NAL Energy Corporation

NAL Energy Corporation

November 08, 2011 16:30 ET

NAL Energy Corporation Reports Third Quarter 2011 Results

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2011) - NAL Energy Corporation (TSX:NAE) ("NAL" or the "Corporation") today announced its financial and operational results for the third quarter of 2011. All amounts are in Canadian dollars unless otherwise stated.


  • NAL's 2011 capital program got back on track in the third quarter after second quarter weather delays in Saskatchewan; and
  • Liquids volumes have returned to first quarter levels primarily as a result of higher oil volumes in Saskatchewan and better than anticipated results in the Corporation's Cardium oil program at Lochend and in its liquids rich natural gas programs in Alberta and northeast British Columbia.


  • Third quarter production of 28,752 boe per day was approximately 2,000 boe per day or seven percent higher than second quarter average volumes;
  • Oil volumes increased by approximately seven percent quarter-over-quarter to average 10,422 bbls per day as a result of Saskatchewan volumes coming back on stream and the impact of the second quarter completion and tie-in of volumes from the Corporation's 2011 Cardium drilling programs;
  • Gas volumes increased seven percent due to completion of fracing and tie in at Fireweed and ongoing success in the Wilrich area. These operations have also contributed to a nine percent increase in NGL production for the same period;
  • Funds From Operations ("FFO") per share of $0.44 for the quarter compares with $0.41 in the second quarter of 2011, with higher oil volumes and stronger oil differentials more than offsetting slightly lower prices;
  • Operating netback before hedging increased 19 percent year over year to $28.64 per boe ($29.37 per boe after hedging);
  • Capital spending directed toward drilling, completion and tie-ins totaled $72 million and resulted in 47 (24.6 net) wells drilled, 85 percent of which were light oil locations; and
  • NAL acquired acreage in the Sawn Lake area of northern Alberta and now holds an average 50 percent interest with a major operator in the area in over 20 sections of land prospective for the Slave Point carbonate. Production in the area is light sweet oil (approximately 40 degrees API) with offsetting recent horizontal development resulting in initial production rates of up to 450 boe per day.


  • Production volumes averaged 27,847 boe per day for the nine months ended September 30, 2011;
  • Revenue was up two percent to $382 million over the same period in 2010;
  • Capital expenditures were $204 million, with $169 million (83 percent) directed toward drilling, completion and tie-ins, with 110 (58.4 net) wells drilled, of which 48 were Mississippian light oil wells in southeast Saskatchewan and 34 were Cardium light oil wells in Alberta;
  • NAL's Cardium performance at Lochend is exceeding expectations with 30-day initial production rates in the 200 – 400 boe per day range; and
  • NAL's dividend payout ratio in the first nine months of the year was 51 percent of FFO.


  • NAL's focus for the fourth quarter continues to be balanced between the Corporation's significant light oil resources in southeast Saskatchewan and central Alberta;
  • In Saskatchewan, NAL plans to drill an additional four to eight (two to four net) Mississippian oil locations during the remainder of the year. In Alberta, NAL currently plans to drill a further six (3.9 net) Cardium oil wells, two of which will be in the greater Garrington area, one in Westward Ho, two in Willesden Green and one at Lochend / Cochrane;
  • Full year capital expenditures are currently forecast to be in the $240 million range; including new land purchases of eight million in the third quarter of 2011;
  • Unplanned natural gas facility outages at SemCAMS K3 impacted 300 – 400 boe per day for three weeks during the month of October. At Kakwa, infrastructure constraints are forecast to impact primarily natural gas production by 625 boe per day in October and November with volumes forecast to be back up by December 1, 2011. For crude oil, production volume outage from the Star Valley fire remains 150 - 200 boe per day below plan;
  • NAL's most recent full year average 2011 production volume is in the range of 28,500 boe per day, prior to taking into account unplanned outages. An update of the full year volume will be provided in the mid-January 2012 guidance presentation ;
  • Currently, NAL is forecasting a year-end exit rate of approximately 29,000 boe per day;
  • Non-core property divestitures have generated approximately $30 million to date;
  • The Corporation has recently been adding to its 2012 crude oil hedge positions with full year average volumes 4,250 bbl per day now in place at an average floor price of US$96.48 per bbl providing protection against commodity price volatility;
  • NAL has capacity of $247 million on credit lines of $550 million as at September 30, 2011; and
  • Based upon current commodity prices and capital spending levels, the Corporation is not likely to be taxable for many years.


  • NAL's Board approves the annual budget at the end of December each year. The full year 2012 guidance will be provided by mid-January 2012;
  • The 2012 capital program will be directed toward lower-risk cash generating projects with a focus on proven oil projects which NAL operates in our core areas.

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

Download NAL's Q3 MD&A and Financials from NAL's website.

(thousands of dollars, except per share and boe data)
Three months ended
Sept 30
Nine months ended
Sept 30
2011 2010 2011 2010
Revenue(1) 130,405 115,755 381,499 374,149
Cash flow from operating activities 69,103 87,586 190,983 205,205
Cash flow per share - basic 0.46 0.60 1.29 1.44
Cash flow per share - diluted 0.43 0.55 1.19 1.32
Funds from operations 64,752 59,709 181,759 195,045
Funds from operations per share - basic 0.44 0.41 1.23 1.37
Funds from operations per share - diluted 0.40 0.38 1.13 1.25
Net income 11,087 7,430 42,852 81,042
Dividends declared 31,268 39,529 93,389 116,075
Dividends per share 0.21 0.27 0.63 0.81
Basic payout ratio:
based on cash flow from operating activities 45 % 45 % 49 % 57 %
based on funds from operations 48 % 66 % 51 % 60 %
Basic payout ratio including capital expenditures:
based on cash flow from operating activities 171 % 112 % 157 % 142 %
based on funds from operations 183 % 164 % 165 % 150 %
Basic payout ratio including capital expenditures and proceeds from disposition:
based on cash flow from operating activities 171 % 111 % 141 % 135 %
based on funds from operations 182 % 164 % 148 % 142 %
Shares outstanding (000's)
Period end 149,130 146,621 149,130 146,621
Weighted average 148,784 146,297 148,142 142,890
Capital expenditures(2) 86,930 58,238 205,616 176,064
Property acquisitions (dispositions), net(3) (175 ) 88 (29,164 ) 30,466
Corporate acquisitions, net(4) - 901 - 1,210
Net debt, excluding convertible debentures(5) 375,884 300,002 375,884 300,002
Convertible debentures (at face value) 194,744 194,744 194,744 194,744
Daily production
Crude oil (bbl/d) 10,422 11,404 10,193 11,610
Natural gas (Mcf/d) 93,381 92,518 89,952 92,255
Natural gas liquids (bbl/d) 2,766 2,650 2,662 2,746
Oil equivalent (boe/d) 28,752 29,473(6 ) 27,847 29,732(6 )
Daily production after Reorganization 28,752 29,222(7 ) 27,847 29,456(7 )
Revenue before hedging gains 49.30 42.69 50.18 46.10
Royalties (9.18 ) (7.62 ) (8.67 ) (8.22 )
Operating costs (11.38 ) (11.11 ) (11.38 ) (10.64 )
Other income (0.10 ) 0.12 0.07 0.11
Operating netback before hedging 28.64 24.08 30.20 27.35
Hedging gains (losses) 0.73 4.20 (0.38 ) 2.33
Operating netback 29.37 28.28 29.82 29.68
  1. Oil, natural gas and natural gas 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 $(0.1) million for the quarter ended September 30, 2011 (2010 - $3.6 million) and $2.5 million for the nine months ended September 30, 2011 (2010 - $9.9 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 conversion of NAL Oil & Gas Trust to NAL Energy Corporation (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.


Throughout this MD&A, 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 NAL's 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 companies and, accordingly, they may not be comparable to measures used by other companies.

Funds from operations is calculated as cash flow from operating activities before changes in non-cash working capital less cash interest paid. 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.

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 and the note payable.

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

Three months ended
Sept 30
Nine months ended
Sept 30
$(000s) 2011 2010 2011 2010
Cash flow from operating activities 69,103 87,586 190,983 205,205
Adjust for change in non-cash working capital


Less cash interest paid (6,274 ) (5,988 ) (18,717 ) (17,980 )
Funds from operations 64,752 59,709 181,759 195,045


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.


This MD&A 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 MD&A contains forward-looking information pertaining to the following, without limitation: the amount and timing of cash flows and dividends to shareholders; reserves and reserves values; 2011 production; future tax treatment of the Corporation; the Corporation's tax pools; future oil and gas prices; operating, drilling and completion costs; the amount of future asset retirement obligations; future liquidity and future financial capacity; future results from operations; payout ratios; cost estimates and royalty rates; drilling plans; tie-in of wells; future acquisition, development and exploration expenditures; and rates of return.

With respect to forward-looking statements contained in this MD&A and the press release through which it was disseminated, assumptions have been made 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 NAL intends to pay; the cost of expanding the Corporation's property holdings; the Corporation's ability to obtain equipment in a timely manner to carry out exploration and development activities; the Corporation's ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; NAL's ability to obtain financing on acceptable terms; and NAL's ability to add production and reserves through its development and exploitation activities.

Although NAL believes that the expectations reflected in the forward-looking information contained in the MD&A and the press release through which it was disseminated, 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 is 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 MD&A is made as of the date of this MD&A. The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement.


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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