TRILOGY ENERGY CORP.
TSX : TET

TRILOGY ENERGY CORP.

March 01, 2011 17:40 ET

Trilogy Energy Corp. Financial and Operating Results of Trilogy Energy Corp. for the Quarter and Year Ended December 31, 2010

CALGARY, ALBERTA--(Marketwire - March 1, 2011) - Trilogy Energy Corp. (TSX:TET) ("Trilogy") is pleased to announce its financial and operating results for the quarter and year ended December 31, 2010.

On February 5, 2010, Trilogy Energy Trust (the "Trust") completed a conversion (the "Conversion") from an income trust structure to a corporate structure through a business combination with a private corporation pursuant to a plan of arrangement under the Business Corporations Act (Alberta) and related transactions. The name of the resulting corporation is Trilogy Energy Corp. References to Trilogy in this press release for periods prior to February 5, 2010 are references to the Trust and for periods on or after February 5, 2010 are references to Trilogy Energy Corp. Additionally, Trilogy refers to shares, shareholders and dividends which are comparable to units, unitholders and distributions previously under the Trust.

FINANCIAL AND OPERATING HIGHLIGHTS



- Reported sales volumes for the fourth quarter of 2010 averaged 21,544
Boe/d as compared to 22,462 Boe/d for the previous quarter. On a full year
basis, average sales volumes were higher at 22,788 Boe/d in 2010 as
compared to 19,780 Boe/d in 2009, due to an increase in capital
expenditures and Trilogy's ongoing success with its Montney horizontal
drilling program.

- Capital expenditures (excluding acquisitions and dispositions) totaled
$46.3 million for the fourth quarter, bringing the year-to-date capital
spending, excluding acquisitions and dispositions, to $165.7 million for
2010 (including $31.5 million related to Trilogy's Presley Pipeline and
Kaybob North Sour Gas Plant expansion projects), as compared to total
capital expenditures of $89.5 million for 2009 (including $15.3 million
related to Trilogy's Presley Pipeline and Kaybob North Sour Gas Plant
expansion projects). Completion of the construction of Trilogy's Presley
Pipeline and Kaybob North Sour Gas Plant expansion projects occurred in
the fourth quarter of 2010.

- Trilogy added 14.4 MMBoe of proved plus probable reserves (including
technical revisions) during 2010, replacing 173 percent of produced
reserves.

- Finding and development costs(1) (including technical revisions and
excluding costs of approximately $31.5 million in respect of Trilogy's
Presley Pipeline and Kaybob North Sour Gas Plant expansion projects), were
$10.09/Boe for proved reserves ($9.45/Boe for proved plus probable
reserves). Trilogy's finding and development costs(1) including technical
revisions and the costs associated with Trilogy's Presley Pipeline and
Kaybob North Sour Gas Plant expansion projects were $12.49/Boe for proved
reserves ($11.63/Boe for proved plus probable reserves).

- Funds flow from operations(1) increased to $34.0 million for the fourth
quarter of 2010 as compared to $32.4 million for the previous quarter.
Higher oil and natural gas liquids commodity prices and lower operating
and royalty costs increased funds flow. These were partially offset by
lower realized financial instrument gains and higher general and
administrative costs. Annual funds flow from operations(1) totaled $151.4
million in 2010, a 35 percent increase from the previous year principally
attributable to higher commodity prices and production and lower operating
costs throughout 2010, partially offset by higher royalty costs and lower
realized financial instrument gains.

- Dividends declared to Shareholders of the Company for the fourth quarter
of 2010 were $12.1 million or 42 percent of cash flow from operations
($49.8 million for year-to-date 2010 or 31 percent of cash flow from
operations).

- Income before income tax in 2010 of $12.7 million as compared to a loss
before income tax of $39.2 million in 2009 is primarily attributed to the
aforementioned increase in funds flow, in addition to higher unrealized
losses on financial instruments in 2009.


(1) Refer to Non-GAAP measures in the MD&A

FINANCIAL AND OPERATING HIGHLIGHTS TABLE
(In thousand Canadian dollars except per share amounts and where stated
otherwise)
Three Months Ended Years Ended December 31
Dec. 31, Sept. 30,
2010 2010 Change% 2010 2009 Change%
----------------------------------------------------------------------------
FINANCIAL
Petroleum and natural
gas sales 67,033 65,586 2 290,841 236,079 23
Funds flow
From operations(1) 33,975 32,428 5 151,394 112,477 35
Per share - diluted 0.29 0.28 4 1.32 1.12 18
Earnings
(Loss) earnings before
tax (4,349) (6,984) (38) 12,659 (39,254) 132
Per share - diluted (0.04) (0.06) (33) 0.11 (0.39) 128
Earnings (loss) after
future income tax (3,563) (3,954) (10) 9,432 (33,362) 128
Per share - diluted (0.03) (0.03) - 0.08 (0.33) 124
Dividends declared 12,077 12,075 - 49,816 60,205 (17)
Per share 0.105 0.105 - 0.435 0.60 (28)
Capital expenditures
Exploration and
development 46,286 43,199 7 165,564 89,509 85
Acquisitions,
(dispositions) and
other - net 15 334 (96) 478 (42) 1,238
Net capital
expenditures 46,301 43,533 6 166,042 89,467 86
Total assets 1,012,036 993,434 2 1,012,036 893,193 13
Net debt(1) 312,135 285,713 9 312,135 246,427 27
Shareholders' equity 434,564 449,602 (3) 434,564 434,612 -
Shares outstanding
(thousands) (3)
- As at end of period 115,037 115,013 - 115,037 110,490 4
----------------------------------------------------------------------------
OPERATING
Production
Natural gas (MMcf/d) 101 109 (7) 109 93 17
Crude oil and natural
gas liquids (Bbl/d) 4,666 4,279 9 4,642 4,237 10
Total production
(Boe/d @ 6:1) 21,544 22,462 (4) 22,788 19,780 15
----------------------------------------------------------------------------
Average prices
Natural gas (before
financial
instruments) ($/Mcf) 3.82 3.97 (4) 4.35 4.33 -
Natural gas ($/Mcf)(2) 3.96 4.33 (9) 4.79 5.25 (9)
Crude oil and natural
gas liquids (before
financial
instruments) ($/Bbl) 73.24 65.40 12 69.51 57.37 21
Crude oil and natural
gas liquids ($/Bbl)(2) 73.24 65.40 12 69.51 57.34 21
----------------------------------------------------------------------------
Drilling activity
(gross)
Gas 12 12 - 45 26 73
Oil 2 6 (67) 11 3 267
Total wells 14 18 (22) 56 29 93
Success rate 100% 100% - 100% 100% -
----------------------------------------------------------------------------

1. Funds flow from operations and net debt are non-GAAP terms. Funds flow
from operations represents cash flow from operating activities before
net changes in operating working capital accounts. Net debt is equal to
long-term debt plus/minus working capital. Please refer to the advisory
on Non-GAAP measures below.
2. Includes realized but excludes unrealized gains and losses on financial
instruments.
3. Comprised of 84,201,110 Common Shares and 30,835,862 Non-Voting Shares.


SUBSEQUENT EVENTS

-- Effective January 1, 2011, Trilogy executed an agreement (the "NGL
Agreement") with Aux Sable Canada LP pursuant to which Trilogy will
receive additional economic value for the natural gas liquids in its
liquids-rich natural gas stream originating from the Kaybob area. The
initial term of the NGL Agreement is five years. In conjunction with
this announcement, Trilogy indefinitely deferred previously announced
plans to construct a deep-cut liquids extraction facility at its Kaybob
North Sour Gas Plant (the "Plant"). The expected benefits of the NGL
Agreement include:

-- the immediate recovery of additional value for Trilogy's natural gas
liquids produced at Kaybob versus a Q2 2012 estimated completion
date for the proposed deep-cut facility;

-- an increase to 2011 cash flow of approximately $15 million based on
current production guidance and forward oil and gas commodity strip
pricing. Assuming the contracted volumes increase to approximately
130 MMcf/d, cash flow under the NGL Agreement may reach $30 to $40
Million per year with a total of approximately $170 Million over the
initial five year term of the NGL Agreement;

-- access to a larger, more liquid, higher priced natural gas liquids
market, as reflected in the pricing under the NGL Agreement;

-- elimination of 2011 and 2012 planned capital expenditures of
approximately $55 Million to install a new cryogenic deep-cut
functional unit and related equipment at the Plant;

-- operating cost savings of approximately $2.5 Million per year at the
Plant and transportation cost savings of approximately $3.0 Million
per year to transport dry gas as compared to constructing the deep
cut facility;

-- no increase to Trilogy's long term debt for the deep-cut facility
project at the Plant; and

-- mitigates risks associated with constructing and operating the deep-
cut facility as well as those associated with marketing the
extracted natural gas liquids.

-- On January 17, 2011, Trilogy announced a cash dividend for January 2011
of $0.035 per share. The dividend was paid on February 15, 2011 to
shareholders of record on January 31, 2011.

-- On February 2, 2011, Trilogy entered into a financial forward swap to
sell 500 Bbl/d of oil for March through December 2011 at $97.50 USD/Bbl.

-- On February 9, 2011, Trilogy announced drilling, completion and initial
production results on two Montney oil wells in the Kaybob area. Trilogy
also announced it was successful in acquiring twenty eight sections of
land associated with this pool for $32.2 million. Trilogy believes it
holds substantially all of the petroleum and natural gas rights
associated with this Montney oil pool and will be evaluating and
accelerating the development of this play in the second half of 2011.
Trilogy anticipates drilling further delineation wells, and that the
pool will require four to eight horizontal wells per section to fully
exploit the Montney reservoir. Trilogy also believes that this land may
also prove to be prospective in the Duvernay shale Trilogy is currently
evaluating.

-- On February 15, 2011, Trilogy declared a dividend of 3.5 cents per
share, payable on March 15, 2011, to shareholders of record on February
28, 2011.


OUTLOOK

Trilogy is maintaining its guidance as originally provided on December 7, 2010. Further guidance will be provided at a later date as Trilogy is in the process of refining the exploitation strategy of its new Montney horizontal oil play in light of recent success on two horizontal Montney oil wells and the related acquisition of lands in this area.

Trilogy's current guidance for 2011 is as follows:



Average production 26,500 Boe/d
Average operating costs $ 8.50 /Boe
Capital expenditures, excluding property acquisitions,
dispositions and Trilogy's February 9, 2011 $32.2 million
Kaybob area land purchase. $ 130 million


ADDITIONAL INFORMATION

A copy of Trilogy's 2010 annual report to the Shareholders, including the Management's Discussion and Analysis and audited annual consolidated financial statements and related notes can be obtained at (http://file.marketwire.com/release/301tet_report.pdf). This report 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 petroleum and natural gas-focused Canadian energy corporation that actively acquires, develops, produces and sells natural gas, crude oil and natural gas liquids. Trilogy's geographically concentrated assets are primarily low-risk, high working interest, lower-decline properties that provide abundant 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

In this document, Trilogy uses the terms "funds flow from operations", "operating income", "net debt", "Finding and Development Costs", "Operating Netback" and "Payout Ratio" collectively the "Non GAAP measures", as indicators of Trilogy's financial performance. The Non-GAAP measures do not have a standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and therefore are unlikely to be comparable to similar measures presented by other issuers.

"Funds flow from operations" refers to the cash flow from operating activities before net changes in operating working capital. The most directly comparable measure to "funds flow from operations" calculated in accordance with GAAP is the cash flow from operating activities. "Funds flow from operations" can be reconciled to cash flow from operating activities by adding (deducting) the net change in working capital as shown in the consolidated statements of cash flows.

"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 petroleum and natural gas sales plus realized financial instrument gains and losses and other income minus royalties, operating costs, transportation costs and actual asset retirement obligation expenditures incurred in the year. "Net debt" is calculated as current liabilities minus current assets plus long-term debt. The components described for "operating income", "operating netback" and "net debt" can be derived directly from Trilogy's consolidated financial statements.

"Finding and development costs" refers to all current year capital expenditures excluding property acquisitions, property dispositions and corporate office expenditures and including changes in future development capital on a proved and proved plus probable basis (as applicable). "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 (as applicable).

"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 believes that the Non-GAAP measures provide useful information to investors as indicative measures of performance.

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 GAAP, as set forth above, or other measures of financial performance calculated in accordance with GAAP.

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 production, average operating costs and capital expenditures for 2011; statements as to the expectations of Trilogy's management regarding the timing and expected benefits of its natural gas liquids recovery agreement with Aux Sable Canada LP including, without limitation, pricing, projected revenue to be received by Trilogy thereunder, the resultant cash flow, anticipated cost savings and future production levels under the agreement as well as the deferral of plans to construct a natural gas liquids extraction facility at the Kaybob North Sour Gas Plant, the time it would have taken to complete such facility, the value which would have been obtained therefrom and the costs which would have been attributable thereto; the location, extent and potential for development of the Kaybob Montney oil pool and the nature of Trilogy's plans to further delineate and exploit this pool; and statements as to the prospective nature of the Montney and Duvernay formations in the lands acquired by Trilogy at the February 9, 2011 Alberta Crown land sale; among others. 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; geology regarding the extent and development potential of the Kaybob area Montney oil pool; the natural gas liquids content of Trilogy's natural gas; continuity of the mutually beneficial agreement with Aux Sable Canada LP; assumptions regarding royalties and expenses and the continuity of government incentive programs and their applicability to Trilogy; drilling results consistent with our expectations; the ability of Trilogy to obtain equipment, services and supplies in a timely manner to carry out its activities; the ability of Trilogy and its partners to obtain drilling success consistent with expectations; the ability of Trilogy to market oil and natural gas successfully to current and new customers; the timing and costs of pipeline and storage facility construction and expansion and the ability to secure adequate product processing, transmission and transportation 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 of oil, natural gas and natural gas liquids 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 and associated by-products and market demand; risks and uncertainties involving geology of oil and gas deposits; risks inherent in Trilogy's marketing operations, including credit risk; the uncertainty of reserves estimates and reserves life; the uncertainty of estimates and projections relating to future production, costs and expenses; uncertainty in amounts and timing of royalty payouts 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; Trilogy's ability to secure adequate product transmission and transportation; Trilogy's ability to enter into or renew leases; health, safety and environmental risks; the ability of Trilogy to add production and reserves through development and exploration activities; weather conditions; the possibility that government policies, regulations or laws, including without limitation those relating to the environment and taxation, may change or 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 news release contains disclosure expressed as "Boe", "Boe/d", "Mcf/d", "MMcf/d", "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. 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.

Contact Information

  • Trilogy Energy Corp.
    J.H.T. (Jim) Riddell
    Chief Executive Officer
    (403) 290-2900
    (403) 263-8915 (FAX)
    or
    Trilogy Energy Corp.
    J.B. (John) Williams
    President and Chief Operating Officer
    (403) 290-2900
    (403) 263-8915 (FAX)
    or
    Trilogy Energy Corp.
    M.G. (Michael) Kohut
    Chief Financial Officer
    (403) 290-2900
    (403) 263-8915 (FAX)
    or
    Trilogy Energy Corp.
    1400 - 332 - 6th Avenue S.W.
    Calgary, Alberta T2P 0B2
    www.trilogyenergy.com