Waldron Energy Corporation

TSX : WDN


Waldron Energy Corporation

March 31, 2014 21:01 ET

Waldron Energy Corporation Announces 2013 Year End Results, 2013 Year End Reserves, Operations Update and Adoption of Shareholders Rights Plan and Advance Notice By-Law

CALGARY, ALBERTA--(Marketwired - March 31, 2014) - Waldron Energy Corporation ("Waldron" or the "Corporation") (TSX:WDN) is pleased to announce its financial and operational results for the year and three months ended December 31, 2013. The Corporation's audited year-end financial statements and Annual Information Form ("AIF") including a statement on reserves data and other information specified in NI 51-101 are available for review at www.sedar.com and on the Corporation's website at www.waldronenergy.ca.

2013 Financial Highlights
Three months ended December 31, Year ended December 31,
2013 2012 2013 2012
Financial (000's except for per share amounts)
Operating netback(1) $ 2,401 $ 3,956 $ 9,664 $ 12,453
Per share basic & diluted(1)(3) 0.06 0.10 0.24 0.34
Petroleum and natural gas sales 5,172 6,674 21,805 24,530
Funds from operations(2) 1,169 3,037 5,322 8,191
Per share basic & diluted(2)(3) 0.03 0.08 0.13 0.22
Net loss (2,425 ) (8,417 ) (8,690 ) (18,339 )
Per share basic & diluted(3) (0.06 ) (0.21 ) (0.21 ) (0.50 )
Net proceeds from the issuance of equity 6,427 - 6,427 3,166
Capital expenditures(4) 2,514 1,274 3,779 12,134
Net debt(5) 29,104 35,919
Property and equipment 75,528 84,821
Exploration and evaluation assets 9,538 10,565
Shareholders' equity 46,249 48,574
Number of common shares outstanding at year end 55,045 40,035

Notes:

(1) Operating netback is a non-GAAP measure and the Corporation calculates this measure as revenue, net of any realized gains or losses on commodity price contracts, less royalties and operating and transportation expenses.
(2) Funds from operations is a non-GAAP measure and the Corporation calculates this measure as cash provided from operations before changes in non-cash working capital, transaction and other costs and decommissioning expenses.
(3) December 31, 2013 there were 1,983,667 (2012 - 2,733,000) options and 7,182,560 (2012 - 7,182,560) warrants outstanding that were not included in the calculation of weighted average shares outstanding as the effect would be anti-dilutive.
(4) Capital expenditures exclude dispositions, share-based compensation and decommissioning expenditures.
(5) Net debt is a non-GAAP measure and the Corporation calculates this measure as current assets less current liabilities.
2013 Highlights
Three months ended December 31, Year ended December 31,
2013 2012 2013 2012
Operating
Production
Natural Gas (mcf/d) 7,347 10,715 8,364 10,951
NGL (bbls/d) 305 538 355 511
Light crude oil (bbls/d) 154 160 154 174
BOE/day 1,684 2,484 1,903 2,510
Realized Pricing
Natural Gas ($/Mcf) $ 3.72 $ 3.34 $ 3.40 $ 2.50
Natural gas liquids ($/bbl) 54.49 44.02 50.70 50.20
Light crude oil ($/bbl) 79.83 81.86 86.14 80.35
Average realized price ($/boe) 33.38 29.20 31.39 26.70
Netback per boe
Sales price $ 33.38 $ 29.20 $ 31.39 $ 26.70
Realized gain (loss) on commodity contracts (0.59 ) 0.41 (0.12 ) 0.27
Royalties (3.59 ) (2.87 ) (3.61 ) (2.48 )
Operating expenses (11.60 ) (7.62 ) (11.96 ) (9.08 )
Transportation expenses (2.10 ) (1.82 ) (1.79 ) (1.86 )
Operating netback per boe $ 15.50 $ 17.30 $ 13.91 $ 13.55
Operating netback ($000's) $ 2,401 $ 3,956 $ 9,664 $ 12,453
Reserves
Mboe - Proved (000's) 4,920 5,078
PV10% Proved Value Before Income Taxes ($000's) $ 55,233 $ 55,863
Mboe - Proved and Probable (000's) 10,418 10,567
PV10% Proved and Probable Value Before Income Taxes ($000's) $ 86,035 $ 85,123

Waldron exited 2013 in an improved position despite a volatile and low natural gas price environment and a limited 2013 capital program. This was accomplished by executing a disciplined approach throughout 2013 and resulted in:

  • 2013 capital program of $3.8 million compared to operating netback of $9.7 million and funds from operations of $5.3 million;
  • year-end 2013 reserve volumes and PV10% Before Income Tax Values, including a December 31, 2013 Proved and Probable value of $86.0 million, which were essentially unchanged from 2012 levels;
  • low 2013 Proved F&D costs of $8 per BOE, including changes in future development capital and 2013 capital expenditures;
  • the completion of $6.8 million in private placement equity financings in the fourth quarter 2013; and
  • a reduction in net debt at December 31, 2013 of $6.8 million compared to December 31, 2012;

Concurrent with a limited 2013 capital program, which included the drilling of one well in December 2013, Waldron produced on average 1,903 boe per day (27% oil and liquids) during 2013, a reduction from 2012 production volumes as 2012 production was impacted by flush production from two successful Crystal Glauconite horizontal wells. The Corporation realized $9.7 million in operating netback and $5.3 million in funds from operations in 2013.

Entering 2014, Waldron is optimistic as it anticipates capitalizing on its improved balance sheet and the recent increase and stability in natural gas prices. To do this, the Corporation will look to exploit its low risk liquids rich natural gas and light oil inventory of drill locations. Supported by its hedging program, Waldron will continue to maintain a disciplined approach to capital spending in 2014.

Operations Update

The Corporation successfully drilled and is now in the process of completing a liquids-rich Glauconite horizontal well at Crystal 1-33-44-3W5 and expects it to be on production by the middle of April. This well will follow-up the success the Corporation has experienced in its other Crystal Glauconite horizontal wells. Additionally, Waldron's second half of 2014 capital program will include the drilling of a Falher horizontal well in Ferrybank. If successful, this well has as many as six immediate follow-up horizontal locations on adjacent 100% Waldron owned lands.

Q1 2014 production is estimated to be 1,700 - 1,800 boe per day, which was impacted by a third party facility turnaround that has resulted in the shut-in of approximately 50 bbl per day of oil. Q1 2014 exit production is expected to be 1,750 - 1,800 boe, also excluding the temporarily shut-in production.

Waldron is encouraged by its strengthened and increasingly flexible balance sheet as well as by the increase and stabilization of natural gas prices in the fourth quarter of 2013 and into 2014. The Corporation expects to provide updated Q2 2014 financial and production guidance by the middle of April as it continues to complete the recently drilled well.

2014 Hedging Update

Subsequent to the year ended December 31, 2013, the Corporation entered into the following commodity price contracts:


Period

Commodity

Type of Contract
Quantity
Contracted

Contract price ($CDN)
Jan 1, 2014 - Dec 31, 2014 Crude Oil Swap 175 bbl/d Edmonton Par $90.15/bbl
Jan 1, 2014 - Dec 31, 2014 Natural gas Swap 2,600 mcf/d AECO $4.15/mcf
Conversion factor: 1 Mcf = 1.116 GJ

Bank Update

Subsequent to December 31, 2013, the Corporation completed a $6 million secured subordinated debenture financing that carries an interest rate of 9.5% per annum. The debenture has a maturity date of February 28, 2015 and at the option of the borrower may be extended for up to six months subject to a borrowing base review and full compliance with all financial covenants. The debenture is to be repaid in full upon maturity. In accordance with the terms of the subordinated debenture, the Corporation's senior lender revised its borrowing base to $27 million, resulting in combined credit facilities of the Corporation of $33 million. The Corporation estimates March 31, 2014 net debt to be $30 - $30.5 million, including drilling and completion costs associated with the Crystal 1-33-44-3W5 horizontal well.

Private Placement

On January 15, 2014, Waldron closed a private placement for 2,222,223 common shares of Waldron at $0.45 per share for gross proceeds of $1.0 million. Combined with the private placements completed during the fourth quarter of 2013, the Corporation has raised a total of $7.8 million in gross proceeds at $0.45 per share since November 2013.

2013 Reserves Summary

Waldron is pleased to announce that its December 31, 2013 total proved and total proved plus probable reserves values and volumes were largely unchanged from its prior year reserve report. The PV10% value of total proved reserves at December 31, 2013 was $55.2 million compared to $55.9 million at December 31, 2012. The PV10% value of proved plus probable reserves at December 31, 2013 increased by $0.9 million to $86.0 million compared to December 31, 2012. On a volumes basis, December 31, 2013 total proved volumes and proved plus probable volumes of 4.9 MMboe and 10.4 MMboe (32% liquids), respectively, are virtually unchanged from December 31, 2012 reserve volumes of 5.1 MMboe and 10.6 MMboe (26% liquids), respectively. On a total proved basis, the Corporation's one year F&D costs were approximately $8 per BOE, including changes in future development capital and $3.8 million in 2013 capital expenditures.

Waldron is also pleased to provide the following summary results from its annual independent reserve evaluation completed by GLJ Petroleum Consultants ("GLJ") for all of the Corporation's properties effective December 31, 2013 (the "GLJ Report"). These estimates were prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the full reserves information is included in the Corporation's AIF, which will be available under the Corporation's profile on SEDAR at www.sedar.com.

The following tables summarize the Corporation's gross and net interests in proved and probable reserves at December 31, 2013 as assessed in the GLJ Report prepared in accordance with NI 51-101 using the GLJ January 1, 2014 forecast prices and cost assumptions.

RESERVES SUMMARY (1)
OIL & NGLS NATURAL GAS(2) TOTAL OIL EQUIVALENT (3)
RESERVES CATEGORY Gross
(Mbbl)
Net
(Mbbl)
Gross
(Mmcf)
Net
(Mmcf)
Gross
(Mboe)
Net
(Mboe)
Proved
Producing 1,036 805 13,000 11,504 3,203 2,723
Developed Non-Producing 246 200 2,805 2,463 714 610
Undeveloped 360 276 3,864 3,401 1,004 843
TOTAL PROVED 1,643 1,281 19,668 17,368 4,920 4,176
PROBABLE 1,641 1,268 23,141 19,932 5,498 4,589
TOTAL PROVED PLUS PROBABLE 3,283 2,548 42,810 37,300 10,418 8,765

Notes:

(1) Numbers in this table are subject to rounding.
(2) Natural gas volumes include solution gas volumes associated with the Corporation's light and medium crude oil reserves.
(3) Natural gas is converted to barrels of oil equivalent ("boe") at a ratio of six thousand standard cubic feet to one barrel of oil.

Net Present Values of Future Net Revenue

The following table summarizes Waldron's share of the net present value of future net revenue attributable to its reserves before taxes but prior to the provision for interest and general and administrative expenses:


NET PRESENT VALUES OF FUTURE NET REVENUE(1)(2)(3)(4)(5)
BEFORE INCOME TAXES DISCOUNTED AT (%/year)
0% 5% 10% 15%
RESERVES CATEGORY (M$) (M$) (M$) (M$)
Proved
Producing 63,936 49,617 41,123 35,446
Developed Non-Producing 15,323 12,051 10,023 8,625
Undeveloped 10,614 6,622 4,087 2,389
TOTAL PROVED 89,873 68,289 55,233 46,461
PROBABLE 86,167 50,106 30,802 19,421
TOTAL PROVED PLUS PROBABLE 178,040 118,396 86,035 65,882

Notes:

(1) Gross reserves are the Corporation's total interest share before the deduction of royalties and without including any royalty interest of the Corporation.
(2) Utilizes GLJ escalated price forecasts as of January 1, 2014.
(3) Natural gas volumes include solution gas volumes associated with the Corporation's light and medium crude oil reserves.
(4) Natural gas is converted to barrels of oil equivalent ("boe") at a ratio of six thousand standard cubic feet to one barrel of oil.
(5) Numbers in this table are subject to rounding.

Net Asset Value

The following table summarizes the Corporation's net asset value at December 31, 2013, excluding the value of undeveloped lands and certain seismic data:

Net Asset Value December 31, 2013
(000's)
Proved plus Probable NI 51-101 discounted at 10% $ 86,035
Net Debt (29,104 )
Net Asset Value $ 56,931
Basic Common Shares Outstanding at December 31, 2013 55,045
Net Asset Value - Basic (per share)(1) $ 1.03

Notes:

(1) Net Asset Value numbers are at December 31, 2013 and do not incorporate changes in dilutives post December 31, 2013.

Adoption of Advance Notice By-Law

The Corporation also announces board approval of an amendment to its by-laws to include advance notice provisions (the "By-Law Amendment"), the purpose of which is to require that advance notice be provided to the Corporation in circumstances in which nominations of persons for election to the board of directors of the Corporation are made by shareholders other than pursuant to the requisition of a meeting or a shareholder proposal in accordance with the Business Corporations Act (Alberta).

The By-Law Amendment fixes a deadline by which shareholders must provide notice to the Corporation of nominations for election to the board, and sets out the information that a shareholder must include in the notice for it to be valid. The By-Law Amendment is in effect on the date hereof. In accordance with the Business Corporations Act (Alberta), the amendment will be submitted to the shareholders for confirmation at the Meeting.

The By-Law Amendment, containing the full details of the advance notice provisions, is available under the Corporation's profile on SEDAR at www.sedar.com.

Adoption of Shareholder Rights Plan

Effective March 31, 2014 the Corporation adopted a shareholder rights plan (the "Rights Plan"). The Rights Plan has been accepted for filing by the Toronto Stock Exchange, subject to certain conditions, including ratification by the Corporation's shareholders. The Corporation intends to seek approval of the Rights Plan from its shareholders at its annual general meeting on May 21, 2014 (the "Meeting"). If the shareholders do not ratify the Rights Plan at the Meeting, the Rights Plan will be immediately rescinded.

The Rights Plan is intended to ensure that the Corporation's board of directors and shareholders have adequate time to consider and evaluate any unsolicited take-over bid, and to identify, solicit, develop, and negotiate any alternatives that would maximize shareholder value. This will encourage fair treatment of all of the Corporation's shareholders in connection with any unsolicited take-over bid.

The Rights Plan, including full details of the operation of the Rights Plan, is available under the Corporation's profile on SEDAR at www.sedar.com.

Investor Information

Waldron is a Calgary, Alberta based corporation engaged in the exploration, development and production of petroleum and natural gas. The Corporation's common shares are currently listed on the Toronto Stock Exchange under the trading symbol "WDN." Additional information regarding Waldron is available under the Corporation's profile at www.sedar.com or at the Corporation's website, www.waldronenergy.ca.

Forward Looking and Cautionary Statements

This news release contains forward-looking statements relating to the Corporation's plans and other aspects of the Corporation's anticipated future operations, strategies, financial and operating results and business opportunities. These forward-looking statements may include opinions, assumptions, estimates, management's assessment of value, reserves, future plans and operations.

Forward-looking statements typically use words such as "will," "anticipate," "believe," "estimate," "expect," "intend," "may," "project," "should," "plan," and similar expressions suggesting future outcomes, and include statements that actions, events or conditions "may," "would," "could," or "will" be taken or occur in the future. Specifically, this press release contains forward-looking statements relating to the results and timing of operations; anticipated cash flow and debt reduction; whether or not recent industry results are favorable; whether or not additional reserves are recognized; whether or not the Corporation achieves guidance; the character and nature of the Corporation's asset base; whether or not the asset base is prospective; number of horizontal drilling locations and opportunities and number of follow-up opportunities; and the Corporation's shareholders' rights plan and advance notice by-la, and the approval thereof by shareholders of the Corporation. The forward-looking statements are based on various assumptions including expectations regarding the success of current or future drill wells; the outlook for petroleum and natural gas prices; estimated amounts and timing of capital expenditures; estimates of future production; assumptions concerning the timing of regulatory approvals; the state of the economy and the exploration and production business; results of operations; business prospects and opportunities; future exchange and interest rates; assumptions with regards to hedging activities; the Corporation's ability to obtain equipment in a timely manner to carry out development activities; and the ability of the Corporation to access capital and credit. While the Corporation considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

Forward-looking statements are subject to a wide range of 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; loss of markets; volatility of commodities prices; currency fluctuations; imprecision of reserves estimates; environmental risks; competition from other producers; inability to retain drilling rigs and other services; general economic conditions; delays resulting from or inability to obtain required regulatory approvals; and ability to access sufficient capital from internal and external sources. Readers are cautioned that the foregoing list of factors is not exhaustive.

Although Waldron believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will be realized. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements and you should not rely unduly on forward-looking statements. The forward-looking statements contained in this news release are made as of the date of this news release. Except as required by applicable law, Waldron does not undertake any obligation to publicly update or revise any forward-looking statements.

Note Regarding Non-GAAP Measures

Funds from operations, operating netback and net debt are not recognized measures under IFRS as issued by the International Accounting Standards Board ("IASB"). Management believes that in addition to cash flow from operations and net earnings, funds from operations and operating netback are useful supplemental measures as they demonstrate the Corporation's ability to generate the cash necessary to fund future growth through capital investment or repay debt if incurred in future periods. The Company uses net debt (bank debt plus negative working capital or less positive working capital, both excluding bank debt) as an alternative measure of outstanding debt and is used as a measure to assess the Company's financial position. Investors are cautioned, however, that these measures should not be construed as an alternative to cash flow from operating activities or net earnings determined in accordance with IFRS as an indication of the Corporation's performance or financial position. The Corporation's method of calculating these measures may differ from other entities and, accordingly, they may not be comparable to measures used by other entities. For these purposes, the Corporation defines funds from operations as cash flow from operations before changes in non-cash operating working capital, transaction and other costs and decommissioning expenditures and defines operating netback as revenue, net of any realized gains or losses on commodity price contracts, less royalties, operating and transportation expenses. Net debt is defined as current assets less current liabilities.

Note Regarding BOEs

The term barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. A conversion ratio for gas of 6 mcf:1 boe is based on an energy equivalency 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 from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis is misleading as an indication of value.

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