Terra Energy Corp.

Terra Energy Corp.

April 01, 2013 21:39 ET

Terra Energy Releases 2012 Year-End Financial Results and Reserves Evaluation

CALGARY, ALBERTA--(Marketwire - April 1, 2013) - Terra Energy Corp. ("Terra" or the "Company") (TSX:TT) announces its 2012 audited consolidated financial statements, management's discussion and analysis and its reserves evaluation, as prepared by GLJ Petroleum Consultants Ltd. ("GLJ") at December 31, 2012 (the "GLJ Report").

The Company's focus for 2012 was centered on the disposition of mainly non-producing assets during a period of continued low natural gas prices. The Company's 2012 financial and operating results were generally impacted by limited cashflows and the Company's efforts to reduce capital expenditures. Proceeds from asset sales during the year were used to reduce the Company's credit facility (the "Credit Facility").

Terra's 2012 year-end financial results may be obtained at www.sedar.com or www.terraenergy.ca.

2012 Financial and Operating Summary

  • The Company realized a gain from asset sales of $13.0 million from proceeds of $38.7 million. Net proceeds were used by the Company to reduce its Credit Facility from $100.0 million at December 31, 2011 to $70.0 million at Dec 31, 2012.
  • Average daily production for the year was 5,078 boe/d.
  • Revenue for the year decreased from $71.1 million to $45.4 million as a result of weakness in natural gas prices and reduced production arising from the Company not having available capital to support production.
  • As a result of declining natural gas prices and the reclassification of reserves associated with assets held for sale, the Company recognized a $57.8 million impairment expense.
  • At year-end, the Company had an undeveloped land position of 527,954 net acres.
  • Subsequent to year-end the Company entered into a sale and option agreement whereby the Company sold additional assets for net proceeds of approximately $20.0 million which was used to further reduce the Company's Credit Facility to $49.9 million. The option on the remaining Montney assets must be exercised by June 3, 2013 for additional gross proceeds of $36.0 million, less standard industry adjustments and commissions.

Reserves Evaluation and Related Metrics

The GLJ reserves evaluation was performed in accordance with the requirements of National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Additionally, the Company would like to announce the results of its independent evaluation of undeveloped lands, as prepared by Seaton-Jordan & Associates Ltd. ("Seaton-Jordan") as presented below.

Oil and Gas Reserves

Total proved and probable reserves, net of 2012 production decreased by 22% from 33,945 mboe to 26,571 mboe at December 31, 2012, based upon forecast prices and costs. The breakdown of the Company's reserves consisted of 80% natural gas, 9% crude oil and 11% natural gas liquids as at December 31, 2012.

The following tables summarize certain information contained in the GLJ Report effective December 31, 2012. Detailed reserves information as required under NI 51-101 is included in Terra's Annual Information Form filed on SEDAR. Oil equivalent amounts have been calculated using a conversion rate of 6,000 cubic feet of natural gas to one barrel of oil.

Summary of Gross Before Royalty Working Interest Reserves by Category

Forecast Prices and Costs December 31, 2011 December 31, 2012 % Change
Reserves Category Total(mboe) Light and Medium Oil(mbbl) Heavy Oil(mbbl) Natural Gas Liquids
Natural Gas(mmcf) Coal Bed Methane
Total Oil Equivalent (mboe) Total
Proved Producing 11,034 758 2 888 40,442 314 8,442 -23%
Proved Developed Non-Producing 3,278 392 32 292 15,068 - 3,227 -2%
Proved Undeveloped 3,052 74 - 193 7,749 185 1,589 -48%
Total Proved 17,364 1,225 34 1,373 63,259 499 13,258 -24%
Total Probable 16,582 1,046 9 1,500 64,377 168 13,313 -20%
Total Proved + Probable 33,945 2,271 43 2,873 127,636 667 26,571 -22%

Totals may not add due to rounding

The estimated future net revenues are presented before deducting future estimated site restoration costs and are reduced for future abandonment costs and estimated future capital for future development associated with non-producing, undeveloped and probable additional reserves.

Summary of Net Present Values of Future Net Revenue ($000's) Discounted Before Income Taxes

Forecast Prices December 31, 2011 December 31, 2012 % Change
Reserves Category 0 % 10 % 0 % 10 % 0 % 10 %
Proved Producing 190,726 122,559 117,173 75,639 -39 % -38 %
Proved Non-Producing 98,213 45,562 68,614 33,172 -30 % -27 %
Total Proved 288,939 168,121 185,787 108,811 -36 % -35 %
Total Probable 358,558 122,029 217,703 74,618 -39 % -39 %
Total Proved + Probable 647,497 290,150 403,490 183,429 -38 % -37 %

The forecast prices used in the GLJ Report were GLJ's forecast prices as at January 1, 2013 as presented below. The January 1, 2013 forecast prices for natural gas reflect a substantial reduction from the January 1, 2012 forecast pricing.

Year Dec 31, 2011 Evaluation Dec 31, 2012 Evaluation % Difference Year over Year
2013 $4.13 $3.38 -18.2%
2014 $4.59 $3.83 -16.6%
2013 $100.00 $90.00 -10.0%
2014 $100.00 $92.50 -7.5%

Land Valuation

Terra's gross undeveloped land holdings decreased from 739,148 gross acres (608,079 net) as at December 31, 2011 to 641,584 gross acres (527,954 net) as at December 31, 2012, representing a decrease of 13% for both net and gross numbers. The decrease was largely attributable to dispositions by the Company during the year.

Below is a summary of the Company's undeveloped land holdings, broken down by province:

Province December 31, 2012 December 31, 2011
Gross Acreage Net Acreage Gross Acreage Net Acreage
Alberta 374,727 333,408 404,566 370,764
British Columbia 266,533 194,546 334,338 237,314
Saskatchewan 325 GOR 244 GOR
Totals 641,584 527,954 739,148 608,079
Province Undeveloped Land Values % Change
2012 2011
Alberta $18,243,575 $25,575,957 -40%
British Columbia $43,198,979 $70,699,147 -64%
Saskatchewan $644 $414 36%
Totals $61,443,198 $96,275,518 -57%

The undeveloped land holdings of the Company were evaluated as at December 31, 2012 by Seaton-Jordan. The value of Terra's net undeveloped land holdings is estimated to be approximately $61.4 million as at December 31, 2012. This valuation represents a decrease of 57% over last year's valuation of undeveloped land as prepared by Seaton-Jordan, reflecting both dispositions during the year, and recognition of current market conditions.

On February 28, 2013, the Company disposed of undeveloped land for proceeds of $20.0 million of which 33,296 gross acres (31,034 net) were included in the Seaton-Jordan evaluation. As a result of this sale, the Seaton-Jordan valuation would be reduced by approximately $13.5 million to $47.9 million.

Net Asset Value (NAV)

Terra's NAV per share as at December 31, 2012 is calculated as follows:

As at December 31($000's) 2012 2011
P+P Reserves (NPV 10%) $183,430 $290,150
Undeveloped Land (527,954 net acres)1 $61,443 $96,276
Seismic at Book Value $7,866 $7,527
Net Debt2 ($77,247) ($94,850)
Net Asset Value $175,492 $299,103
Shares Outstanding 101,663 101,784
Basic NAV per Share $1.73 $2.94
Option Value $7,271 $8,766
Option Shares 6,378 9,325
Diluted Net Asset Value $182,763 $307,869
Diluted Shares Outstanding 108,041 111,109
Fully Diluted NAV per Share $1.69 $2.77
1 Based on December 31, 2011 and 2012 Seaton-Jordan reports
2 Net debt for 2012 exclusive of assets held for sale ($43,386) and risk management contracts

It is estimated that the impact of the remaining Montney sale option will reduce the December 31, 2012 NAV by $0.21 cents from $1.69 to $1.48 on a fully diluted basis.

Terra is a junior oil and gas corporation engaged in the exploration for, and development and production of, natural gas and oil in Western Canada. Terra's common shares trade on the Toronto Stock Exchange under the symbol 'TT'.

Reader Advisory

All amounts in Canadian dollars unless otherwise specified.

Information Regarding Disclosure in Oil and Gas Reserves and Operational Information

A boe conversion ratio of six thousand cubic feet per barrel (6mcf/bbl) of natural gas to barrels of oil equivalence is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency for the individual products at the wellhead. Such disclosure of boe's may be misleading, particularly if used in isolation. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1; utilizing a conversion of a 6:1 basis may be misleading as an indication of value.

In accordance with Canadian practice, production volumes are reported on a company gross basis, before deduction of Crown and other royalties, unless otherwise stated. Unless otherwise specified, all reserve volumes in this media release and all information derived there from are based on "working interest" using forecast prices and costs. "Working interest" reserves consist of "total company interest" reserves (as defined in National Instrument 51-101 adopted by the Canadian Securities Regulators) less Terra's royalty interests in reserves. "Working interest" reserves are not a measure defined in NI 51-101 and do not have a standardized meaning under NI 51-101. Accordingly our "working interest" reserves may not be comparable to reserves presented or disclosed by other issuers. Our oil and gas reserves statement for the year ended December 31, 2012, which will include complete disclosure of our oil and gas reserves and other oil and gas information in accordance with NI 51-101, will be contained within our Annual Information Form which is available on our SEDAR profile at www.sedar.com. In relation to the disclosure of estimates in the operations update discussion, such estimates for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effects of aggregation.

In relation to the disclosure of NAV, the NAV table shows what is normally referred to as a "produce-out" NAV calculation under which the current value of the Company's reserves would be produced at forecast future prices and costs and do not necessarily represent a "going concern" value of the Company. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. The future net revenues estimated by GLJ do not represent the fair market value of the reserves, nor should it be assumed that Terra's internally estimated value of its undeveloped land holdings represent the fair market value of the lands.

Forward-Looking Statements

This media release may contain certain statements which constitute forward-looking statements or information ("forward-looking statements"), including statements regarding the Company NAV after exercise of the remaining Montney sale option. There is no assurance that the remaining Montney sale option will be exercised or the timing of exercise. Although Terra believes that the expectations reflected in our forward-looking statements are reasonable, our forward-looking statements have been based on expectations, factors and assumptions concerning future events which may prove to be inaccurate. Those expectations, factors and assumptions are based upon currently available information available to the Company. Such statements are subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated or implied in the forward-looking statements. As such, readers are cautioned not to place undue reliance on the forward-looking statements, as no assurance can be provided as to future results, levels of activity or achievements. The risks, uncertainties, material assumptions and other factors that could affect actual results are discussed in our Annual Information Form and other documents available at www.sedar.com. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and, except as required by applicable law, Terra does not undertake any obligation to publicly update or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

Contact Information

  • Terra Energy Corp.
    Bud Love
    Vice President of Finance, & Chief Financial Officer

    Terra Energy Corp.
    Berk Sumen
    Manager, Corporate Affairs
    403.264.7189 (FAX)