Open Range Energy Corp.
TSX : ONR

Open Range Energy Corp.

August 10, 2011 17:16 ET

Open Range Energy Corp. Reports Second Quarter Results and Provides Positive Revisions to 2011 Guidance

CALGARY, ALBERTA--(Marketwire - Aug. 10, 2011) - Open Range Energy Corp. ("Open Range" or the "Company") (TSX:ONR) is pleased to release its financial and operating results for the three and six months ended June 30, 2011 along with a discussion of recent activities and an outlook for the remainder of the year. Results include period-over-period production growth, doubling of consolidated funds from operations, strong growth in consolidated funds from operations per share, continued reductions in cash costs per boe of production and a 25 percent reduction in net debt at period-end.

Production guidance for 2011 remains at an average 4,500 boe per day and an exit rate of 6,200 boe per day. Guidance for 2011 consolidated funds from operations is increased from $70 million to $80 million, with a corresponding reduction in year-end net debt to $50 million, reflecting a stable outlook for exploration and production results and further growth in the Poseidon Concepts fracturing fluid tank rental business.

The Company has filed a complete copy of its interim consolidated financial statements and related management's discussion and analysis for the three and six months ended June 30, 2011 on SEDAR at www.sedar.com and on the Company's website at www.openrangeenergy.com


Second Quarter 2011 Financial and Operating Highlights

CONSOLIDATED HIGHLIGHTS

                    Three months  Three months    Six months    Six months
                           ended         ended         ended         ended 
(in thousands except     June 30,      June 30,      June 30,      June 30,
 per share amounts)       2011(1)       2010(1)       2011(1)       2010(1)
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Revenue(2)          $     20,781 $     11,181 $      40,296 $      22,685

Funds from                                                                 
 operations(3)            15,534        7,538        30,587        14,818
 Per basic share            0.23         0.12          0.47          0.24
 Per diluted share          0.22         0.12          0.46          0.24
Net income                 5,921         (342)       11,400         2,264
 Per basic share            0.09        (0.01)         0.18          0.04
 Per diluted share          0.08        (0.01)         0.17          0.04

Net debt (end of                                                           
 period)                  44,251       59,050        44,251        59,050
Capital                                                                   
 expenditures, net  $      9,081 $      7,769 $      43,122 $      35,171

Weighted average                                                           
 shares outstanding                                                        
 Per basic share          68,240       60,934        65,044        60,934
 Per diluted share        70,805       60,934        66,660        60,934
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EXPLORATION & PRODUCTION HIGHLIGHTS

                                       Three     Three       Six       Six 
                                      months    months    months    months 
                                       ended     ended     ended     ended 
                                     June 30,  June 30,  June 30,  June 30,
                                      2011(1)   2010(1)   2011(1)   2010(1) 
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Production                                                                  
 Natural gas (mcf per day)            24,363    22,120    22,420    20,915 
 Oil and NGL (bbls per day)              335       366       309       341 
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 Total (@ 6:1) (boe per day)           4,396     4,053     4,046     3,827 

Realized average sales prices                                               
 Natural gas ($ per mcf)(2)             4.33      4.48      4.29      4.89 
 Oil and NGL ($ per bbl)               88.82     64.97     82.72     67.61 
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 Combined average ($ per boe)          30.79     30.32     30.10     32.75 
 Royalties ($ per boe)                 (2.69)    (2.79)    (2.82)    (3.33)
 Operating costs ($ per boe)           (3.69)    (4.86)    (3.69)    (5.26)
 Transportation costs ($ per boe)      (0.76)    (0.84)    (0.77)    (0.83)
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 Operating netback ($ per boe)         23.65     21.83     22.82     23.33 
 G&A costs ($ per boe)                 (1.91)    (2.23)    (2.11)    (2.38)
 Net interest expense ($ per boe)      (1.69)    (1.11)    (1.83)    (1.25)
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 Corporate netback ($ per boe)         20.05     18.35     18.88     19.62 
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POSEIDON CONCEPTS HIGHLIGHTS

                     Three months  Three months    Six months    Six months 
                            ended         ended         ended         ended 
(in thousands except      June 30,      June 30,      June 30,      June 30,
 percentages)              2011(1)       2010(1)       2011(1)       2010(1)
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 Fracturing fluid                                                           
  handling tank                                                             
 rental revenue      $      8,889  $        334  $     18,907  $        334 
 Operating costs             (634)           (2)       (1,025)           (2)
 G&A costs                 (1,054)          (25)       (1,779)          (25)
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 Operating earnings                                                         
  (EBITDA)           $      7,201  $        307  $     16,103  $        307 
 Operating margin              81%           92%           85%           92%
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(1) Open Range's transition date to International Financial Reporting
    Standards (IFRS) was January 1, 2010; therefore, information above
    including comparative information was calculated in accordance with
    IFRS.
(2) Includes the realized gain or loss on commodity contracts.
(3) Funds from operations are calculated using cash flow from operations
    before the change in non-cash working capital and decommissioning
    expenditures and excludes interest and finance expenses as presented
    under the Corporation's IFRS-based interim consolidated statements of
    cash flows for the three and six months ended June 30, 2011. 

In the three months ended June 30, 2011, Open Range:

- Generated consolidated funds from operations of $15.5 million, an increase of 106 percent from $7.5 million in the second quarter of 2010 and a new Company record;

- Generated consolidated funds from operations of $0.22 per diluted share, an increase of 83 percent over the second quarter of 2010;

- Had EBITDA of $7.2 million from its Poseidon Concepts fracturing fluid handling business unit (included in consolidated funds from operations), achieving an operating margin of 81 percent;

- Had average production of 4,396 boe per day, an increase of 19 percent over first-quarter volumes and of 16 percent over the second quarter of 2010 (prior to disposition of non-core production of approximately 307 boe per day);

- Made consolidated capital expenditures of approximately $9.1 million to complete the Company's first-half capital program, with activities focused on completing and tying-in recently drilled Wilrich horizontal wells at the Company's core Ansell/Sundance Deep Basin property and manufacturing additional fracturing fluid tank systems;

- Continued on its track of increasing operating efficiencies, with operating costs of $3.69 per boe plus transportation costs of $0.76 per boe, for a total of $4.45 per boe ($0.74 per mcfe), compared to a total of $5.70 per boe ($0.95 per mcfe) in the second quarter of 2010, an improvement of 22 percent;

- Incurred all-in cash costs (operating, transportation, G&A, interest) of $8.05 per boe of production, a reduction of 11 percent from the second quarter of 2010; and

- Exited the quarter with net debt of $44.3 million, down by 25 percent from June 30, 2010.

Guidance Revision

Open Range hereby revises 2011 guidance, with key targets including:

- Consolidated funds from operations of $80 million ($1.20 per basic share and $1.16 per diluted share), an increase of $10 million from previous guidance of $70 million. Funds from operations are expected to be comprised of Poseidon EBITDA of $55 million (an increase of $10 million from previous guidance) and exploration and production funds from operations of $25 million (unchanged);

- Year-end net debt of approximately $50 million, reduced from previous guidance of $60 million;

- A year-end net debt to annualized fourth quarter funds from operations ratio of 0.5:1, compared to 0.6:1 under previous guidance;

- Average production unchanged at 4,500 boe per day;

- Exit production unchanged at 6,200 boe per day; and

- Capital expenditures unchanged at $100 million.

Message to Shareholders

Open Range had a strong quarter in both its business segments. Despite an extended wet spring we showed quarterly production growth over the first quarter of 2011 and the second quarter of 2010, driven by the consistent success of Wilrich horizontal drilling at our core Ansell/Sundance Deep Basin property. The Poseidon Concepts fracturing fluid handling business continued to increase in tank rental activity, driven by ongoing uptake from customers in established operating areas plus entry into several new unconventional oil and liquids-rich natural gas plays across the United States.

With current production of approximately 4,300 boe per day, we remain confident in our production forecasts for 2011, including our target exit rate of 6,200 boe per day. For the medium term we remain closely focused on the Company's primary goal of achieving 10,000 boe per day by year-end 2012. We are levering the strong support from Poseidon's free cash flow to help grow Open Range's exploration and production business - without limiting the further growth of Poseidon.

Exploration and Production (E&P) Operations

All four Wilrich wells drilled in the Company's first-half capital program are on-stream, along with the initial Wilrich well drilled last fall. We performed a significant amount of technical work during completion of these wells, including a micro-seismic study. Detailed analysis of this proprietary data was employed to refine our completions program. The resulting optimization included a reduction in the amount of sand proppant used in each fracturing stage as well as in the number of stages, and an alteration of the fracturing fluid to increase the amount of sand placed. With these changes we achieved as good or better overall results at lower costs. Completions costs on the fifth well were $500,000 lower than for the prior Wilrich well, a substantial savings that alone improves overall well economics. This well demonstrated excellent initial productivity and is currently producing 3.1 mmcf per day plus liquids after nearly 120 days on-stream.

Initial performance from our Wilrich wells supports our horizontal type curve that was based on regional Wilrich well results. Our commitment to drill multiple horizontal wells has also improved pricing from some of our service providers. Overall the Wilrich play continues to be one of the most economic and active liquids-rich natural gas projects in western Canada.

Expansion of the Company-operated Ansell/Sundance gas plant is expected to commence in late August. Capacity will increase by 50 percent to 60 mmcf per day and our working interest increases to 69 percent. The $6.5 million expansion is expected to come on-stream in the fourth quarter to accommodate anticipated new production. In addition we are constructing a pipeline to our western land base in anticipation of future drilling. Planning is underway to build a second gas plant in the first quarter of 2012 to service our northeastern lands at Ansell/Sundance, production from which is currently tied-in to a third-party facility. Having the ability to process large increments of horizontal production through Company-owned infrastructure in that area will significantly reduce operating costs and further improve well economics.

Poseidon Concepts

The rollout of our Poseidon Concepts fracturing fluid handling system continues to be accepted by producers and regulators, and we are very pleased at the growth of Poseidon's activity across western Canada and in the United States. We are now operating in seven U.S. states and expect to be deployed in 10 by September, representing many of North America's most active unconventional oil and liquids-rich natural gas plays. We recently received our first commitments to deploy tanks to the Utica Shale play in Ohio and the Haynesville Shale play in Louisiana.

Operating margins averaged 81 percent on second-quarter tank rental revenues of $8.9 million which was down slightly from the first quarter due to the normal effects of spring break-up. Since the end of spring break-up in western Canada utilization has increased to over 85 percent fleet-wide, with 120 of 140 tanks currently out on rental. This includes 40 of the 41,000-barrel-capacity Atlantis model currently on active leases.

Despite the rapid growth of Poseidon since the first commercial job in June 2010, we see strong opportunity to increase our market penetration. In the first half of 2011 Poseidon systems were used on approximately 5 percent of estimated horizontal well completions in western Canada and less than 1 percent of estimated horizontal well completions in the U.S. Our build of new tanks is slightly ahead of schedule in bringing the combined fleet to at least 150 systems by the end of the third quarter.

We continue to use first-mover advantages to establish our brand with producers and scale up in shale oil and liquids-rich gas plays. The number and value of minimum commitment contracts anchoring our go-forward revenues continue to grow, and we will release further details in the coming weeks. In response to these positive drivers, we have increased 2011 EBITDA guidance for Poseidon, as detailed above. We foresee continued strong operating margins as we scale up the Poseidon team and add operating infrastructure, including field operating bases in Alberta and North Dakota, and a field office in Dickinson, North Dakota.

Financial Results

Open Range had excellent financial results for the second quarter and first half of 2011. The strong performance was driven by the Company's continued top-decile cost performance plus growing production on the E&P side, and continued strong Poseidon Concepts revenue.

Growth in our liquids-rich production at Ansell/Sundance, nearly all of which is fed into our operated processing capacity, has established a virtuous cycle of quarterly declines in cash costs per unit of production, which approached $8 per boe in the second quarter. Cost-efficiency is essential to maintaining reasonable netbacks and, in turn, funds from operations in a weaker price environment. Our G&A expenses are now under $2 per boe.

Combining our low cash costs with low overall royalty rates of less than 10 percent - including only 5 percent on new horizontal wells - we were actually able to increase our second-quarter 2011 operating netback by almost $2 per boe over the first quarter, to $23.65 per boe. These netbacks demonstrate that for Open Range current commodity prices are no deterrent to generating solid returns from high-rate new horizontal wells.

Net debt is also on a downward trend, with quarter-end net debt coming in at $44 million. Despite a significant capital program in the second half, we expect net debt at year-end to come in at approximately $50 million, leaving over 40 percent of the Company's bank lines undrawn.

Outlook

Drilling for our second-half capital program is underway, with two rigs operating at Ansell/Sundance. The first well spud in late July and the second in early August, both targeting the Wilrich. The extended wet weather in late spring delayed drilling by about one month, but we are confident about meeting the Company's 2011 production forecasts. Our second-half program comprises five (3.8 net) wells targeting the Wilrich, two (1.9 net) targeting the Notikewin, one (0.6 net) targeting the Cardium and potentially one targeting Montney light oil at Waskahigan. All will be horizontal wells completed with multi-stage fracturing. This will bring our 2011 capital program to 14 gross (11.1 net) horizontal wells.

Along with the Montney and Wilrich, the Notikewin is one of the most economical horizontal natural gas plays in western Canada. The Notikewin has an estimated 20 bcf of original-gas-in-place in a full channel sand section. Commonly occurring across the Deep Basin, the Notikewin is currently being validated as a horizontal play by a number of competitors, with activity accelerating and wells being licensed directly offsetting Open Range lands. Recent Notikewin wells have had encouraging initial productivity and performance. Research from competitor results, the experience gained with our previous two Notikewin horizontal wells, plus completion refinements tested in our Wilrich wells, will guide our approach to the Notikewin. We're excited by the potential on our more than 20 net prospective sections.

The Cardium is also exciting. The Cardium anchored several historical Deep Basin fields developed vertically, and produces in a number of Open Range's vertical wellbores. It is shallower and less costly to drill and complete than our other horizontal targets. Initial productivity is typically somewhat lower than for the Wilrich, but the liquids content is high, averaging 30-40 bbls per mmcf in vertical wellbores. Open Range has 10 sections high-graded for potential Cardium horizontal drilling.

We continue to evaluate our six-section, 100 percent working interest Montney oil play at Waskahigan. We are watching offsetting production results and the effects of various technology applications, and will decide in the coming weeks whether to spud before year-end.

We are comfortable with the state of equipment and services. One rig is contracted to Open Range for the next year, the other rig for a number of wells, and completions services, including fracturing dates, have been lined up. We are actively licensing and building well site leases to prepare for continuous drilling and completion activity over the next year.

OPEN RANGE ENERGY CORP. IS A PUBLICLY TRADED CANADIAN ENERGY COMPANY WITH FOCUSED OPERATIONS IN THE DEEP BASIN REGION OF ALBERTA AND AN EXPANDING NORTH AMERICAN WELL COMPLETIONS EQUIPMENT AND SERVICE BUSINESS.

OPEN RANGE HAS APPROXIMATELY 68.4 MILLION COMMON SHARES ISSUED AND OUTSTANDING, WHICH TRADE ON THE TSX UNDER THE SYMBOL "ONR".

For further information, please refer to the Company's website at www.openrangeenergy.com.

Reader Advisory

This news release contains certain forward-looking statements, which include assumptions with respect to (i) results from drilling and completion operations; (ii) production; (iii) future capital expenditures and operating activities and how they will be financed; (iv) funds from operations; (v) cash flow from operations and EBITDA; (vi) demand for Poseidon Concepts' tank systems; and (vii) general oil and gas industry activity. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. Such risks and uncertainties include, without limitation, risks associated with oil and natural gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, dependence on manufacturers of the Poseidon Concepts tank systems; operating risk liability; demand for Poseidon Concepts' tank systems; levels of competition in the fracturing fluid storage industry; the ability of Poseidon Concepts to attract and retain clientele; the ability of Poseidon Concepts to fund its ongoing capital requirements; Poseidon Concepts' limited operating history; delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities.

Open Range's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits, including the amount of proceeds, Open Range will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to Open Range or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Additional information on the foregoing risks and other factors that could affect Open Range's operations and financial results are included in the Company's annual information form and other reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Open Range does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Disclosure provided herein in respect of barrel(s) of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Contact Information

  • Open Range Energy Corp.
    A. Scott Dawson, P.Eng.
    President and Chief Executive Officer
    403-205-3704

    Open Range Energy Corp.
    Lyle D. Michaluk, CA
    Vice President, Finance and Chief Financial Officer
    403-262-9280
    www.openrangeenergy.com