Skope Energy Inc.

Skope Energy Inc.

November 10, 2011 08:00 ET

Skope Energy Announces the Filing of Its Quarterly Financial Statements, MD&A for the Three Months Ended September 30, 2011

CALGARY, ALBERTA--(Marketwire - Nov. 10, 2011) - Skope Energy Inc. ("Skope" or the "Company") (TSX:SKL) is pleased to announce the filing of its quarterly consolidated financial results as at and for the three and six months ended September 30, 2011 and the accompanying Management's Discussion and Analysis ("MD&A").

($thousands, except share, per share and operational data)
Q2 2012 Q1 2012 YTD 2012
Petroleum and natural gas revenues 8,360 8,243 16,603
Royalties (773 ) (761 ) (1,534 )
Realized gain on commodity contracts 471 300 771
Operating expenses (3,440 ) (3,241 ) (6,681 )
Operating netback 4,618 4,541 9,159
G&A (668 ) (621 ) (1,289 )
Cash interest paid (1) (179 ) (205 ) (384 )
Funds from operations 3,771 3,715 7,486
Per share – Basic and diluted 0.47 0.46 0.93
Capital expenditures (2) (1,722 ) (1,056 ) (2,778 )
Cash dividends (1,414 ) (1,414 ) (2,828 )
Excess of funds from operations over capital expenditures and cash dividends 635 1,245 1,880
Percentage of capital expenditures and cash dividends vs. funds from operations 83 % 66 % 75 %
Net gain (loss) (2,436 ) (1,214 ) (3,650 )
Per share – Basic and diluted (0.30 ) (0.15 ) (0.45 )
Bank debt 59,006 60,387 59,006
Working capital 4,647 6,174 4,647
Net debt 54,359 54,213 54,359
Total assets 124,637 126,668 124,637
Total shares outstanding 8,078,281 8,078,281 8,078,281
Weighted average shares outstanding
– Basic and diluted
8,078,281 8,078,281 8,078,281
(Per mcf amounts may not add due to rounding)
Average daily production
Natural gas (mcf/d) 25,916 24,863 25,392
Total (boe/d) 4,319 4,144 4,232
Average prices received
Natural gas ($/mcf) 3.51 3.64 3.57
$ per mcf
Petroleum and natural gas revenues 3.51 3.64 3.57
Royalties (0.32 ) (0.34 ) (0.33 )
Realized gain on commodity contracts 0.20 0.13 0.17
Operating expenses (1.44 ) (1.43 ) (1.44 )
Operating netback 1.95 2.00 1.97
G&A (0.28 ) (0.27 ) (0.28 )
Cash interest paid (1) (0.08 ) (0.09 ) (0.08 )
Funds from operations 1.59 1.64 1.61
(1) Cash interest paid represents cash interest paid on credit facility and on realized losses on interest rate financial contracts.
(2) Capital expenditures represent additions to property and equipment.


Skope is pleased to report to shareholders the Company's activities as at and for the three month period ended September 30, 2011. Skope was incorporated in June 2010 and at that time established an innovative and ambitious business plan designed to take advantage of a cyclical low in conventional natural gas prices and to provide investors with a stable rate of return in the form of dividends.

Skope's business model is to capture high quality natural gas assets near cycle lows. The Company's existing assets have predictable decline rates which can be further mitigated by work-overs and horizontal drilling techniques. Skope's granular approach to capital spending allows the Company to adapt to the current natural gas environment with minimal spending while maintaining both reserves and production. In the last two quarters, the Company has generated excess cash flow, with capital expenditures and cash dividends representing approximately 75% of funds from operations, while maintaining production close to the level when the Company first acquired its assets.

Since the establishment of the Company's public listing on the Toronto Stock Exchange in December 2010, Skope has paid over $5.7 million in dividends to shareholders and has repaid $5 million of long term debt.

Skope's assets consist of an 80% working interest in a package of high quality producing shallow natural gas assets, located in southeast Alberta and southwest Saskatchewan. Since acquiring these assets in September 2010, Skope has identified a large inventory of work-over and recompletion prospects which are expected to contribute to stable production.

Decline rates on Skope's production have been more moderate than previously expected, at 8-10% compared to 17% a year ago. This is largely the result of the Company's strategy of keeping production flat, rather than attempting to grow production. With sub-10% declines, capital required to maintain production is reduced dramatically, which management believes could be further reduced by focusing capital expenditures towards work-overs and recompletions and to horizontal drilling.

Average production for the second quarter ended September 30, 2011 was 25,916 mcf/d compared to average production of 24,863 mcf/d in the first quarter ended June 30, 2011. The 4% increase quarter over quarter is due to production from new horizontal wells drilled at Pendor during the first quarter and successful work-over activities.

Skope's capital expenditure program is designed to generate stable production and cash flow. Management has budgeted $6.5 million of capital spending for fiscal 2012 (April 2011 to March 2012) including horizontal and work over activity concentrated in the Pendor area. To date, Skope has sustained its production profile with capital expenditures only $2.7 million for the six months ended September 30, 2011.

In July of this year, Skope completed its first two horizontal wells in the Pendor area targeting the Second White Specks and Medicine Hat formations. Early results were sufficiently encouraging to continue the horizontal drilling program. During the second fiscal quarter, Skope drilled an additional horizontal well in the Bow Island formation which is in the process of being completed. Subsequent to the quarter-end, Skope drilled two additional horizontal wells in the Mannville and Second White Specks formations which are also in the process of being completed. Skope has identified over 20 potential follow-up locations.

For the quarter ended September 30, 2011, revenues were $8.4 million or $3.51 per mcf as compared to $8.2 million or $3.64 per mcf for the first quarter ended June 30, 2011. The increase in revenue in the second quarter compared to the first quarter is due to higher production partially offset by slightly lower realized gas prices.

Since inception, Skope's has actively managed its commodity and interest rate risk, with the primary objective being the funding of capital expenditures and dividends. As a portion of the Company's overall risk management position, Skope currently has an average of 11,167 Gj/d (10,588 mcf/d) of financial put and swap contracts at an average price of $4.01/Gj ($4.23/mcf) protecting the natural gas price downside for the next 12 months.


Due largely to uncertainty regarding the U.S. and European economies and the threat of a global recession, capital markets in North America have been volatile during the quarter. The S&P/TSX Composite Index started the quarter at a level of 13,387 and closed on September 30, 2011 at 11,623 down 1,763 points or 13.2%. Subsequent to quarter end, markets have continued to show weakness with the S&P/TSX Composite Index hitting a low of 11,178 on October 4, 2011. Equity markets remain heavily dependent on government stimulus in the US and Europe and sovereign debt levels continue cast a shadow on the global economy.

In terms of natural gas prices, the AECO daily index averaged $3.47 per Gj for the quarter ended September 30, 2011 compared to $3.67 per Gj for the three months ended June 30, 2011. Current AECO natural gas prices are approximately $3.28 per Gj. A turbulent global economic environment was bearish for natural gas demand, as forecasts for reduced GDP growth around the world implied reduced demand for commodities including natural gas. Management manages commodity price risk by utilizing hedging products and will continue to add contracts to the existing portfolio when it is prudent to do so.

Management continually monitors the acquisition market and has recently identified several high quality natural gas acquisition opportunities characterized by high working interests, infrastructure control, low operating costs and positive cash flow. Skope continues to be well positioned for the acquisition of additional high quality natural gas assets.

Skope has the sustainability to weather a period of low gas prices, given the low capital requirements, low cost structure, low overheads and extensive risk management program.

On behalf of the Board of Directors,

Henry Cohen, President and Chief Executive Officer


This press release offers our assessment of the Company's future plans and operations as at November 10, 2011 and contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "should", "plan", "intend", "believe" and similar expressions (including the negatives thereof) are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: Skope's business model and plans, expectations with respect to the characteristics of the Company's asset base, including anticipated decline rates, drilling, work-over and recompletion plans and projects and the results therefrom, expectations regarding the level of capital required to maintain production, the Company's 2012 capital expenditure program and the allocation thereof, Skope's risk management strategy and program, and the other matters described under the heading "President's Message to Shareholders"; and all matters, including industry and market conditions, expectations regarding commodity prices, and Skope's hedging and acquisition strategy, described under the heading "Outlook". Forward-looking statements are provided to allow investors to have a greater understanding of the Company's business.

The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. These forward-looking information and statements are based on various assumptions including: the outlook for petroleum and natural gas prices; estimated amounts and timing of capital expenditures and the results therefrom; the timing, location and extent of future drilling operations; estimates of future production and operating costs; the state of the economy and the exploration and production business; results of operations; geological, technical, drilling and processing problems; performance; business prospects and opportunities; future exchange and interest rates, Skope's ability to obtain equipment in a timely manner to carry out development activities; impact of increasing competition; ability to market oil and natural gas successfully; and the ability of Skope to access capital. While Skope considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their nature, forward-looking information and statements involve numerous assumptions, known and unknown risks and uncertainties and other factors that contribute to the possibility that the predicted outcome will not occur, including, without limitation: risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation; environmental risks; weather; the lack of availability of qualified personnel or management; stock market volatility; the 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; incorrect assessment of the value of acquisitions; failure to realize the anticipated benefits of acquisitions; general economic conditions in Canada, the U.S. and globally; and ability to access sufficient capital from internal and external sources. Readers are cautioned that the foregoing list of factors is not exhaustive.

Although Skope believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements and you should not unduly rely on forward-looking statements. The forward-looking statements contained in this news release are made as the date of this new release and the company 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.


Skope uses the following terms for measurement within this press release that do not have a standardized prescribed meaning under International Financial Reporting Standards ("IFRS") or previously Canadian Generally Accepted Accounting Principles ("GAAP") and these measurements may not be comparable with the calculation of similar measurements of other entities.

The terms "funds from operations", "operating netback" and "operating netback per mcf" in this press release are not recognized measures under IFRS or previously GAAP. Management believes that these terms are useful supplemental measures to evaluate operating performance and assess leverage. Users are cautioned however, that these measures should not be construed as an alternative to net earnings or cash flow from operating activities determined in accordance with IFRS or previously GAAP as an indication of Skope's performance.

Skope considers funds from operations to be an important measure of its ability to generate the funds necessary to finance capital expenditures and repay debt. All references to funds from operations throughout this press release are based on cash provided by operating activities before the change in non-cash working capital and actual asset retirement expenditures since Skope believes the timing of collection, payment or incurrence of these items involves a high degree of discretion and as such may not be useful for evaluating Skope's operating performance. Skope's method of calculating funds from operations may differ from that of other companies and, accordingly, may not be comparable to measures used by other companies. Readers may refer to a reconciliation of funds from operations to cash provided by operating activities in Skope's Management's Discussion and Analysis dated August 23, 2011 which has been has been filed under Skope's SEDAR profile at and on Skope's website at


In this press release, the following terms are defined as follows:

"bbl" Barrel
"boe" Barrel(s) of oil equivalent
"boe/d" Barrel(s) of oil equivalent per day
"Gj" Gigajoules
"mcf" Thousand cubic feet
"mcf/d" Thousand cubic feet per day
"mmcf" Million cubic feet
"mmcf/d" Million cubic feet per day


In conformity with National Instrument 51-101, Standards for Disclosure of Oil and Gas Activities ("NI 51-101"), natural gas volumes have been converted to barrels of oil equivalent using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil. This ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Readers are cautioned that the term "boe" may be misleading, particularly if used in isolation.


Skope has filed with Canadian securities regulatory authorities its unaudited financial statements as at and for the three and six months ended September 30, 2011 and the accompanying Managements' Discussion and Analysis. These filings are available under Skope's SEDAR profile at and on its website at


Skope is a Canadian public company in the business of oil and natural gas exploration, development and production in Western Canada with a focus on shallow natural gas. Skope's assets consist of an 80% working interest in a package of producing shallow gas assets, located in southeast Alberta and southwest Saskatchewan.

Skope's common shares are listed on the TSX under the symbol "SKL".

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