SOURCE: Marquee Energy Ltd.

Marquee Energy Ltd.

August 29, 2016 19:59 ET

Marquee Energy Ltd. Announces Second Quarter 2016 Operating and Financial Results

CALGARY, AB--(Marketwired - August 29, 2016) - Marquee Energy Ltd. ("Marquee" or the "Company") (TSX VENTURE: MQL) announces its second quarter financial and operational results for the three and six months ended June 30, 2016. The Company's financial statements and Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2016 are available on SEDAR at www.sedar.com and on Marquee's website at www.marquee-energy.com.

SECOND QUARTER OPERATIONAL AND FINANCIAL HIGHLIGHTS

  • Realized operating netbacks before hedging of $2.3 million, a 300% increase compared to the first quarter of 2016; and
  • Reduced quarterly production and operating costs by 34% to $4.4 million or $12.86 per boe from $6.8 million or $14.55 per boe in the second quarter of 2015; and
  • Reduced G&A expenses by 34% to $1.2 million or $3.34 per boe from $1.7 million or $3.59 per boe in the second quarter of 2015; and
  • Disposed of non-core shallow gas assets and heavy oil Lloydminster assets for net proceeds of $5.1 million, thereby reducing decommissioning liabilities by $31.5 million and eliminating a future capital commitment of approximately $22.3 million; and
  • Reduced second quarter exit net debt to $44.3 million, a decrease of 9% compared to the second quarter of 2015; and
  • Realized average production volumes of 3,806 boe/d (44% oil and NGLs) representing a decrease of 26% from the second quarter of 2015, primarily as a result of non-core asset sales in the second quarter of 2016.

SUBSEQUENT EVENT

On August 19, 2016, Marquee entered into an arrangement agreement ("Arrangement Agreement") whereby Alberta Oilsands Inc. will acquire all of the issued and outstanding common shares of Marquee. Under the terms of the Arrangement Agreement, holders of common shares of Marquee will receive, for each Marquee share held, 1.67 common shares in the capital of Alberta Oilsands Inc. ("Alberta Oilsands"). On completion of the arrangement, Marquee shareholders will own approximately 49% of the common shares of the combined entity. The combined entity will be led by the current management team of Marquee, and the board of directors will include an equal number of the current directors of Marquee and of Alberta Oilsands, respectively. The continuing operations of the combined entity will be that of Marquee. The successful completion of the arrangement agreement would result in the injection of approximately $30.5 million of net cash (after expected transaction costs associated with the arrangement).

The completion of the arrangement is subject to receipt of the approval of the Alberta Court of Queen's Bench, the receipt of all necessary regulatory and stock exchange approvals, the receipt of the requisite approval of Marquee shareholders, and the satisfaction or waiver of certain other closing conditions that are customary for a transaction of this nature. It is anticipated that a special meeting of Marquee's shareholders will be held on September 21, 2016 and assuming receipt of the requisite approval of the arrangement by Marquee shareholders at the meeting, the arrangement is expected to close shortly following the meeting.

The combination of Marquee and Alberta Oilsands represents a significant recapitalization opportunity for Marquee Shareholders, and enables shareholders of Marquee and Alberta Oilsands to emerge from a volatile commodity price environment as a well-funded growth vehicle focused on the sustainable development of a top tier oil resource play.

The following benefits are anticipated to result from the completion of the Arrangement:

  • Provides shareholders of Alberta Oilsands with exposure to a dominant land position containing a current light oil drilling inventory of greater than 300 horizontal locations in the Michichi oil fairway, with 2,600 boe/d of production and sustainable growth opportunities at current commodity prices; and
  • Provides shareholders of Marquee with reduced operating leverage, continued exposure to a top tier oil resource play, and the financial flexibility to sustainably develop its resource base and focus on strategic acquisition opportunities within its core Michichi area; and
  • The resulting company will be a well-capitalized company with a balance sheet that is in line with the best companies in its peer group; and
  • Provides shareholders of Marquee and Alberta Oilsands with exposure to significant upside beyond the current drilling inventory over the longer term in the event of an improvement in commodity prices.

FINANCIAL AND OPERATING HIGHLIGHTS

       
   Three months ended
June 30,
 Six months ended
June 30,
   2016  2015  2016  2015
Financial(000's except per share and per boe amounts)                     
Oil and natural gas sales (1)  $8,344   $16,082   $16,093   $30,192  
Funds flow from operations (2)  $470   $6,316   $1,862   $13,320  
 Per share - basic and diluted  $-   $0.05   $0.02   $0.11  
 Per boe  $1.36   $13.56   $2.49   $13.82  
Net income (loss)  $1,043   $(4,750 ) $(6,875 ) $(8,881 )
 Per share - basic and diluted  $0.01   $(0.04 ) $(0.06 ) $(0.07 )
Capital expenditures  $377   $949   $477   $7,576  
Acquisitions  $-   $-   $-   $14,362  
Dispositions (3)  $(5,127 ) $(10 ) $(5,127 ) $(23,653 )
                      
Net debt (2)  $44,275   $48,829   $44,275   $48,829  
Total Assets  $182,647   $265,779   $182,647   $265,779  
Weighted average basic and diluted shares outstanding   123,165,652    120,340,685    123,165,652    120,340,685  
                      
Operational                     
Net wells drilled   -    -    -    2.0  
Daily sales volumes                     
 Oil (bbls per day)   1,265    1,711    1,361    1,730  
 Heavy Oil (bbls per day)   261    622    334    696  
 NGL's (bbls per day)   136    185    147    206  
 Natural Gas (mcf per day)   12,864    15,599    13,657    16,163  
 Total (boe per day)   3,806    5,118    4,118    5,326  
 % Oil and NGL's   44 %  49 %  45 %  49 %
Average realized prices                     
 Light Oil ($/bbl)  $46.92   $56.18   $38.45   $49.42  
 Heavy Oil ($/bbl)  $35.03   $51.23   $24.43   $41.61  
 NGL's ($/bbl)  $36.52   $34.10   $29.75   $28.13  
 Natural Gas ($/mcf)  $1.42   $2.72   $1.72   $2.88  
Netback                     
 Revenue ($/boe)  $24.09   $34.53   $21.47   $31.32  
 Royalties ($/boe)  $(3.27 ) $(5.33 ) $(2.23 ) $(3.67 )
 Operating and transportation costs ($/boe)  $(14.21 ) $(15.94 ) $(15.41 ) $(15.43 )
 Operating netback prior to hedging (2)  $6.61   $13.26   $3.83   $12.22  
 Realized hedging gain (loss) ($/boe)  $(0.13 ) $4.86   $3.11   $6.01  
 Operating netback ($/boe) (2)  $6.48   $18.12   $6.94   $18.23  
                  
 (1) Before royalties
 (2) Defined under the Non-GAAP Measures section of this MD&A
 (3) Proceeds on dispositions
    

OUTLOOK

Over the past 24 months, Marquee has drilled and placed on production 18 horizontal wells in the Michichi area of Alberta. Based on the expected well production profiles and cost structure of its recent wells, Marquee estimates a 1.4 year payout for a typical Michichi horizontal well based on current strip pricing. Michichi wells finding and development costs rank in the top quartile relative to competing resource plays.

In the first eight months of 2016, the oil industry has faced significant headwinds due to the prolonged downward pressure on oil and gas prices resulting from an oversupply of world oil markets. Marquee is fortunate to own a low-cost oil focused asset base which allows the Company to mitigate some of its exposure to volatility in commodity prices, while also positioning it for strong growth as commodity pricing improves.

Marquee continues to evaluate and prudently manage its 2016 capital program, and remain focused on balance sheet preservation and long-term value creation. The Company will also look to maintain its hedging program as opportunities present themselves to provide a base level of revenue to protect short-term capital programs.

With the current uncertainty in oil and natural gas prices, Marquee believes the most prudent course of action is to limit capital spending to free corporate cashflow, evaluate its production on a regular basis and shut-in non-economic wells where warranted. The Company currently expects to spend between $3.5 and $5.0 million on capital costs in 2016.

As demonstrated by the sale of non-core shallow gas assets and its heavy oil assets at Lloydminster, the Company has pursued opportunities to monetize non-core assets as a means to further reduce indebtedness and future liabilities. Through this focus on sustainability, Marquee expects to be well positioned to realize the potential value that has been delineated at Michichi as commodity prices improve.

Management believes the Company strengths at Michichi include large oil in place, extensive drilling inventory, strong economics at current oil prices, ownership and control of infrastructure, high working interest ownership and an improving cost structure. The Company has identified more than 300 horizontal drilling locations within its multi-zone light oil fairway and recently received government approval for its Michichi water flood pilot which may be ready for implementation in the third quarter of 2016.

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.

ABOUT MARQUEE

Marquee Energy Ltd. is a Calgary based, junior energy company focused on high rate of return light 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 TSX Venture Exchange under the trading symbol "MQL" 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: business plans and expectations; the completion of the arrangement with Alberta Oilsands, the timing thereof and the expected benefits to be derived therefrom; volumes of reserves and resources; 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; and the Company's expected financial position when commodity prices improve.

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: that the arrangement with Alberta Oilsands and all required approvals will be completed within the timeline anticipated by Marquee; that Marquee and Alberta Oilsands will be able to satisfy the conditions to the Arrangement Agreement; 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 identify and consummate transactions 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. Risks and uncertainties include the failure of Marquee and Alberta Oilsands to meet the conditions to and obtain the required approvals for the arrangement on the expected timelines or at all and failure to realize the anticipated benefits of the arrangement. Other 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.

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 does not have a standardized meaning prescribed by IFRS and 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", which does not have a standardized meaning prescribed by IFRS. Net debt is defined as current assets less current liabilities (excluding fair value of commodity contracts and flow-through share premiums). Management considers net debt as an important additional measure to monitor debt repayment requirements and track the financial viability of the Company.

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, 2015 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 300 (net) Michichi drilling locations identified herein, 57 are proved locations, 25 are probable 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.

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