent of $2.5 million incurred in the same period of the prior year.
  • Production volumes during the third quarter of 2013 averaged 12,022 Mcf/d of natural gas (third quarter of 2012 - 10,188 Mcf/d) and 608 bbls/d of oil and liquids (third quarter of 2012 - 721 bbls/d). Natural gas production volumes increased during the period and reflect the acquisition of an additional 20% working interest in certain offshore gas properties in southern Ontario for $4.9 million completed in July 2013. The decrease in oil production volumes results from the natural decline in the Corporation's assets.
  • Revenues, before royalty interests, earned from oil and natural gas sales during the third quarter of 2013 were $11.0 million, compared with revenues of $8.7 million earned during the third quarter of 2012. The increase in revenues results primarily from improvements in commodity prices, partially offset by lower production volumes.
  • Cash flow from operating activities, before changes in non-cash working capital items, decreased marginally to $2.0 million in the three months ended September 30, 2013, compared with $2.1 million in the same period of the prior year.
  • Field netbacks in the third quarter of 2013, before realized amounts related to risk management contracts, were $1.32/Mcf (third quarter of 2012 - $0.22/Mcf) from natural gas and $57.94/bbl (third quarter of 2012 - $49.49/bbl) from oil and liquids. Consistent with increases in revenues, increases in field netbacks result primarily from improved commodity prices.
  • Capital expenditures during the third quarter of 2013 were $3.4 million.
  • Cash and available credit under the Corporation's credit facilities totalled $3.8 million at September 30, 2013.


In the third quarter of 2013, production volumes increased to 2,612 boe/d compared with an average of 2,420 boe/d in the same period of 2012. The increase reflects production volumes from the Corporation's acquisition of additional working interests in natural gas properties completed in July 2013, offset by the natural decline in the Corporation's assets.

Average daily volume during the three months ended September 30, 2013 2012
Natural gas (Mcf/d) 12,022 10,188
Oil (bbls/d) 596 696
Liquids (bbls/d) 12 25
Total (boe/d) 2,612 2,420

The Corporation realized an average price on sales of natural gas of $4.41/Mcf during the third quarter of 2013, a substantial improvement over the average price of $3.09/Mcf realized in the same period of the prior year. The realized sales price for crude oil during the third quarter of 2013 averaged $111.32/bbl, a 26% increase from an average sales price of $88.59/bbl realized in the third quarter of the prior year.

Field Level Cash Flows and Field Netbacks

(in thousands)

For the three months ended September 30, 2013 2012
Oil and
Total Natural
Oil and
Total sales $ 4,875 $ 6,140 $ 11,015 $ 2,892 $ 5,794 $ 8,686
Royalties (736 ) (939 ) (1,675 ) (449 ) (878 ) (1,327 )
Production expenditures (2,672 ) (1,964 ) (4,636 ) (2,245 ) (1,631 ) (3,876 )
1,467 3,237 4,704 198 3,285 3,483
Realized risk management (loss) gain 196 (371 ) (175 ) 654 554 1,208
Field level cash flows $ 1,663 $ 2,866 $ 4,529 $ 852 $ 3,839 $ 4,691
For the three months ended September 30, 2013 2012
Oil and
Total Natural
Oil and
$/Mcf $/bbl $/boe $/Mcf $/bbl $/boe
Total sales $ 4.41 $ 109.90 $ 45.86 $ 3.09 $ 87.26 $ 39.02
Royalties (0.67 ) (16.81 ) (6.97 ) (0.48 ) (13.21 ) (5.96 )
Production expenditures (2.42 ) (35.15 ) (19.30 ) (2.39 ) (24.56 ) (17.41 )
1.32 57.94 19.59 0.22 49.49 15.65
Realized risk management (loss) gain 0.18 (6.64 ) (0.73 ) 0.70 8.34 5.43
Field netbacks $ 1.50 $ 51.30 $ 18.86 $ 0.92 $ 57.83 $ 21.08

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 of Canadian to US foreign exchange rates. At September 30, 2013, the Corporation had entered into risk management contracts for approximately 6,250 mbtu/d of natural gas at a fixed price of $4.07/mbtu and for approximately 500 bbls/d of crude oil at a fixed price of $98.22/bbl.

Capital Expenditures

During the third quarter, the Corporation incurred $3.4 million in capital expenditures. The Corporation continued its 2013 revised four-well drilling program during the third quarter, with the drilling of a horizontal re-entry of a 2012 vertical exploration well and the drilling of two exploration wells. The horizontal re-entry produced natural gas from a new geological formation and further drilling will be considered if gas production rates remain economic. One of the exploration wells was shut in pending further evaluation and the other was abandoned. Furthermore, the Corporation continued the processing of 2-D and 3-D seismic data, which will be critical in identifying future drill candidates.

As part of its offshore program, the Corporation completed its extensive pipeline replacement and relocation project. This project included dredging of the Port Burwell harbour, which will improve production efficiencies throughout Lake Erie.

2013 Work Program

The Corporation plans to expend a further $2.4 million in capital expenditures during the fourth quarter of 2013. The capital expenditure program includes the drilling of one exploration well at an estimated cost of $1.1 million; $0.5 million on completion costs on the exploration well previously shut in, and costs of $0.4 million to complete the 2013 2-D seismic program undertaken in the second and third quarters of the year.


On July 26, 2013, Escal UGS S.L. ("Escal"), the owner of the Castor Project, announced that it had arranged for the issuance of euro-denominated senior secured bonds (the "Euro Bonds") totalling EUR1.40 billion. The Euro Bonds are subject to an annual interest rate of 5.756%, payable semi-annually, and are repayable in equal semi-annual installments over a period of 21 and a half years, with the last payment due in December 2034. The Euro Bonds are listed on the Luxembourg stock exchange.

The Euro Bonds were issued by a special purpose vehicle, Watercraft Capital S.A. ("Watercraft"), a Luxembourg corporation. The proceeds from the issuance were subsequently on-lent to Escal, pursuant to a credit facility between Watercraft and Escal, and were used by Escal to repay amounts owing pursuant to Escal's existing bank-funded project financing arrangements. Escal provided a general security interest against its assets for the benefit of Watercraft to secure Escal's obligations under these arrangements, and the shareholders of Escal have pledged their respective shares in Escal as part of the overall security package. In addition, the European Investment Bank has provided a EUR200 million standby letter of credit as a form of subordinated credit enhancement instrument in support of the Euro Bonds.

Cushion Gas

In early 2013, Escal reached an agreement with Enagas S.A., the leading gas transporter in Spain, to provide the 600 million cubic metres of cushion gas required for completion of the Castor Project. Enagas subsequently completed the acquisition of approximately 125 million cubic metres, and injection of the cushion gas into the reservoir began in June 2013. Approximately 85% of the acquired cushion gas was completed by September 16, 2013, with the remaining 15% scheduled for injection to the reservoir at the end of October 2013.

In mid September, seismic activity was detected in the area surrounding the Castor Project. While the seismic activity did not affect the integrity of the facility and the underground reservoir, nor cause any damage, the Spanish authorities have implemented a suspension to the injection of further volumes of cushion gas until an independent assessment of the source of seismic activity is completed. Assessments completed by Escal indicate that the seismicity observed appears to be related to a secondary fault present in the area. Importantly, gas to liquid levels in the reservoir have remained stable, significantly reducing concerns over the leakage of cushion gas. A complete report of Escal's assessment of the seismic activity has been filed with the Spanish authorities for their review and consideration.

Following the reporting of the above events, on October 1, 2013, Fitch Ratings Inc. placed the Euro Bonds, previously rated at
BBB+ on a "Rating Watch Negative". Standard & Poor's subsequently reaffirmed its rating for the Euro Bonds issue at BBB.


At September 30, 2013, the Corporation held 32.2 million Series A Preference Shares of Eurogas International Inc. ("Eurogas International"). The Corporation has concluded that there is significant impairment in the par value of these shares and accordingly, the Corporation has fully provided against the carrying value of this asset, including any dividend amount receivable.

In June 2013, Eurogas International announced that, together with its joint venture partner, it had entered into a farmout agreement with DNO Tunisia AS ("DNO") with respect to the Sfax Permit and the associated Ras El Besh development concession (the "DNO Agreement"). The completion of the DNO Agreement is conditional on the approval by the relevant Tunisian authorities of the terms of the DNO Agreement, including the appointment of DNO as the operator, and is subject to other normal conditions of closing, including the absence of a material adverse change. In addition, and as a condition of the completion of the DNO Agreement, the Joint Venture had committed to complete the removal of an ocean-floor template previously assembled as part of the Ras El Besh development concession within the Sfax Permit. Work required to remove the template was completed in the third quarter of 2013. The DNO Agreement provides DNO with an 87.5% participating interest in the Sfax Permit in exchange for (i) a US$6 million cash payment to the joint venture, Eurogas International's share of which approximates US$2.7 million; and (ii) the carrying of 100% of all future costs associated with the Sfax Permit, including Eurogas International's commitment to the drilling of two exploration wells as outlined above.


The Corporation believes that important measures of operating performance include certain measures that are not defined under International Financial Reporting Standards ("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 risk 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, 2012.

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.

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