NAL Energy Corporation
TSX : NAE

NAL Energy Corporation

August 09, 2011 16:41 ET

NAL Energy Corporation Reports Second Quarter 2011 Results

CALGARY, ALBERTA--(Marketwire - Aug. 9, 2011) - NAL Energy Corporation (TSX:NAE) ("NAL" or the "Corporation") today announced its financial and operational results for the second quarter of 2011. All amounts are in Canadian dollars unless otherwise stated.

SUMMARY COMMENTS

  • NAL's full year 2011 production guidance remains unchanged with forecast volumes toward the lower end of the range of 28,500 – 29,500 boe/d;
  • July exit production of 29,000 boe/d is consistent with management's expectations and the performance of the capital program remains on track;

SECOND QUARTER ACTIVITY

  • Second quarter production of 26,758 boe/d was in the range of NAL's guidance despite wet weather conditions in Alberta and Saskatchewan, and unscheduled third party plant outages which constrained existing production and deferred the tie-in of new volumes;
  • Funds From Operations (FFO) per share of $0.45 compares with $0.47 in the second quarter of 2010, with higher oil prices offset by lower volumes, higher operating costs and lower hedging gains;
  • Capital spending directed toward drilling, completion and tie-ins totaled $28.6 million;
    • The majority of drilling activities in Alberta commenced in June focusing on the Cardium programs in Garrington and Lochend;
    • Saskatchewan has experienced prolonged and severe flooding which negatively impacted the second quarter. Production in many of the flooded areas started coming back on-stream during the month of July;

2011 YEAR TO DATE ACTIVITY

  • Production volumes averaged 27,387 boe/d for the six months ended June 30, 2011 with a positive trend on the July exit at 29,000 boe/d;
  • First half total capital expenditures were $119 million, with $97 million (81.5 percent) directed toward drilling, completion and tie-ins, with 68 (35.4 net) wells drilled, of which 25 were oil wells in southeast Saskatchewan, 41 were in Alberta, and two were Doig wells at Fireweed in NE British Columbia;
  • Volumes from wells awaiting tie-in outlined in our first quarter results in May are being brought on-stream in the July and August timeframe;
  • NAL's Cardium performance at Garrington continues to meet or exceed expectations and shows positive results from the implementation of higher density fracs and use of water based fracs;
  • Liquids rich gas wells at Fireweed and Pine Creek (Wilrich) are on plan and were tied-in through July;
  • NAL's dividend payout ratio in the first half of the year was 48 percent of FFO.

OUTLOOK

  • To date, NAL remains on track to complete the planned 139 well drilling program for 2011 with some delay in drilling, completions and tie in. The focus of drilling continues to be balanced between the Corporation's significant light oil resources in southeast Saskatchewan and central Alberta;
  • In Saskatchewan, four rigs are currently operating and NAL plans to drill an additional 42 (21 net) Mississippian oil locations during the remainder of the year. In Alberta, NAL currently has four rigs running and plans to drill 16 (9 net) Cardium oil wells, ten of which will be in the greater Garrington area and six wells at Lochend/Cochrane;
  • Full year capital expenditures are currently forecast to be in the $225 - 230 million range;
  • Non-core property divestitures have generated approximately $30 million to date and are forecast to be $35 - 40 million for the full year 2011;
  • The strong July, 2011 exit rate of 29,000 boe/d supports increasing third quarter volumes and a forecast year-end exit rate in the range of 30,000 boe/d;
  • NAL's full year 2011 production guidance remains unchanged with forecast volumes toward the lower end of the range of 28,500 – 29,500 boe/d;
  • NAL continues to possess a strong inventory of over 1,300 risked drilling locations, and an extensive land base, to sustain activity in future years in each of its core Cardium oil, Mississippian oil and liquids rich gas resources;
  • Currently, the Corporation has in place oil hedges for approximately 51 percent of net forecast production for 2011 at an average price of US$88.10 per bbl on fixed price contracts and at an average floor price of US$90 per bbl and at an average ceiling price of US$100.50 per bbl on collared contracts;
  • In the second quarter, the Corporation renewed its bank line of $550 million of which $291.9 million is drawn at June 30, 2011, leaving available capacity of $258.1 million; and
  • On an annualized basis, the current monthly dividend equates to an approximate 9.6 percent yield based on NAL's August 8, 2011 closing share price of $8.80.

NAL's complete unaudited consolidated financial statements for the quarter ended June 30, 2011 and related Management's Discussion and Analysis may be found by following the links below, and have been filed on SEDAR at www.sedar.com.

Download NAL's Q2 MD&A and Financials from NAL's website.

Download NAL's Q2 MD&A and Financials from Marketwire's website.

FINANCIAL AND OPERATING HIGHLIGHTS
(thousands of dollars, except per share and boe data)
(unaudited)
Three months ended June 30 Six months ended June 30
2011 2010 2011 2010
FINANCIAL
Revenue(1) $ 129,342 $ 121,511 $ 251,094 $ 258,394
Cash flow from operating activities 60,897 50,066 121,880 117,619
Cash flow per share - basic 0.41 0.35 0.82 0.83
Cash flow per share - diluted 0.38 0.32 0.76 0.77
Funds from operations 66,453 67,847 129,450 147,328
Funds from operations per share - basic 0.45 0.47 0.88 1.04
Funds from operations per share - diluted 0.41 0.43 0.81 0.96
Net income 33,275 23,443 31,765 73,612
Dividends declared 31,120 39,361 62,121 76,546
Dividends per share 0.21 0.27 0.42 0.54
Basic payout ratio:
based on cash flow from operating activities 51 % 79 % 51 % 65 %
based on funds from operations 47 % 58 % 48 % 52 %
Basic payout ratio including capital expenditures:
based on cash flow from operating activities 110 % 158 % 148 % 165 %
based on funds from operations 101 % 116 % 140 % 132 %
Basic payout ratio including capital expenditures and proceeds from disposition:
based on cash flow from operating activities 106 % 157 % 124 % 153 %
based on funds from operations 97 % 116 % 117 % 122 %
Shares outstanding (000's)
Period end 148,407 145,968 148,407 145,968
Weighted average 148,093 144,617 147,815 141,157
Capital expenditures(2) 36,099 39,528 118,686 117,827
Property acquisitions (dispositions), net(3) (2,882 ) 43,080 (28,989 ) 30,378
Corporate acquisitions, net(4) - - - 309
Net debt, excluding convertible debentures(5) 330,133 268,864 330,133 268,864
Convertible debentures (at face value) 194,744 194,744 194,744 194,744
OPERATING
Daily production(6)
Crude oil (bbl/d) 9,747 11,643 10,077 11,715
Natural gas (Mcf/d) 86,852 90,928 88,209 92,121
Natural gas liquids (bbl/d) 2,535 2,812 2,609 2,795
Oil equivalent (boe/d) 26,758 29,609 27,387 29,863
Daily production after Reorganization(7) 26,758 29,334 27,387 29,575
OPERATING NETBACK ($/boe)
Revenue before hedging gains 53.12 45.10 50.65 47.80
Royalties (8.97 ) (8.70 ) (8.40 ) (8.52 )
Operating costs (11.96 ) (10.45 ) (11.37 ) (10.40 )
Other income 0.20 0.04 0.16 0.10
Operating netback before hedging 32.39 25.99 31.04 28.98
Hedging gains (losses) (1.63 ) 2.18 (0.97 ) 1.40
Operating netback 30.76 28.17 30.07 30.38
(1) Oil, natural gas and liquid sales less transportation costs and prior to royalties and hedging.
(2) Excludes property and corporate acquisitions, and is net of drilling incentive credits of $(0.2) million for the quarter ended June 30, 2011 (2010 - $3.9 million) and $2.5 million for the six months ended June 30, 2011 (2010 - $6.3 million).
(3) Represents costs to acquire properties less proceeds from dispositions.
(4) Represents total consideration for corporate acquisitions including fees.
(5) Bank debt plus working capital and other liabilities, excluding derivative contracts, note payable and deferred income tax balances.
(6) Production prior to the Reorganization includes 100 percent of the volumes attributable to a jointly held partnership with Manulife Financial Corporation, see MD&A disclosure for details; all volumes include royalty interest volumes; see MD&A.
(7) Excludes 50 percent of volumes attributable to a jointly held partnership of NAL and Manulife dissolved as part of the Reorganization for 2010; see MD&A.

NON-IFRS FINANCIAL MEASURES

Throughout this press release, Management uses the terms "funds from operations", "funds from operations per share", "payout ratio", "cash flow from operations per share", "net debt to trailing 12 month cash flow", operating netback and cash flow netback. These are considered useful supplemental measures as they provide an indication of the results generated by the Corporation's principal business activities. Management uses the terms to facilitate the understanding of the results of its operations. However, these terms do not have any standardized meaning as prescribed by IFRS. Investors should be cautioned that these measures should not be construed as an alternative to net income determined in accordance with IFRS as an indication of NAL's performance. NAL's method of calculating these measures may differ from other issuers and, accordingly, they may not be comparable to measures used by other issuers.

Funds from operations is calculated as cash flow from operating activities before changes in non-cash working capital. Funds from operations does not represent operating cash flows or operating profits for the period and should not be viewed as an alternative to cash flow from operating activities calculated in accordance with IFRS. Funds from operations is considered by Management to be a more meaningful key performance indicator of NAL's ability to generate cash to finance operations and to pay monthly dividends. Funds from operations per share and cash flow from operations per share are calculated using the weighted average shares outstanding for the period.

The following table reconciles cash flows from operating activities to funds from operations:

Three months ended June 30 Six months ended June 30
$(000s) 2011 2010 2011 2010
Cash flow from operating activities 60,897 50,066 121,880 117,619
Add back change in non-cash working capital
5,556

17,781

7,570

29,709
Funds from operations 66,453 67,847 129,450 147,328

Payout ratio is calculated as dividends declared for a period as a percentage of either cash flow from operating activities or funds from operations; both measures are stated.

Net debt to trailing 12 months cash flow is calculated as net debt as a proportion of funds from operations for the previous 12 months. Net debt is defined as bank debt, plus convertible debentures at face value, plus working capital and other liabilities, excluding derivative contracts, note payable and deferred income tax balances.

ADVISORY REGARDING PRODUCTION INFORMATION

When converting natural gas to barrels of oil equivalent (boe) within this press release, NAL uses the widely recognized standard of six thousand cubic feet (Mcf) to one barrel of oil. However, boes may be misleading, particularly if used in isolation. A conversion ratio of 6 Mcf:1 boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

FORWARD-LOOKING INFORMATION

This press release contains forward-looking information as to the Corporation's internal projections, expectations and beliefs relating to future events or future performance. Forward looking information is typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "could", "plan", "intend", "should", "believe", "outlook", "project", "potential", "target", and similar words suggesting future events or future performance. In addition, statements relating to "reserves" are forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities estimated and can be profitably produced in the future.

In particular, this press release contains forward-looking information pertaining to the following, without limitation: the amount and timing of cash flows and dividends to shareholders; 2011 production volumes; the 2011 drilling program; the amount and timing of 2011 capital expenditures; property divestitures and year-end exit rates; future oil and gas prices; operating, drilling and completion costs; the unanticipated impact of weather delays; future liquidity and future financial capacity; future drilling activity and land base; future results from operations; payout ratios; cost estimates and royalty rates; drilling plans; tie-in of wells; future development, exploration, and acquisition and development activities and related expenditures; dividend policy; and rates of return.

With respect to forward-looking statements contained in this press release, we have made assumptions regarding, among other things: future oil and natural gas prices; future capital expenditure levels; future oil and natural gas production levels; future exchange rates; the amount of future cash dividends that we intend to pay; the cost of expanding our property holdings; our ability to obtain equipment in a timely manner to carry out exploration and development activities; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms; the proceeds of anticipated property divestitures; and our ability to add production and reserves through our development and exploitation activities.

Although NAL believes that the expectations reflected in the forward-looking information contained in this press release, and the assumptions on which such forward-looking information are made, are reasonable, readers are cautioned not to place undue reliance on such forward looking statements as there can be no assurance that the plans, intentions or expectations upon which the forward-looking information are based will occur. Such information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated and which may cause NAL's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance. These risks and uncertainties include, without limitation: changes in commodity prices; unanticipated operating results or production declines; the impact of weather conditions on seasonal demand and NAL's ability to execute its capital program; risks inherent in oil and gas operations; the imprecision of reserve estimates; limited, unfavorable or no access to capital or credit markets; the impact of competitors; the lack of availability of qualified operating or management personnel; the inability to obtain industry partner and other third party consents and approvals, when required; failure to realize the anticipated benefits of acquisitions; general economic conditions in Canada, the United States and globally; fluctuations in foreign exchange or interest rates; changes in government regulation of the oil and gas industry, including environmental regulation; changes in royalty rates; changes in tax laws; stock market volatility and market valuations; OPEC's ability to control production and balance global supply and demand for crude oil at desired price levels; political uncertainty, including the risk of hostilities in the petroleum producing regions of the world; and other risk factors discussed in other public filings of the Corporation including the Corporation's current Annual Information Form.

NAL cautions that the foregoing list of factors that may affect future results is not exhaustive. The forward-looking information contained in this press release is made as of the date of this press release. Except as may be required by law, NAL assumes no obligation to update publicly any such forward looking information, whether as a result of new information, future events or otherwise. The forward-looking information contained in this press release is expressly qualified by this cautionary statement.

ABOUT NAL

NAL Energy Corporation generates returns for its shareholders by pursuing a strategy of acquiring, producing and selling crude oil, natural gas and natural gas liquids from assets based in southeastern Saskatchewan, central Alberta, and northeastern British Columbia.

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