CALGARY, AB--(Marketwired - November 19, 2015) - Marquee Energy Ltd. ("Marquee" or the "Company") (
OPERATIONS UPDATE
Marquee has completed its 2015 drilling program at Michichi. Due to ongoing cost optimization initiatives the summer drilling program was completed with drilling, completion, and tie-in costs of approximately $2 million per well, which is 25% lower than the program in 2014. All four light oil horizontal wells of the summer program are now on production and are at or above type curve in production performance. Drilling of Michichi light oil wells continues to demonstrate good economics in the current low price environment.
All four wells drilled by Marquee at Michichi in the third quarter of 2015 demonstrated IP15 rates above 200 boe/d. Three of these wells were drilled from a multi well pad offsetting Marquee's first quarter Banff discovery well and brought on production during the third week of October. All four wells on the multi-well pad are connected by flowline to an oil battery on a nearby lease. Recent production from the three new wells on the pad exceeds 700 boe/d (average >230 boe/d each or ~25% above current type curve) with further optimization anticipated.
Marquee is committed to implementing long term enhanced recovery initiatives to maximize future returns and oil recoveries and, as such, has completed a waterflood study that indicates recovery factors could be doubled in the Michichi light oil play. The model shows that an additional 600,000 barrels of oil per section could be recovered in the study area with the contemplated waterflood design. Plans are to complete engineering evaluations, design and submit waterflood project and injection well applications in the second quarter of 2016.
2015 THIRD QUARTER RESULTS AND HIGHLIGHTS
- Balance sheet strength was maintained through the third quarter with exit net debt of $51.9 million, down 19% from year end 2014 net debt of $63.1 million.
- Drilled three Banff light oil horizontal wells from a single pad and drilled and completed one Banff light oil horizontal well on a separate pad during Q3. The three pad wells were completed subsequent to quarter end and all wells are now on stream. Production in the third quarter averaged 4,703 boe/d with an oil and liquids weighting of 45%. Production was impacted by the shut-in of approximately 200 boe/d of production deemed to be uneconomic in the current commodity price environment and production losses resulting from planned gas plant turnarounds. Completion and tie-in of three of the four wells drilled in the quarter were delayed until October to take advantage of lower completion service costs and as a result production additions from the new drilling won't be realized until the fourth quarter.
- Maintained a disciplined hedging program with hedging gains of $7.1 million during the nine month period and $1.3 million during the third quarter. Approximately 70% of our light oil is hedged at a WTI CAD price of $75.10/bbl and 40% of natural gas is hedged at a price of $2.83/GJ until year end.
- A non-dilutive strategic consolidation acquisition at Michichi was completed in the third quarter for $12.7 million with a concurrent Facility Agreement where Marquee sold certain related gas processing infrastructure for $15 million where the Company will rent the facility, act as operator and retain third party processing revenues. This transaction expanded the Company's land base, drilling inventory and gas gathering infrastructure and further strengthened Marquee's control of its Michichi Banff light oil play.
- The Company realized a net loss of $17.8 million for the third quarter primarily resulting from decreased netbacks due to the significant drop in commodity prices, $5.0 million in impairment charges, and $9.7 million in non-cash deferred tax expenses.
- Due to the significant drop in commodity prices, Marquee recorded impairment charges to its Heavy oil and Non-core CGUs in the amount of $4.2 million and $0.8 million respectively. Impairment tests were calculated on Marquee's core area of Michichi and it was determined no impairment was needed due to the recoverable amount exceeding its carrying value.
SUBSEQUENT EVENTS
- An independent contingent resources evaluation was performed confirming an estimated Discovered Petroleum Initially in Place ("DPIIP") of 357.5 million barrels of oil targeted in the Banff and Detrital light oil zones on net lands owned by Marquee in the Michichi operating area. The evaluation supports Marquee's estimates of more than 300 potential drilling locations at Michichi.
- The Company's lenders completed the semi-annual review of Marquee's reserves subsequent to the end of the third quarter and have agreed to maintain our credit facility at the current $70 million until the next semi-annual review and determination in April 2016.
CORPORATE UPDATE
The Company continues to focus on reducing operating and G&A expenses and improving capital efficiencies. Marquee has seen it's per well costs on its core Michichi play fall from almost $3 million in 2013 to less than $2 million recently. At the same time initial well productivity has risen to more than 200 boe/d as seen in all 5 Michichi wells drilled in 2015. This can be attributed to such factors as optimized drilling and completion programs and better well selection though the use of 3D seismic and concentrating in areas of stacked oil zones.
Marquee is continuing to see a reduction in the cost of goods and services provided by third parties and in particular has negotiated lower trucking costs and realized reductions in chemical costs. Additionally, Marquee has shut-in approximately 200 boe/d of production in non-core areas that are deemed to be uneconomic at current commodity prices. All aspects of the Company's operations will be rationalized to further reduce operating costs and improve netbacks.
In order to reduce G&A expenses Marquee has suspended company contributions to the Employee Savings Plan, rationalized computer software, corporate memberships, entertainment related expenses and third party data services. The Company has provided notice of cancellation of its current office lease in order to take advantage of significantly lower priced office space in the current downtown office leasing market. Third quarter overhead expenses were impacted by one time employment related matters and transaction related costs.
FINANCIAL AND OPERATING HIGHLIGHTS
| Three months ended | Nine months ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||
| Financial(000's except per share and per boe amounts) | |||||||||||||||||
| Oil and natural gas sales (1) | $ | 12,792 | $ | 23,071 | $ | 42,984 | $ | 68,948 | |||||||||
| Funds flow from operations (2) | $ | 2,613 | $ | 10,389 | $ | 15,993 | $ | 27,055 | |||||||||
| Per share - basic and diluted | $ | 0.02 | $ | 0.09 | $ | 0.13 | $ | 0.25 | |||||||||
| Per boe | $ | 6.04 | $ | 21.96 | $ | 11.41 | $ | 20.91 | |||||||||
| Net income (loss) | $ | (17,837 | ) | $ | (13,255 | ) | $ | (26,718 | ) | $ | (15,105 | ) | |||||
| Per share - basic and diluted | $ | (0.15 | ) | $ | (0.11 | ) | $ | (0.22 | ) | $ | (0.14 | ) | |||||
| Capital expenditures | $ | 8,577 | $ | 23,190 | $ | 16,153 | $ | 40,361 | |||||||||
| Asset acquisitions | $ | 12,687 | $ | 205 | $ | 27,049 | $ | 13,048 | |||||||||
| Dispositions | $ | (15,000 | ) | $ | (15,199 | ) | $ | (38,653 | ) | $ | (15,728 | ) | |||||
| Net debt (2) | $ | 51,904 | $ | 54,739 | |||||||||||||
| Total Assets | $ | 259,756 | $ | 276,951 | |||||||||||||
| Weighted average basic and diluted shares outstanding | 120,341 | 120,338 | 120,341 | 107,173 | |||||||||||||
| Operational | |||||||||||||||||
| Net wells drilled | 4.0 | 8.0 | 6.0 | 14.0 | |||||||||||||
| Daily sales volumes | |||||||||||||||||
| Oil (bbls per day) | 1,437 | 1,379 | 1,631 | 1,346 | |||||||||||||
| Heavy Oil (bbls per day) | 542 | 531 | 644 | 523 | |||||||||||||
| NGL's (bbls per day) | 152 | 253 | 188 | 210 | |||||||||||||
| Natural Gas (mcf per day) | 15,430 | 17,881 | 15,916 | 15,960 | |||||||||||||
| Total (boe per day) | 4,703 | 5,143 | 5,116 | 4,739 | |||||||||||||
| % Oil and NGL's | 45 | % | 42 | % | 48 | % | 44 | % | |||||||||
| Average realized prices | |||||||||||||||||
| Light Oil ($/bbl) | $ | 44.41 | $ | 88.62 | $ | 47.94 | $ | 90.10 | |||||||||
| Heavy Oil ($/bbl) | $ | 37.38 | $ | 77.40 | $ | 40.42 | $ | 76.51 | |||||||||
| NGL's ($/bbl) | $ | 55.71 | $ | 50.44 | $ | 35.62 | $ | 59.18 | |||||||||
| Natural Gas ($/mcf) | $ | 3.01 | $ | 4.41 | $ | 2.92 | $ | 4.94 | |||||||||
| Netbacks | |||||||||||||||||
| Combined ($/boe) | $ | 29.56 | $ | 48.76 | $ | 30.78 | $ | 53.29 | |||||||||
| Royalties ($/boe) | $ | (3.52 | ) | $ | (6.54 | ) | $ | (3.62 | ) | $ | (6.49 | ) | |||||
| Operating and transportation costs ($/boe) | $ | (17.69 | ) | $ | (13.69 | ) | $ | (16.13 | ) | $ | (17.41 | ) | |||||
| Operating netbacks prior to hedging (2) | $ | 8.35 | $ | 28.53 | $ | 11.03 | $ | 29.39 | |||||||||
| Realized hedging gain (loss) ($/boe) | $ | 3.01 | $ | (0.93 | ) | $ | 5.08 | $ | (2.41 | ) | |||||||
| Operating netbacks ($/boe) (2) | $ | 11.36 | $ | 27.60 | $ | 16.11 | $ | 26.98 | |||||||||
| (1) | Before royalties. | |
| (2) | Defined under the Additional-GAAP Measures section of this press release. | |
| (3) | Operating netback is a non-GAAP measure, defined under the Non-GAAP Measures section of this press release. | |
OUTLOOK
Marquee is early in the development of its long life, high original oil in place ("OOIP") light oil play at Michichi. The Company's drilling inventory of more than 300 locations was recently validated by an independent contingent resource assessment performed by Sproule Associates Ltd. Although current commodity prices continue to provide challenges to the industry, the Company remains in a strong position. With a high quality light oil play and a dominant operated land and infrastructure position, Marquee is able to control the pace and development of Michichi while continuing to lower both capital and operating costs.
The Company's strong financial position provides for stability throughout the changing commodity environment. Marquee will continue its careful management of capital expenditures and maintenance of prudent debt levels. The Company has a hedging program in place to provide a base level of revenue surety to protect short-term capital programs.
The Directors and management of Marquee continue to monitor changes to commodity pricing and the current economic environment, as it affects both the Company's business and that of its suppliers. Changes in capital spending are dependent on projected cash flow and market conditions and are reviewed quarterly by the Board of Directors.
The Company is on track to meet average production guidance for 2015 of 5,000 to 5,200 boe/d with an exit rate of approximately 5,200 boe/d. As expected, projected cash flows have been impacted by the recent downturn in commodity prices. Marquee will announce its 2016 capital program and guidance in January 2016. Under current market conditions, the Company will spend less than cashflow in order to maintain and protect balance sheet strength.
ABOUT MARQUEE
Marquee Energy Ltd. is a Calgary based, junior energy company focused on high rate of return oil development and production. Marquee is committed to growing the company through exploitation of existing opportunities and continued consolidation within its core area at Michichi. The Company's shares are traded on the Toronto Stock Exchange under the trading symbol "MQL.V" and on the OTCQX marketplace under the symbol "MQLXF". An updated presentation and additional information about Marquee may be found on its website www.marquee-energy.com and in its continuous disclosure documents filed with Canadian securities regulators on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.
FORWARD-LOOKING STATEMENTS OR INFORMATION
Certain statements included or incorporated by reference in this news release may constitute forward-looking statements under applicable securities legislation. Such forward-looking statements or information typically contain statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements or information in this news release may include, but are not limited to: the number and quality of future potential drilling and development opportunities; anticipated capital budgets and expenditures; petroleum and natural gas sales; the size and extent of the Michichi oil fairway.
Such forward-looking statements or information are based on a number of assumptions all or any of which may prove to be incorrect. In addition to any other assumptions identified in this document, assumptions have been made regarding, among other things: the ability of the Company to obtain equipment, services and supplies in a timely manner to carry out its activities; the ability of the Company to market crude oil, natural gas liquids and natural gas successfully to current and new customers; the ability to secure adequate product transportation; the timely receipt of required regulatory approvals; the ability of the Company to obtain financing on acceptable terms; interest rates; regulatory framework regarding taxes, royalties and environmental matters; future crude oil, natural gas liquids and natural gas prices; the ability to successfully integrate acquisitions into Marquee's business and management's expectations relating to the timing and results of development activities.
Forward-looking information is based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking information. Material risk factors affecting the Company and its business are contained in Marquee's Annual Information Form, which is available under Marquee's issuer profile on SEDAR at www.sedar.com.
The forward-looking information contained in this press release is made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward -looking information contained in this press release is expressly qualified by this cautionary statement.
DRILLING LOCATIONS
This press release discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations are derived from the Company's most recent independent reserves report prepared by Sproule as at December 31, 2014 and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on the Company's prospective acreage and assumptions as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves. Of the 290 (net) Michichi drilling locations identified herein, 29 are proved locations, 29 are probable locations and the remaining 200 are unbooked locations. Unbooked locations have been identified by management as an estimation of our multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves or production. The drilling locations on which the Company will actually drill wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been de-risked by drilling existing wells in relative close proximity to such unbooked drilling locations, other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves or production.
NON-GAAP FINANCIAL MEASURES
This press release contains the term "operating netbacks prior to hedging" which does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable with the calculation of similar measures by other companies. Marquee uses operating netbacks to analyze operating performance. Marquee believes this benchmark is a key measure of profitability and overall sustainability for the Company and this term is commonly used in the oil and natural gas industry. Operating netbacks are not intended to represent operating profits, net earnings or other measures of financial performance calculated in accordance with IFRS.
Operating netbacks prior to hedging are calculated by subtracting royalties, production, and operating and transportation expenses from revenues before other income/losses. Operating netbacks include realized hedging gain (loss).
This press release also contains the term "funds flow from operations" which should not be considered an alternative to, or more meaningful than "cash flow from operating activities", as determined in accordance with IFRS, as an indicator of the Company's performance. Therefore reference to funds flow from operations or funds flow from operations per share may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and leverage and considers funds flow 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. Funds flow from operations per share is calculated using the weighted average number of shares for the period.
In addition, the press release contains the term "net debt" and "net debt to annualized funds flow from operations". Net debt and net debt to annualized funds flow is calculated as net debt, defined as current assets less current liabilities (excluding fair value of commodity contracts and flow-through share premiums), divided by cash flow from operating activities before decommissioning expenditures and changes in non-cash working capital. Management considers net debt and net debt to annualized funds flow as important additional measures of the time period it would take to pay off the debt if no further capital expenditures were incurred and if funds flow from operating activities remained constant.
ADDITIONAL ADVISORIES
Boes are presented on the basis of one Boe for six Mcf of natural gas. Disclosure provided herein in respect of Boe 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Contact Information:
FOR ADDITIONAL INFORMATION PLEASE CONTACT:
Richard Thompson
President & Chief Executive Officer
(403) 817-5561
RThompson@marquee-energy.com
or visit the Company's website at www.marquee-energy.com