Iona Energy Inc.
TSX VENTURE : INA

Iona Energy Inc.

August 28, 2014 21:25 ET

Iona Energy Inc. Announces 2014 Second Quarter Financial Results

CALGARY, ALBERTA--(Marketwired - Aug. 28, 2014) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR DISSEMINATION IN UNITED STATES

Iona Energy Inc. ("Iona" or the "Company") (TSX VENTURE:INA) announces its financial results for the three and six months ended June 30, 2014.

FINANCIAL & OPERATING HIGHLIGHTS

(in United States dollars (tabular amounts in thousands) except as otherwise noted)

Three months ended June 30, Six months ended June 30,
2014 2013 Change 2014 2013 Change
Financial
Crude oil and natural gas revenues $ 27,100 $ 11,843 129% $ 62,748 $ 13,701 358%
Cost of sales (11,103) (5,610) 98% (17,611) (6,406) 175%
Depletion, Depreciation & Amortization (16,670) (4,451) 275% (35,598) (5,417) 557%
Gross Profit (673) 1,782 (85%) 9,539 1,878 408%
Gross Profit before DD&A 15,997 6,233 157% 45,137 7,295 519%
Income (loss) Before Tax (24,065) 9,415 (353%) (23,348) (12,748) 83%
Income (loss) After Tax (28,027) 9,117 (69%) (28,365) (2,828) 903%
Per share - basic ($) (0.08) 0.02 (0.08) (0.01)
Per share - diluted ($) (0.08) 0.02 (0.08) (0.01)
Funds Flow(1) 3,345 3,911 (14%) 30,433 2,160 1,309%
Per share - basic ($) 0.01 0.01 0.08 0.01
Per share - diluted ($) 0.01 0.01 0.08 0.01
Adjusted EBITDA(1) 9,647 3,001 228% 36,790 6,282 209%
Per share - basic ($) 0.03 0.01 0.10 0.02
Per share - diluted ($) 0.03 0.01 0.10 0.02
June 30, December 31,
2014 2013
Cash and cash equivalents $ 32,819 $ 19,808
Restricted cash 82,387 85,114
Working capital surplus(1) 88,847 79,075
Secured bonds 264,868 $ 262,450
Common shares, end of period 366,831 366,831
Fully diluted, end of period(1) 366,831 369,225
Weighted average common shares - basic 366,831 360,849
Weighted average common shares - fully diluted 366,831 363,078
Three months ended
June 30,
Six months ended
June 30,
2014 2013 Change 2014 2013 Change
Operational
Crude oil and natural gas production (boepd)(2)
Crude oil 2,284 1,179 94% 2,876 1,179 144%
Natural gas 475 655 (27%) 556 487 14%
Total 2,759 1,834 50% 3,432 1,666 106%
Realized sales prices
Crude oil ($/boe) 109.10 102.00 7% 108.42 102.00 6%
Natural gas ($/mmcf) 7.77 10.00 (22%) 8.78 10.00 (12%)
Average ($/boe) 101.20 86.99 16% 99.33 89.72 11%
Operating costs(1) ($/boe) 38.69 40.07 (3%) 27.39 38.02 (28%)
Netback(1) ($/boe)(3) 62.51 46.92 33% 71.94 51.70 39%
(1) Non-GAAP measure - see "non-IFRS Measures" section within MD&A.
(2) Based on 17.55% economic interest of volumes from Huntington.
(3) 23% reduction in Q2 three month ended June 30, 2014 netback compared to Q1 three month netback mainly relates to 34% decrease in production.

FINANCIAL

  • Iona recorded corporate quarterly average production during the three and six months ended June 30, 2014 of 2,759 boepd and 3,432 boepd respectively.
  • The Company realized 2nd quarterly revenue of $27.1 million and revenue for the six month period ending June 30, 2104 of $62.7 million.
  • Revenues of $27.1 million for the three months ended June 30, 2014 consisted of $23.9 million from oil production, $1.1 million from gas production and $2.1 million from the Company's royalty interest at Huntington.
  • Revenues of $62.7 million for the six months ended June 30, 2014 consisted of $52.8 million from oil production, $5.3 million from gas production, $241,000 from condensate and $4.4 million from the Company's royalty interest at Huntington.
  • The average realized oil price for the three and six month period ended June 30, 2014 was $109.10 per barrel and $108.42 per barrel respectively while the average realized gas price for the three month and six month period ended June 30, 2014 was $7.77 per mcf and $8.78 per mcf respectively.
  • Netbacks of $62.51/boe and $71.94 for the three and six months ending June 30, 2014, respectively, the 23% reduction in netbacks from Q1 mainly relates to a 34% decrease in production.
  • Funds flow of $3.3 million and $30.4 million for the three and six months ending June 30, 2014, respectively.
  • Adjusted EBITDA of $9.6 million and $36.8 million for the three and six months ending June 30, 2014, respectively.
  • The Company has corporate tax pools of approximately $331 million and does not expect to pay UK taxes until 2017 or later.
  • The Company's current production is not subject to any crown or third party royalties on any revenues, now or in the foreseeable future.

CORPORATE

  • The Company, through its wholly owned UK subsidiary, Iona UK Developments Co Limited, entered into a Sale and Purchase Agreement ("SPA") with Perenco UK Limited ("Perenco"), to purchase Perenco's remaining 80% working interest, rights, and obligations in the Trent & Tyne fields (including the Trent East Discovery Area). Upon satisfaction of certain conditions as set out in the SPA, the Company shall pay to Perenco, a further sum of $18,000,000, as adjusted pursuant to any adjustments as per the SPA and assume all decommissioning liabilities in relation to Licenses being purchased. Payment shall be made no later than six (6) calendar months after the date of the SPA or on such later date as agreed in writing.
  • On May 6, 2014 the bondholders of Iona's September 2013 bond issuance voted in favour of amending the bond agreement to include restricted cash within the definition of cash and cash equivalents. The amendment is applied retroactively from the date of issue so that the amendment applies to the covenant calculation as at March 31, 2014 and December 31, 2013.
  • The Company realized revenue for the three and six months ended June 30, 2014 of $27.1 and $62.7 million and received netbacks of $62.51/boe and $71.94/boe respectively. Netbacks in Q2 were impacted by decreased production due to CATS restrictions at Huntington as the majority of operating costs remained fixed.
  • The Company has tax pools of approximately $331 million and does not expect to pay UK taxes until 2017 or later.
  • The Company's current production is not subject to any crown or third party royalties on any revenues, now or in the foreseeable future.

OUTLOOK

  • During August 2014, two significant efforts were finalized which the Company's management believe will increase future cash flow and profitability.
  • Foremost, the first stage separator of Huntington's Voyageur FPSO, which across the second quarter had restricted production at the field due to scale build-up, has been entered and cleaned out. This remedial work took place during the August shutdown at the Central Area Transmission System ("CATS"), under which Huntington's production was curtailed, and the field is now expected to resume to maximum production rates, under the current CATS restriction, of approximately 25,000 boepd.
  • Secondly, the Company retired the remaining 3,658,051 calls (effective April 2014 through March 2018) sold to Britannic Trading Limited ("BTL) in February of 2013. The Company will settle this transaction through two equal payments of $13,250,000, paid on August 18, 2014 and February 10, 2015. Simultaneously, the company entered into a Zero Cost Producer Collar with BTL, whereby Iona UK purchased 458,352 puts (effective August 2014 through July 2015) at a strike price of $90.00 per barrel, and sold to BTL 1,650,000 calls (effective October 2018 through March 2020) at a strike price of $90.00 per barrel. This trade allows Iona to partake in today's strong Brent pricing while providing downside protection across the coming year, in addition to decreasing its financial exposure to the previous structure while development continues at Trent & Tyne, Orlando, and Kells. The Company will settle this transaction using currently escrowed and interest-bearing funds that were otherwise restricted under its Bond Agreement.

KEY PROJECT HIGHLIGHTS

Huntington (17.55% Economic Interest)

  • Iona's Q2 2014 average production at Huntington decreased 34% over Q1 2014, from 3,896 boepd to 2,563 boepd, resulting from unplanned shutdowns of the Voyageur FPSO and within the Central Area Transmission System ("CATS").
  • Average production at Huntington increased 147% for the six month period ended June 30, 2014 to 3,204 boepd compared to average production during the same period in 2013 of 1,197 boepd (adjusted for production commencing on April 12, 2013).
  • From April 12 to April 24, 2014, Huntington production was suspended as the Voyageur FPSO underwent repairs to its inert gas system, work that was completed ahead of schedule, and production resumed on April 25, 2014. On April 26, 2014, the Huntington partnership was notified of an unplanned shutdown of the Central Area Transmission System's ("CATS") riser platform, shutting in multiple fields that export across the system. Huntington resumed production on May 11, 2014 and the field has been producing largely uninterrupted for the remainder of quarter at below peak rates.
  • As of June 29, 2014, Huntington had offloaded 29 cargos and produced 7.8 million barrels of oil equivalent with Iona's net share of production being above 1.3 million barrels of oil equivalent. Across Q2, Brent pricing remained strong averaging $109.67/bbl while UK gas prices softened to $7.59/mcf.
  • After some remedial work on the Voyageur FPSO in early July, Huntington resumed full production on July 8, 2014 with relatively stable albeit restricted production due to CATS. As per instructions from the CATS operator Huntington production was shut in on July 31, 2014. Planned maintenance was completed at Huntington during the shut in with production resuming on August 24, 2014. During the shut in significant scale deposits were removed from the first stage separator and the inlet pipework which should enable production to resume to maximum production, under the current CATS restriction, of approximately 25,000 boepd.
  • The Huntington partnership has commenced its final engineering phase ("Concept Definition") of the Maxwell development with the operator of the Voyageur FPSO. Iona supports the drilling of Maxwell in 2015.

Trent &Tyne (20% Working Interest, increasing to 100% working interest upon closing of SPA of Oct 1, 2014)

  • During the quarter the Company, through its wholly owned UK subsidiary, Iona UK Developments Co Limited, entered into a Sale and Purchase Agreement ("SPA") with Perenco UK Limited ("Perenco"), to purchase Perenco's remaining 80% working interest, rights, and obligations in the Trent & Tyne fields (including the Trent East Discovery Area). This acquisition will constitute a business combination. The acquisition is expected to close, upon satisfaction of certain conditions as set out in the SPA, including financing and Department of Energy & Climate Change ("DECC") approval.
  • Across the quarter, production at Trent & Tyne continued to be severely reduced resulting from planned and unplanned maintenance outages at the fields and at the Bacton terminal, in addition to continued intermittent well performance. The net average daily production rate from Trent & Tyne to Iona during the three and six months ended June 30, 2014 was 1.2 MMcf/d and 1.4 MMcf/d compared to 3.9 MMcf/d and 2.9 MMcf/d average during the three and six months ended June 30, 2013. Stable production resumed near the end of July 2014 with the fields averaging 14 MMcf/d gross 100% interest, 2.3 MMcf/d net 20% interest, of which the 100% interest relates to the working interest Iona intends to hold upon the completion of the acquisition of the further 80% interest.
  • On June 9th, the Company announced that it had signed a Transition Services Agreement with Wood Group PSN Ltd. ("Wood Group") and Senergy Wells Ltd. ("Senergy") in support of its acquisition of the remaining working interest in Trent & Tyne from Perenco. The agreements cover work required receive consent from the DECC" for the transfer of operatorship, assignment of the interests, and other regulatory approvals to enable Iona to operate the two fields and the associated EAGLES pipelines which transport production to the Bacton terminal. The transition plan also includes working with the current operator to identify and implement well work to increase production from existing well stock and to mature opportunities drilling fresh gas accumulations. Transfer of operatorship to Iona is expected to take place upon closing.

Orlando (75% Working Interest)

  • During the quarter, Iona's Orlando Development project team, in coordination with the Company's contracted project manager ADIL, continued to implement the project activities for the subsea tie back to the Ninian Central platform.
  • Iona continues to be in discussion with the Operator of the Ninian Central Platform and DECC regarding specific timing of infrastructure access which drives the exact timing of first oil delivery.

Ronan & Oran (100% Working Interest)

  • The Company completed key reservoir, seismic, and development studies that defined the contingent resource potential of 1C 47MMbbls, 2C 61MMbbls and 3C 84MMbbls for the two oil discoveries referred to as Ronan & Oran. A further 22MMBoe potential, prospective resource has been identified to lie to the north west in an area of limited seismic coverage. An appraisal well is planned in 2015 to further evaluate the reservoir (including a flow test) with the intention of converting some of the currently defined contingent resources to reserves, and to enable a Field Development Plan to be submitted. Please refer to "Notes Regarding Oil and Gas Disclosure" for further information.

CHANGE IN PRESENTATION CURRENCY

This press release is presented in United States dollars ("US dollars"). In 2013, the Company changed its presentation currency from the Canadian dollars ("CAD") to the US dollar. The change in presentation currency is to better reflect the Company's business activities and to improve investors' ability to compare the Company's financial results with other publicly traded businesses in the oil and gas industry. In making this change to the US dollar presentation currency, the Company followed the guidance in IAS 21 The Effects of Changes in Foreign Exchange Rates and have applied the change retrospectively as if the new presentation currency had always been the Company's presentation currency. In accordance with IAS 21, the financial statements for all years and periods presented have been translated to the new US dollar presentation currency. For the 2013 comparative balances, assets and liabilities have been translated into the presentation currency (US dollars) at the rate of exchange prevailing at the reporting date. Items impacting income (loss) or comprehensive income (loss) were translated at the average exchange rates for the reporting period, or at the exchange rates prevailing at the date of transactions.

NON-GAAP FINANCIAL MEASURES

Throughout this press release, the Company uses the terms "funds flow", "funds flow per share - basic", "funds flow per share - diluted", "Adjusted EBITDA", "Adjusted EBITDA per share - basic", "Adjusted EBITDA per share - diluted", "working capital" and "operating netback". These terms do not have any standardized meaning as prescribed by IFRS and, therefore, may not be comparable with the calculation of similar measures presented by other issuers. Management uses working capital and operating netback measures. Working capital is calculated as current assets less current liabilities, and is used to evaluate the Corporation's financial leverage. Operating netback is a benchmark common in the oil and gas industry and is calculated as total petroleum and natural gas sales, less production and transportation expenses, calculated on a per barrel equivalent ("boe") basis of sales volumes using a conversion. Operating netback is an important measure in evaluating operational performance as it demonstrates field level profitability relative to current commodity prices. Working capital and operating netback as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities.

Funds flow is calculated based on cash flow from operating activities before changes in non-cash working capital. Adjusted EBITDA is calculated as net income before finance costs, derivative gains and losses, taxes, depletion, depreciation and amortization. Funds flow or Adjusted EBITDA per share - basic and funds flow or Adjusted EBITDA per share - diluted are calculated as funds flow or Adjusted EBITDA divided by the number of weighted average basic and diluted shares outstanding, respectively. Management utilizes funds flow and Adjusted EBITDA as key measures to assess the ability of the Company to finance dividends, operating activities, capital expenditures and debt repayments. Funds flow and Adjusted EBITDA as presented are not intended to represent cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS.

Notes:

Further details on the above are provided in the Consolidated Financial Statements and Management's Discussion and Analysis for the quarter ended June 30, 2014 and the year and quarter ended December 31, 2013, which have been filed with securities regulatory authorities in Canada. These documents are available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com and on the Company's website: www.ionaenergy.com.

Iona is an oil and natural gas acquisition, appraisal, and development corporation active through its 100% wholly owned United Kingdom subsidiary, Iona Energy Company (UK) Ltd. in the United Kingdom's Continental Shelf ("UKCS").

Forward-looking statements

Some of the statements in this announcement are forward-looking, including statements regarding Iona's plans for the development of its properties, statements regarding acquisitions, estimated production levels, anticipated effects of the UK small field allowance, and estimates of the net present value of future net revenue of proved and probable reserves from Iona's properties. Forward-looking statements include statements regarding the intent, belief and current expectations of Iona Energy Inc. or its officers with respect to various matters, including assumptions regarding Huntington production rates. When used in this announcement, the words "expects", "believes", "anticipate", "plans", "may", "will", "should", "scheduled", "targeted", "estimated" and similar expressions, and the negatives thereof, whether used in connection with estimated production levels and future activity or otherwise, are intended to identify forward-looking statements. Such statements are not promises or guarantees, and are subject to risks and uncertainties that could cause actual outcome to differ materially from those suggested by any such statements, including without limitation, the risk that Iona's development plans change as a result of new information or events or the risk that proposed transactions are not completed. These forward-looking statements speak only as of the date of this announcement. Iona Energy Inc. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based except as required by applicable securities laws.

Notes Regarding Oil and Gas Disclosure

Note: "Boe" means barrel of oil equivalent on the basis of 6 mcf of natural gas to 1 bbl of oil. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

It should not be assumed that the present worth of estimated future net revenue represents the fair market value of the reserves disclosed in this press release. The reserve and related revenue estimates set forth in this press release are estimates only and the actual reserves and realized revenue may be greater or less than those calculated. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. As used in this press release, "possible reserves" are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

All contingent resources and prospective resources estimates herein relating to Ronan and Oran have been prepared by a non-independent qualified reserves evaluator of the Company, effective as of April 25, 2014.

"contingent resources" is defined in the Canadian Oil and Gas Evaluation Handbook as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. Contingent Resources are further classified in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their economic status.

1C, 2C and 3C refer to the low estimate, best estimate, and high estimate, respectively, of contingent resources. The Ronan and Oran fields are currently at an early stage of evaluation and require further analysis to confirm their economic viability. Additionally, the resources in each of these fields are currently classified as Contingent Resources rather than reserves due to the current lack of access to infrastructure in the region for each field. Additional drilling and testing are required to confirm volumetric estimates and reservoir productivity for the Contingent Resources to be classified as reserves.

The Contingent Resources estimates are estimates only and the actual results may be greater than or less than the estimates provided herein. There is no certainty that it will be commercially viable or technically feasible to produce any portion of the resources.

"prospective resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. Prospective resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be sub classified based on project maturity. There is no certainty that any portion of the undiscovered resources will be discovered. If a discovery is made, there is no certainty that it will be commercially viable to produce any portion of the resources nor can there be any certainty regarding the timing of any such development.

Additionally, this press release uses certain abbreviations as follows:

Oil and Natural Gas Liquids Natural Gas
bbls barrels mcf thousand cubic feet
Mbbls thousand barrels mcf/d thousand cubic feet per day
MMbbls million barrels MMcf millions of cubic feet
bbls/d barrels per day MMcf/d millions of cubic feet per day
bopd barrels of oil per day Bcf billion cubic feet
NGLs natural gas liquids

Neither the TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Iona Energy Inc.
    Neill A. Carson
    Chief Executive Officer
    +011 (44) 1224 228400

    Iona Energy Inc.
    Graham Heath
    Interim Chief Financial Officer
    +1 (403) 605-6726
    info@ionaenergy.com