TRILOGY ENERGY CORP.
TSX : TET

TRILOGY ENERGY CORP.

March 04, 2015 20:32 ET

Trilogy Energy Corp. Announces Financial and Operating Results for the Quarter and Year-Ended December 31, 2014 and an Agreement with Canada Revenue Agency

CALGARY, ALBERTA--(Marketwired - March 4, 2015) - Trilogy Energy Corp. (TSX:TET) ("Trilogy") is pleased to announce its financial and operating results for the quarter and year-ended December 31, 2014 and to announce the resolution of its dispute with the Canada Revenue Agency ("CRA") regarding the tax consequences in connection with its conversion from a trust to a corporation in 2010.

Financial and Operating Highlights

  • Trilogy added 30.9 MMBoe of proved reserves (34 percent oil and NGLs) and 47.4 MMBoe of proved plus probable reserves (35 percent oil and NGLs), including technical revisions.

  • Trilogy replaced 241 percent of 2014 produced reserves when compared to total proven reserve additions, and 370 percent when compared to proven plus probable reserves.

  • 2014 reported sales volumes averaged 35,104 Boe/d as compared to 34,509 Boe/d for the previous year, representing a 2 percent increase in production. Reported sales volumes for the fourth quarter of 2014 were 35,938 Boe/d as compared to 35,125 Boe/d for the previous quarter.

  • 2014 net capital expenditures totaled $440 million as compared to $396.9 million in 2013. $72.6 million was spent in the fourth quarter of 2014 compared to $81.1 million in the prior quarter.

  • 85 (53.6 net) wells were drilled in 2014, as compared to 81 (57.2 net) wells in 2013. 17 (5.6 net) wells drilled in the fourth quarter, as compared to 17 (11.8) wells in the prior quarter.

  • Finding and development costs (1) were $24.82/Boe for total proved reserves and $20.78/Boe for proved plus probable reserves.

  • 2014 funds flow from operations (1) totaled $349.4 million as compared to $280.5 million in 2013, representing a 25 percent increase year-over-year. Funds flow from operations (1) decreased to $78 million for the fourth quarter as compared to $88 million in the previous quarter in conjunction with declining commodity prices in the quarter.

  • Capacity under Trilogy's revolving credit facility as at December 31, 2014 was estimated at $259.7 million.

(1) Refer to Non-GAAP measures in this release and MD&A
Financial and Operating Highlights Table
(In thousand Canadian dollars except per share amounts and where stated otherwise)
Three Months EndedYear Ended December 31
December 31,September 30,
20142014Change %20142013Change %
FINANCIAL
Petroleum and natural gas sales129,555153,860(16)618,949563,46310
Funds flow
From operations(1)78,01187,933(11)349,360280,51125
Per share - diluted0.620.69(11)2.752.3219
Earnings
Earnings (loss) before tax(54,464)36,714(248)44,25818,702137
Per share - diluted(0.43)0.29(249)0.350.15125
Earnings (loss) after tax(133,331)26,700(599)(61,011)11,467(632)
Per share - diluted(1.05)0.21(601)(0.49)0.09(607)
Dividends declared8,81913,221(33)48,41750,188(4)
Per share0.0700.105(33)0.3850.420(8)
Capital expenditures
Exploration, development, land, and facility63,29980,939(22)425,769399,4317
Acquisitions (dispositions) and other - net9,3301785,14214,232(2,531)(662)
Net capital expenditures72,62981,117(10)440,001396,90011
Total assets1,618,9531,727,802(6)1,618,9531,546,7295
Net debt(1)751,603745,5521751,603616,05322
Shareholders' equity572,135711,522(20)572,135665,849(14)
Total shares outstanding (thousands)
- As at end of period (2)125,854125,795-125,854125,1741
OPERATING
Production
Natural gas (MMcf/d)13012821261178
Oil (Bbl/d)8,2518,05128,32610,175(18)
Natural gas liquids (Boe/d)6,0585,79455,7064,82718
Total production (Boe/d @ 6:1)35,93835,125235,10434,5092
Average prices before financialinstruments
Natural gas ($/Mcf)4.064.53(10)4.983.5540
Crude Oil ($/Bbl)70.9593.14(24)89.1787.012
Natural gas liquids ($/Boe)48.7859.50(18)56.6950.2713
Average realized price39.1847.61(18)48.3144.738
Drilling activity (gross)
Gas73133352825
Oil1014(29)5053(6)
Total wells1717-85815
(1) Funds flow from operations and net debt are non-GAAP terms. Please refer to the advisory on Non-GAAP measures below.
(2) Excluding shares held in trust for the benefit of Trilogy's officers and employees under the Company's Share Incentive Plan. Includes Common Shares and Non-voting Shares. Refer to the notes to the interim consolidated financial statements for additional information.

Outlook

Trilogy continues to develop its land position and expand on its technical expertise in large, tight, liquids-rich gas and oil resource plays in the Deep Basin. The Company believes that it has accumulated a large inventory of high quality horizontal drilling prospects that should provide the opportunity, in the long term, to grow annual production and replace produced reserves. Trilogy reiterates its 2015 guidance as follows:

Average production 30,000 Boe/d (~35 percent oil and natural gas liquids)
Average operating costs $10.00 /Boe
Capital expenditures $100 million

Trilogy is well-positioned to alter its capital spending program to reflect further market instability and is committed to operating within cash flow in this volatile commodity price environment. Trilogy will be evaluating the opportunity to attract external capital in further advancing its Duvernay play in the near future.

Agreement with the CRA regarding its conversion from a trust to a corporation

Trilogy also announces that it has resolved its dispute with the CRA relating to the CRA's objection to the tax consequences in connection with the conversion of Trilogy in 2010 from an income trust structure to a corporation.

The agreement will result in:

  • no cash tax outlay by Trilogy for the taxation years 2010 through 2014;
  • an estimated charge to Trilogy's Statement of Comprehensive Income for the year ended December 31, 2014 to write down a portion of Trilogy's deferred tax asset;
  • the elimination of potentially costly and time consuming court proceedings; and
  • management being able to focus more fully on Trilogy's operations to enhance shareholder value.

Trilogy's management expects that Trilogy will not be cash taxable in the foreseeable future given the tax pool balances remaining after the aforementioned tax adjustments and Trilogy's expectations of, among other things, future capital expenditure levels and funds flow from operations.

Additional Information

Trilogy's financial and operating results for 2014, including the Review of Operations, Management's Discussion and Analysis and the Company's audited annual consolidated financial statements as at and for the year ended December 31, 2014 can be obtained at http://media3.marketwire.com/docs/2014%20Report.pdf. These reports will also be made available at a later date through Trilogy's website at www.trilogyenergy.com and SEDAR at www.sedar.com.

About Trilogy

Trilogy is a growing petroleum and natural gas-focused Canadian energy corporation that actively develops, produces and sells natural gas, crude oil and natural gas liquids. Trilogy's geographically concentrated assets are primarily, high working interest properties that provide abundant low-risk infill drilling opportunities and good access to infrastructure and processing facilities, many of which are operated and controlled by Trilogy. Trilogy's common shares are listed on the Toronto Stock Exchange under the symbol "TET".

Non-GAAP Measures

Certain measures used in this document, including "adjusted EBITDA", "consolidated debt", "finding and development costs", "funds flow from operations", "operating income", "net debt", "operating netback", "payout ratio", "recycle ratio" and "senior debt" collectively the "Non-GAAP measures" do not have any standardized meaning as prescribed by IFRS and previous GAAP and, therefore, are considered Non-GAAP measures. Non-GAAP measures are commonly used in the oil and gas industry and by Trilogy to provide Shareholders and potential investors with additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. However, given their lack of standardized meaning, such measurements are unlikely to be comparable to similar measures presented by other issuers.

"Adjusted EBITDA" refers to "Funds flow from operations" in addition to cash interest and tax expenses and certain other items that do not appear individually in the line items of the Company's financial statements.

"Consolidated debt" generally includes all long-term debt plus any issued and undrawn letters of credit.

"Finding and development costs" refers to all current year net capital expenditures, excluding property acquisitions and dispositions with associated reserves, and including changes in future development capital on a proved or proved plus probable basis. "Finding and development costs per Barrel of oil equivalent" ("F&D $/Boe") is calculated by dividing finding and development costs by the current year's reserve extensions, discoveries and revisions on a proved or proved plus probable reserve basis. Management uses finding and development costs as a measure to assess the performance of the Company's resources required to locate and extract new hydrocarbon reservoirs.

"Funds flow from operations" refers to the cash flow from operating activities before net changes in operating working capital as shown in the consolidated statements of cash flows. Management utilizes funds flow from operations as a key measure to assess the ability of the Company to finance dividends, operating activities, capital expenditures and debt repayments.

"Operating income" is equal to petroleum and natural gas sales before financial instruments and bad debt expenses minus royalties, operating costs, and transportation costs. "Operating netback" refers to Operating income plus realized financial instrument gains and losses and other income minus actual decommissioning and restoration costs incurred. Operating income and operating netback are used by management to measure operating results of discrete oil and gas properties' performance without reference to capital and organizational structure and corporate and general administrative costs.

"Net debt" is calculated as current liabilities minus current assets plus long-term debt. Management utilizes net debt as a key measure to assess the liquidity of the Company.

"Payout ratio" refers to dividends divided by cash flow from operations. This measure assists in providing a more complete understanding of the Company's ability to fund future dividends to Shareholders from cash flow from operations.

"Recycle ratio" is equal to "Operating netback" on a production barrel of oil equivalent for the year divided by "F&D $/Boe" (computed on a proved or proved plus probable reserve basis as applicable). Management uses this metric to measure the profitability of the Company in turning a barrel of reserves into a barrel of production.

"Senior debt" is generally defined as "Consolidated debt" but excluding any indebtedness under the Senior Unsecured Notes.

Investors are cautioned that the Non-GAAP measures should not be considered in isolation or construed as alternatives to their most directly comparable measure calculated in accordance with IFRS, as set forth above, or other measures of financial performance calculated in accordance with IFRS.

Forward-Looking Information

Certain information included in this news release constitutes forward-looking statements under applicable securities legislation. Forward-looking statements or information typically contain statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "budget" or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements or information in this news release pertain to, without limitation: expected average daily production volumes in 2015 and the relative content of crude oil and natural gas liquids therein; projected average operating costs and capital expenditures for 2015 and management's ability to alter its capital spending program to reflect further market instability;Trilogy's intention to evaluate opportunities, and to attract external capital, in relation to its Duvernay shale assets; statements regarding management's intention to grow production and replace reserves, and live within cash flow,; and estimates of tax assets, tax pools and Trilogy's future taxability; and the effect of the resolution of the tax dispute with the CRA on remaining tax pools and deferred tax assets.

Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect. Such assumptions include: current commodity price forecasts for petroleum, natural gas and natural gas liquids; current reserves estimates; current production forecasts and the relative mix of crude oil, NGLs and natural gas therein; geology applicable to Trilogy's land holdings; the extent and development potential of Trilogy's assets (including, without limitation, Trilogy's Kaybob area Montney oil and gas assets, the Duvernay Shale Gas development program, the Gething and Dunvegan oil pools, among others); continuity of the mutually beneficial NGL Recovery Agreement with Aux Sable Canada LP and pricing thereunder until November 2015 and Trilogy's ability to thereafter enter into one or more other arrangements having, in the aggregate, less favorable terms relative to the existing Aux Sable Agreement; cash flow consistent with expectations; assumptions regarding royalties and expenses and the continuity of government incentive programs and their applicability to Trilogy; operating and other costs; currency exchange and interest rates; expected timelines and budgets being met in respect of drilling programs and other operations; budget allocations and capital spending flexibility; credit facility availability and access to sources of funding for Trilogy's planned operations and expenditures; ability of Trilogy to service its debt and repay its debt when due; estimates of deferred tax amounts, tax assets and tax pools; estimates and projections in respect of the application of tax laws; the ability of Trilogy and its partners to achieve drilling, completion construction and other operational results consistent with our expectations; general business, economic, and market conditions; the ability of Trilogy to obtain equipment, services and supplies in a timely manner to carry out its activities; the ability of Trilogy to market its crude oil, natural gas and natural gas liquids successfully to current and new customers; the timing and costs of pipeline, storage and facility construction and expansion facility run-times; the ability to secure adequate product processing, transmission, transportation, fractionation and storage capacity on acceptable terms and the timely receipt of required regulatory approvals: among others.

Although Trilogy believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Trilogy can give no assurance that such expectations will prove to be correct. Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Trilogy and described in the forward-looking statements or information.
These risks and uncertainties include, but are not limited to: fluctuations in oil, natural gas, condensate and other natural gas liquids and commodity prices, foreign currency, exchange rates and interest rates, volatile economic and business conditions, the ability of management to execute its business plan; the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil, natural gas, condensate and other natural gas liquids and market demand; the ability of Trilogy to add production and reserves through development and exploration activities; risks and uncertainties involving geology of oil and gas deposits; risks inherent in Trilogy's marketing operations, including credit risk and the risk that Trilogy may not be able to enter into suitable arrangements for the sale of its crude oil, natural gas and gas liquids on acceptable terms or at all; the uncertainty of reserves estimates and reserves life;
the uncertainty of estimates and projections relating to future production, NGL yields, costs and expenses; uncertainty in amounts and timing of royalty payments and applicability of and change to royalty regimes and government incentive programs including, without limitation, the Natural Gas Deep Drilling Programs and the Drilling Royalty Credit Program; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; the availability of financing; the ability to generate sufficient cash flow from operations and other sources of financing at an acceptable cost to fund Trilogy's exploration, development and construction plans and meet current and future obligations and repay debt; Trilogy's ability to secure adequate product transmission, transportation, fractionation and storage capacity on a timely basis or at all; the possibility Trilogy will not commence or complete a process to evaluate opportunities with respect to its Duvernay shale assets in the near future or at all;Trilogy's ability to enter into or renew leases; health, safety and environmental risks; weather conditions; the possibility that government policies, regulations or laws, including without limitation those relating to the environment and taxation, may change; imprecision in estimates of product sales, commodity prices, capital expenditures, tax pools, tax shelters, tax deductions available to Trilogy, changes to and the interpretation of tax legislation and regulations applicable to Trilogy, and timing and amounts of reversals of temporary differences between assets and liabilities recognized for accounting and tax purpose; the possibility that regulatory approvals may be delayed or withheld; risks associated with existing and potential future lawsuits and regulatory actions against Trilogy; uncertainty regarding aboriginal land claims and co-existing local populations; hiring/maintaining staff; the impact of market competition; and other risks and uncertainties described elsewhere in this document or in Trilogy's other filings with Canadian securities authorities.

The forward-looking statements and information contained in this news release are made as of the date hereof and Trilogy undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Refer to Trilogy's Management's Discussion and Analysis for additional information on forward-looking information.

Oil and Gas Advisory

This document contains disclosure expressed as "Boe", "MBoe", "Boe/d", "Mcf", "Mcf/d", "MMcf", "MMcf/d", "Bcf", "Bbl", and "Bbl/d". All oil and natural gas equivalency volumes have been derived using the ratio of six thousand cubic feet of natural gas to one barrel of oil (6:1). Equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head. For Q4 2014, the ratio between Trilogy's average realized oil price and the average realized natural gas price was approximately 17:1 ("Value Ratio"). The Value Ratio is obtained using the Q4 2014 average realized oil price of $70.95 (CAD$/Bbl) and the Q4 2014 average realized natural gas price of $4.06 (CAD$/mcf). This Value Ratio is significantly different from the energy equivalency ratio of 6:1 and using a 6:1 ratio would be misleading as an indication of value.

Contact Information

  • J.H.T. (Jim) Riddell, Chief Executive Officer
    J.B. (John) Williams, President and Chief Operating Officer
    M.G. (Michael) Kohut, Chief Financial Officer

    Trilogy Energy Corp.
    1400 - 332 - 6th Avenue S.W.
    Calgary, Alberta T2P 0B2
    (403) 290-2900
    (403) 263-8915 (FAX)