RMP Energy Inc.
TSX : RMP

RMP Energy Inc.

May 12, 2016 08:15 ET

RMP Energy Reports First Quarter 2016 Financial Results and Provides Full Year Market Guidance

CALGARY, ALBERTA--(Marketwired - May 12, 2016) - RMP Energy Inc. ("RMP" or the "Company") (TSX:RMP) is pleased to report for the three months ended March 31, 2016 funds from operations of $9.5 million ($0.07 per basic share) on revenue of $21.6 million and average daily production of 10,418 barrels of oil equivalent. Detailed financial and operating results are as follows:

Financial Results Three Months Ended
(thousands except share and per boe data) March 31, 2016 March 31, 2015 % change
P&NG revenue(1) 21,611 42,335 (49 )
Funds from operations(2) 9,492 25,611 (63 )
Per share - basic and diluted 0.07 0.21 (67 )
Net loss (8,263 ) (5,353 ) 54
Per share - basic and diluted (0.06 ) (0.04 ) 50
Total capital expenditures 18,251 46,938 (61 )
Net debt(3) - period end 94,385 144,560 (35 )
Weighted average basic and diluted shares 128,628,475 122,188,885 5
Issued and outstanding shares - period end(4) 150,970,068 122,229,473 24
Operating Results
Average daily production:
Natural gas (Mcf/d) 35,443 38,728 (8 )
Crude Oil (bbls/d) 4,220 5,488 (23 )
NGLs (bbls/d) 290 303 (4 )
Oil equivalent (boe/d) 10,418 12,245 (15 )
Average sales price:
Natural gas ($/Mcf)(1) 2.09 3.16 (34 )
Crude Oil ($/bbl)(1) 37.47 48.33 (22 )
NGLs ($/bbl) 18.57 31.25 (41 )
Oil equivalent ($/boe) 22.80 38.42 (41 )
Operating expenses ($/boe) 5.02 5.67 (11 )
Operating netback(5) ($/boe) 12.65 25.70 (51 )
Wells drilled: gross (net) 4 (4.0 ) 5 (5.0 ) (20 )
(1) Petroleum and natural gas ("P&NG") revenue and pricing includes realized gains or losses from risk management commodity contract settlements.
(2) Funds from operations does not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS"). Please refer to the Reader Advisories at the end of the news release.
(3) Net debt is not a recognized measure under IFRS. Please refer to the Reader Advisories at the end of the news release.
(4) As of May 11, 2016, 150,970,068 million common shares were outstanding.
(5) Operating netback is not a recognized measure under IFRS. Please refer to the Reader Advisories at the end of the news release.

First Quarter 2016 Highlights

  • First quarter production was 10,418 boe/d, weighted 43% light oil and NGLs. The Company's production level was lower than the comparative first quarter of 2015 due to pared-back drilling activity over the last six months and natural field declines. Typically, drilling operations in preceding quarters contribute to production additions in subsequent quarters. However, a fewer number of wells drilled by the Company in the fourth quarter of 2015 tempered new production contributions for the first quarter of 2016. In the fourth quarter of 2015, in response to persistently-low commodity prices, only two horizontal wells were drilled, as compared to RMP's historical-fourth quarter drilling average of six horizontal wells. Additionally, drilling activity in the first quarter of 2016 was also muted, as only four horizontal wells (4.0 net) were drilled, including the Company's Gold Creek exploration well which has not been tied-in yet. Please refer to the Outlook and Guidance section hereinafter.

  • First quarter petroleum and natural gas revenue amounted to $21.6 million (unhedged), of which approximately 70% was derived from crude oil and NGLs. The Company's crude oil discount to the Canadian-dollar converted WTI price averaged $8.01/bbl during the first quarter, as compared to $6.12/bbl in the preceding fourth quarter of 2015 and $10.71/bbl in the comparative first quarter of 2015. The first quarter of 2016 reflects the Company's first full quarter under its new firm receipt transportation arrangement on the Alliance pipeline system. RMP realized a 12% premium to AECO benchmark pricing in the first quarter on its natural gas sales, as a result of its higher heat content Montney gas relative to the pipeline standard.

  • First quarter petroleum and natural gas royalties amounted to $2.3 million (11% of petroleum and natural gas sales), as compared to $5.6 million (16% of petroleum and natural gas sales) in the first quarter of 2015 and $3.7 million (11% of petroleum and natural gas sales) in the preceding fourth quarter of 2015. On January 29, 2016, the Government of Alberta introduced a new royalty framework for the province's oil and gas industry, the Modernized Royalty Framework, which will take effect on January 1, 2017.

  • First quarter field operating costs of $5.02/boe decreased 11% in comparison to the $5.67/boe per-unit operating cost for the first quarter of 2015. The Company's operating expenses continue to be optimized through ongoing cost controls. Additionally, RMP has realized cost savings resulting from the ownership and operation of its Waskahigan and Ante Creek field infrastructure. Ownership and control of infrastructure enables RMP to better manage its operating costs and eliminates certain non-operated facility-usage charges.

  • First quarter transportation costs of $2.66/boe decreased 32% on a per boe basis, when compared to the preceding fourth quarter 2015 cost of $3.90/boe. First quarter general and administrative expenses ("G&A") of $1.70/boe decreased 12% on a per boe basis, when compared to the $1.93/boe for the preceding fourth quarter of 2015. RMP continues to be focused on improving its G&A cost structure in fiscal 2016 to meet the needs of the business in the current low commodity price environment.

  • Generated first quarter 2016 funds from operations of $9.5 million ($0.07 per basic share). Notwithstanding lower royalties and lower controllable cash costs (operating expenses, G&A expenses and bank interest) in the first quarter of 2016, when compared to the preceding fourth quarter and the comparative first quarter of 2015, RMP's cash flow generating capabilities were hampered by significantly lower commodity prices.

  • Reported a net loss for the quarter ended March 31, 2016 of $8.3 million, as compared to a net loss of $5.4 million in the first quarter of 2015. Consistent with its funds from operations, the Company's earnings in the first quarter of 2016 were impacted by the low commodity price environment.

  • In the first quarter, the Company invested approximately $18.3 million in property, plant and equipment and exploration and evaluation. A total of four horizontal wells (4.0 net) were drilled in the quarter, as compared to the original first quarter budget of six (6.0 net) wells. In response to a precipitous drop in oil prices to twelve year lows in mid-February of this year, which tempered the Company's cash flow generating capabilities, RMP deferred two of its budgeted first quarter Waskahigan hybrid slick water wells into the third quarter of this year in order to preserve balance sheet strength. In the first quarter of 2016, field service cost deflation continued to be prevalent, lowering costs across the service supply chain. RMP's drilling and completions program in the first quarter benefitted from these cost concessions, wherein its drill and completion costs for its Ante Creek and Waskahigan horizontal wells averaged approximately $2.9 million and $3.4 million, respectively. The cost incurred to drill and complete RMP's Gold Creek exploration well was approximately $4.3 million.

  • On March 24, 2016, the Company closed a "bought deal" equity financing for net proceeds of approximately $32.5 million, which strengthened RMP's balance sheet and reduced its net debt to $94.4 million as of March 31, 2016 from $118.0 million at year-end 2015 and $144.6 million at the comparative March 31, 2015 quarter-end. RMP is currently drawn approximately $102 million on its bank credit facility with a current drawn bank debt servicing rate of 3.2% (per annum). The annual borrowing base re-determination by the lenders is scheduled to occur on or about May 31, 2016. The current borrowing limit on the bank credit facility is $150 million. Under its bank credit facility, there is one prescribed financial covenant, an interest-coverage ratio requirement of at least 3.5 times. At March 31, 2016, the Company's ratio was significantly above this threshold, with interest coverage of approximate 20 times. Please refer to RMP's first quarter 2016 MD&A for details on the calculation of this covenant.

Outlook and Guidance

Significantly low commodity prices continue to challenge the oil and gas industry, requiring producers to lower cost structures, focus on the balance sheet, enhance sustainability through compressed capital budgets and reduced drilling, and undertake asset divestitures. As a result, maintaining production levels, let alone growing production profitably become difficult for the sector. However, the anemic economic conditions provide opportunities for certain companies to build land positions and counter-cyclically expand future drilling inventories. RMP has positioned itself as one of these companies for asset build-out and long-term, intrinsic value creation.

For fiscal 2016, the Company plans to incur approximately $50 million in capital expenditures, of which approximately 25% is notionally earmarked towards further undeveloped Montney land expansion opportunities for the balance of this year primarily in RMP's emerging new core area of Gold Creek in West Central Alberta.

Corporately for fiscal 2016, only eight (8.0 net) horizontal wells are planned to be drilled, of which four (4.0 net) were drilled in the first quarter of 2016. This level of drilling activity is significantly lower than RMP's historical annual drilling operations. In fiscal 2015 and 2014, a total of 15 and 24 horizontal wells were drilled, respectively. The Company is positioned to accelerate drilling activity in an improved and sustained commodity price environment. As a result of scaled-back drilling plans this year, forecasted production is anticipated to lag from prior-year production levels. Fiscal 2016 production is projected to average approximately 9,000 - 9,200 boe/d (weighted 42% light crude oil and NGLs), which is slightly lower than its 2015 exit-rate production level of approximately 10,000 boe/d (reflects average production for the month of December 2015).

The 2016 capital budget will be funded through internally-generated funds from operations and the March 2016 equity financing. The Company continues to maintain a strong financial and liquidity position, with year-end 2016 net debt forecasted to approximate $96 million, a 19% decrease from year-end 2015 net debt of $118 million. Forecasted fiscal 2016 funds from operations of approximately $40 million is based on US$42.00/bbl for WTI oil, C$1.75/GJ for AECO gas and an exchange rate of $0.7625 (US$/C$). The Company's crude oil revenue is partially protected from oil price weakness through a fixed swap wherein 500 bbls/d are hedged at a fixed C$-denominated WTI oil price of C$60.00/bbl between June 1 and December 31, 2016. Additionally, RMP's strong balance sheet and low cost structure provides a good defense against continued commodity price weakness. Controllable cash costs (operating, G&A and bank interest) in fiscal 2016 are projected to be $8.50/boe, augmenting the Company's cash flow net backs.

Operationally, at Ante Creek, RMP has now drilled a total of 32 (32.0 net) Montney horizontal oil wells. An additional horizontal oil well is planned for the second quarter of this year. In the first quarter, the Company received regulatory approval for its water flood injection pilot. RMP expects to convert a producing horizontal oil well into a pilot water flood injector this summer with water injection commencing soon thereafter. Implementation of secondary recovery is expected to significantly increase the ultimate recovery of the Company's large oil-in-place reservoir at Ante Creek.

At Waskahigan, in the first quarter of this year, the Company conducted another successful hybrid slick-water ("HSW") fracture stimulation of a Montney horizontal well (1.0 net). This well was the tenth HSW completion undertaken on its Montney oil play in the Waskahigan area. An additional three (3.0 net) horizontal wells are budgeted to be drilled in fiscal 2016. RMP's HSW well production performance continues to outperform Montney wells in the area, significantly improving well project economics. At year-end 2015, the proved plus probable average reserves assigned to undeveloped locations increased to 210 thousand boe per well, reflecting the strong results realized from the Company's continued optimization of the HSW completion technique. RMP has a substantial inventory of approximately 200 drilling locations to which this completion technique can be applied (inventory includes 24 proved undeveloped locations and 28 probable undeveloped locations booked in the year-end 2015 independent reserves report).

At Gold Creek, the Company successfully drilled its first exploration well in the first quarter. The cost incurred to drill and complete this well was approximately $4.3 million. RMP is very encouraged with this well's results, with production tie-in scheduled for early-2017, and follow-up delineation drilling planned for this winter. Strategically, RMP is working to augment its acreage position and asset footprint in the area, with anticipation of making this a major growth asset with commensurate reserves and production growth.

In summary, RMP will remain disciplined and flexible with its 2016 capital budget as it monitors commodity prices and economic conditions over the near term and, may make further adjustments to its planned capital expenditures in 2016. The Company has flexibility to adjust the level of its capital investments, either upwards or downwards, as circumstances warrant. RMP's low-cost structure, infrastructure ownership and control, strong balance sheet, high-quality economic asset base and experienced Management team and Board of Directors, positions the Company favourably to sustain and navigate the prevailing uncertain commodity price environment and to take advantage of the opportunities the present environment provides.

RMP's interim condensed consolidated financial statements and Management's Discussion and Analysis for the three months ended March 31, 2016 are available on RMP's website at www.rmpenergyinc.com within "Investors" under "Financials". Additionally, these documents will be filed later today on the System for Electronic Document Analysis and Retrieval ("SEDAR"). After such filing, these documents can be retrieved electronically from the SEDAR system by accessing RMP's public filings under "Search for Public Company Documents" within the "Search Database" module at www.sedar.com.

Abbreviations

bbl or bbls barrel or barrels Mcf/d thousand cubic feet per day
Mbbl thousand barrels MMcf/d million cubic feet per day
bbls/d barrels per day MMcf Million cubic feet
boe barrels of oil equivalent Bcf billion cubic feet
Mboe thousand barrels of oil equivalent psi pounds per square inch
boe/d barrels of oil equivalent per day kPa kilopascals
NGLs natural gas liquids GJ Gigajoule
WTI West Texas Intermediate GJ/d Gigajoules per day

Reader Advisories

Any references in this news release to initial and/or final raw test or production rates and/or "flush" production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter. These test results are not necessarily indicative of long-term performance or ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company.

The information in this news release contains certain forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek," "anticipate," "budget," "plan," "continue," "estimate," "approximate," "expect," "may," "will," "project," "predict," "potential," "targeting," "intend," "could," "might," "should," "believe," "would" and similar expressions. More particularly and without limitation, this news release contains forward looking information relating to: the volume and product mix of the Company's oil and gas production; production estimates including 2016 forecast average production; estimates of 2016 year-end net debt and forecasted 2016 funds from operations; future oil and natural gas prices; future liquidity and financial capacity; future results from operations and operating metrics; future costs, expenses and royalty rates; the exchange rate between the $US and $CDN; future development, exploration, acquisition and development activities and related capital expenditures and the timing thereof; the number of wells to be drilled, completed and tied-in and the timing thereof; the total future capital associated with development of reserves and resources; the anticipated potential of secondary recovery at Ante Creek; and, the anticipated potential of the Company's Gold Creek property.

These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control, including: the impact of general economic conditions; 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; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, such 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 that the Company will derive from them. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

This news release may disclose drilling locations in four categories: (i) proved undeveloped locations; (ii) probable undeveloped locations; iii) unbooked locations; and, iv) an aggregate total of (i), (ii) and (iii). Proved undeveloped locations and probable undeveloped locations are booked and derived from the Corporation's most recent independent reserves evaluation effective 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 Corporation's prospective acreage and an assumption 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 or resources. Unbooked locations have been identified by management as an estimation of the Company's 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, resources or production. The drilling locations on which the Company will actually drill wells is ultimately dependent 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 derisked by drilling existing wells in relative close proximity to such unbooked drilling locations, the majority of 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, resources or production.

In this news release RMP has adopted a standard for converting thousands of cubic feet ("mcf") of natural gas to barrels of oil equivalent ("boe") of 6 mcf:1 boe. Use of boes may be misleading, particularly if used in isolation. The boe rate is based on an energy equivalent 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 than the energy equivalency of the 6:1 conversion ratio, utilizing the 6:1 conversion ratio may be misleading as an indication of value.

As an indicator of the Company's performance, the term funds from operations contained within this news release should not be considered as an alternative to, or more meaningful than, cash flow from operating, financing or investing activities, as determined in accordance with International Financial Reporting Standards ("IFRS"). This term is not a recognized measure, does not have a standardized meaning nor is it a financial measure under IFRS. Funds from operations is widely accepted as a financial indicator of an exploration and production company's ability to generate cash which is used to internally fund exploration and development activities and to service debt. This measure is widely used by shareholders and investors in the valuation, comparison and investment recommendations of companies within the natural gas and crude oil exploration and production industry. Funds from operations, as disclosed within this news release, represents cash flow from operating activities before: expensed corporate acquisition-related costs, decommissioning obligation cash expenditures, changes in non-cash working capital from operating activities and non-cash changes in deferred charge. The Company presents funds from operations per share whereby per share amounts are calculated consistent with the calculation of earnings per share.

Net debt refers to outstanding bank debt less deferred charge plus working capital deficiency (or minus working capital surplus), excluding unrealized amounts pertaining to risk management contracts. Net debt is not a recognized measure under IFRS and does not have a standardized meaning.

Field operating netback or operating netback refers to realized wellhead revenue less royalties, operating expenses and transportation costs per barrel of oil equivalent. Field operating netback or operating netback is not a recognized measure under IFRS and does not have a standardized meaning.

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