OKLAHOMA CITY, March 17, 2014 /PRNewswire/ - Equal Energy Ltd. ("Equal", "the
Company", "we" or "our") (NYSE: EQU; TSX: EQU) today announced our
operating and financial results for the three months and year ended
December 31, 2013. All dollar amounts are in U.S. dollars unless
otherwise indicated and volumes are net of royalties.
"This was another year of solid performance for Equal Energy. Excluding
2012 asset sales, we maintained production levels, increased our booked
reserves and supported our dividend, while at the same time conducting
a comprehensive review of strategic alternatives for the Company," said
Don Klapko, President and Chief Executive Officer. "The review
culminated in an arrangement agreement with Petroflow at a price that
we believe delivers maximum value to our shareholders. Until the
arrangement agreement closes, we will continue to operate our assets
prudently and in the interests of the Company and our shareholders,
with a continued focus on maintaining our strong balance sheet."
It is important to note that operating and financial results for the
year are provided within the context of the strategic alternatives
process. This process was officially undertaken in March 2013 by a
committee of three independent directors (the "Special Committee") and
resulted in the Arrangement Agreement (as defined below) announced by
Equal at the end of 2013.
Arrangement Agreement
On December 9, 2013, Equal announced that it had entered into a definite
agreement ("Arrangement Agreement") with Petroflow Energy Corporation
and Petroflow Canada Acquisition Corp. (collectively "Petroflow") for
the cash purchase of all of the issued and outstanding common shares of
Equal at a price of $5.43 per share, on a fully-diluted basis. The
transaction will be completed by way of a plan of arrangement under the
Business Corporations Act (Alberta) (the "Arrangement"). Equal's Board of Directors unanimously
resolved to recommend that Equal's shareholders vote in favor of the
Arrangement.
The Arrangement Agreement is the result of a strategic review process
undertaken by the Special Committee at the beginning of the year in
response to the unsolicited expression of interest by a third party.
The Special Committee was formed to consider a full range of strategic
alternatives in order to maximize shareholder value. Alternatives
considered by Equal included continuing as an independent public
company, the acceleration of capital deployed in developing assets, a
corporate sale, a return of capital to shareholders via dividend
distribution or share buyback, a master limited partnership, and an
acquisition by an outside party.
Solid 2013 Operating Results
-
Proved reserves increased by 23%, or 4.6 million barrels of oil
equivalent ("MMboe") from the prior year to 24.3 MMboe, the result of a
combination of successful drilling and better than expected production
performance by our existing developed production base
-
Production averaged 6,448 barrels of oil equivalent per day (boe/d)
-
Fourth quarter production averaged 6,511 boe/d, down from 6,711 boe/d in
the third quarter of 2013, due to the effects of severe winter weather
on our operations
-
2013 exit rate production was approximately 6,800 boe/d and, during the
first 10 days of March 2014, Equal's production averaged over 7,000
boe/d
-
Average production costs per boewere $5.99/boe, representingadecrease of 23% from 2012 as a result of cost saving efforts and
realized operational efficiencies at the field level
-
Oil, gas and NGL revenue per boe, excluding the impact of commodity
contracts, increased by 16% over last year due to higher realized
prices
Successful Drilling Program
-
Drilled 12 (11.1 net) new wells in the liquids rich Twin Cities Central
Dolomite Hunton project area with a 100% success rate
-
Expanded drilling program to 12 wells from 10 as reduced drilling cost,
improved drilling cycle times and other cost savings enabled the
additional wells to be drilled within our original capital budget
-
Completed well costs came in under our average budgeted AFE of $2.6
million per well
-
Performance to-date on average from these 12 new wells has been within
the range of Equal's type curve expectations
Looking Ahead
Equal expects to complete the Arrangement with Petroflow. However, the
completion of the Arrangement remains subject to a number of conditions
that must be met or waived, including approval by 66 2/3 of the votes
cast by Equal's shareholders and "minority approval" (as that term is
defined in Multilateral Instrument 61-101 Protection of Minority Security Holders in SpecialTransactions) at a special meeting. In addition, among the other conditions to
closing is a requirement that Petroflow obtain financing for the
transaction. As a result, there is no guarantee that the Arrangement
will be completed, or that if completed, it will be completed on or
prior to the May 1, 2014, date contemplated in the Arrangement
Agreement. Any extension of the closing date beyond May 1, 2014, would
require the agreement of both Equal and Petroflow.
In certain circumstances, either Equal or Petroflow may be required to
pay a termination fee of two million dollars to the other party.
Due to the terms of the Arrangement Agreement and at the request of
Petroflow, Equal has reduced our capital expenditure plans through
April 2014. In anticipation of the acquisition, we understand that
Petroflow is developing its own integration plan and capital deployment
strategy for the assets it expects to acquire from Equal. Although
Equal may pursue selective drilling during this period, we plan to
maintain cost discipline and a strong balance sheet. We believe our
sources of cash, including cash on hand, cash flow and the full
capacity of the credit facility will be sufficient to fund our
operations and capital expenditures until the Arrangement is completed.
In the event the proposed transaction with Petroflow does not occur,
Equal will formalize a plan to continue to actively exploit our proven
play in the Hunton.
Financial and Operational Results
Equal's most recent 2013 cash flow guidance was $31 to $34 million,
based on the assumption of 6,400 to 6,500 boe/d for the average full
year production. Management had anticipated total 2013 capital
expenditures of $38 to $41 million.
Cash flow before balance sheet changes, a non-GAAP measure, was $30
million. However, Equal's management believes that if Equal had
experienced a normal year for operations, cash flow would have been
much stronger due to higher than expected revenues from improved
commodity prices combined with lower than expected costs at the field
level. Equal's management believes these operational benefits were more
than offset by nonrecurring general and administration costs of more
than $3.0 million related to the nine month strategic review process
and the work of the Special Committee (successfully leading to the
Arrangement Agreement with Petroflow), resolution of certain litigation
issues, the substantial shutdown of the Calgary operation and the
relocation of the head office to Oklahoma City.
Full year average production was 6,448 boe/d, achieving our guidance.
Capital expenditures for 2013 were $35.6 million, coming in below
guidance due to Equal's ability to achieve lower than budgeted drilling
costs during the year. Equal successfully drilled 12 wells during the
year for the original budgeted cost of 10 wells.
The following table is a summary of selected financial and operational
information for the three months and year ended December 31, 2013, with
comparative figures from 2012.
In thousands of dollars, except for share amounts or if otherwise noted |
|
| Quarter Ended 12/31/2013 |
|
|
|
Quarter Ended
12/31/2012
|
| Year Ended 12/31/2013 |
|
|
|
Year Ended
12/31/2012
|
FINANCIAL |
|
|
|
|
| (Revised) |
|
|
|
|
|
| (Revised) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, NGL and natural gas revenues before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impact of commodity contracts
|
| $ | 17,145 |
|
12%
|
|
$
|
15,307
|
| $ | 63,912 |
|
4%
|
|
$
|
61,536
|
Net income (loss) from continuing operations
|
| $ | 2,599 |
|
|
|
$
|
(12,421)
|
| $ | 6,281 |
|
-80%
|
|
$
|
31,195
|
Per share - basic ($)
|
|
| 0.07 |
|
|
|
|
(0.35)
|
|
| 0.18 |
|
-80%
|
|
|
0.89
|
Per share - diluted ($)
|
|
| 0.07 |
|
|
|
|
(0.35)
|
|
| 0.17 |
|
-79%
|
|
|
0.82
|
Cash dividends per share ($)
|
|
| 0.20 |
|
|
-
|
|
|
|
| 0.20 |
|
|
|
|
-
|
Total assets
|
| $ | 228,385 |
|
0%
|
|
$
|
227,521
|
| $ | 228,385 |
|
0%
|
|
$
|
227,521
|
Long-term debt
|
|
| - |
|
|
|
|
-
|
|
| - |
|
|
|
|
-
|
Convertible debentures
|
| $ | 42,309 |
|
-6%
|
|
$
|
45,230
|
| $ | 42,309 |
|
-6%
|
|
$
|
45,230
|
Total shareholders' equity
|
| $ | 163,961 |
|
2%
|
|
$
|
160,597
|
| $ | 163,961 |
|
2%
|
|
$
|
160,597
|
SHARES/UNITS OUTSTANDING (000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding - basic
|
|
| 35,806 |
|
2%
|
|
|
35,152
|
|
| 35,672 |
|
2%
|
|
|
35,062
|
Shares outstanding - diluted
|
|
| 36,799 |
|
-11%
|
|
|
41,363
|
|
| 36,540 |
|
-11%
|
|
|
41,125
|
Shares outstanding at period end
|
|
| 35,806 |
|
2%
|
|
|
35,227
|
|
| 35,806 |
|
2%
|
|
|
35,227
|
PROVED RESERVES (MMboe)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed reserves
|
|
|
|
|
|
|
|
|
|
| 22.0 |
|
34%
|
|
|
16.4
|
Proved undeveloped reserves
|
|
|
|
|
|
|
|
|
|
| 2.4 |
|
-27%
|
|
|
3.3
|
Total proved reserves
|
|
|
|
|
|
|
|
|
|
| 24.3 |
|
23%
|
|
|
19.7
|
COSTS INCURRED |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
|
|
|
|
|
|
|
|
|
| $ | 3,737 |
|
54%
|
|
$
|
2,420
|
Development
|
|
|
|
|
|
|
|
|
|
| 31,910 |
|
43%
|
|
|
22,311
|
Total costs incurred
|
|
|
|
|
|
|
|
|
| $ | 35,647 |
|
44%
|
|
$
|
24,731
|
Revised, see Note 18 in Form 10-K for additional information.
|
(1) SEC net revenue interest flat pricing and costs case as reported in
Form 10-K.
|
Equal's audited consolidated financial statements, accompanying notes
and Management's Discussion and Analysis are available in the Form 10-K
filed with the SEC and available on EDGAR at www.sec.gov/edgar.shtml, on SEDAR at www.sedar.com, and on the Company's website at www.equalenergy.ca.
Central Oklahoma Adjusted Operating Results
During 2013, Equal's production was solely from our Oklahoma properties.
Proceeds from the 2012 Northern Oklahoma asset divestiture were used to
pay down outstanding bank debt.
The following tables present 2013 fourth quarter comparisons of similar
operations during the fourth quarter of 2012. Full year comparisons
include operations from Northern Oklahoma assets which averaged 1,176
boe/d in the first six months of 2012. The Northern Oklahoma assets
were sold on September 24, 2012, with an effective date of July 1,
2012.
In thousands of dollars, except per boe amounts |
|
|
|
|
|
|
| Quarter Ended 12/31/2013 |
|
Quarter Ended
12/31/2012
|
| Year Ended 12/31/2013 |
|
Year Ended
12/31/2012
|
OPERATIONS |
|
|
| (Revised) |
|
|
| (Revised) |
|
|
|
|
|
|
|
|
|
Net Production per Day: |
|
|
|
|
|
|
|
NGL (Bbl)
| 3,140 |
-1%
|
3,160
|
| 3,142 |
-3%
|
3,237
|
Natural Gas (Mcf)
|
| 19,185 |
0%
|
19,097
|
| 18,821 |
-17%
|
22,664
|
Oil (Bbl)
|
| 174 |
4%
|
167
|
| 169 |
-2%
|
172
|
Total (Boe) |
| 6,511 |
0%
|
6,510
|
| 6,448 |
-10%
|
7,186
|
|
|
|
|
|
|
|
|
|
Oil, Gas, and NGL Revenues Before Commodity Contracts: |
|
|
|
|
NGL
|
| $ 10,527 |
14%
|
$ 9,258
|
| $ 37,934 |
2%
|
$ 37,237
|
Natural Gas
|
| 5,101 |
7%
|
4,756
|
| 20,063 |
9%
|
18,451
|
Oil
|
| 1,517 |
15%
|
1,319
|
| 5,915 |
1%
|
5,848
|
Total
|
| $ 17,145 |
12%
|
$ 15,333
|
| $ 63,912 |
4%
|
$ 61,536
|
|
|
|
|
|
|
|
|
|
Average Sales Prices Before Commodity Contracts: |
|
|
|
|
|
|
NGL (per Bbl)
|
| $ 36.44 |
14%
|
$ 31.85
|
| $ 33.08 |
5%
|
$ 31.41
|
Natural Gas (per Mcf)
|
| $ 2.89 |
7%
|
$ 2.71
|
| $ 2.92 |
32%
|
$ 2.22
|
Oil (per Bbl)
|
| $ 94.86 |
11%
|
$ 85.80
|
| $ 96.01 |
3%
|
$ 92.82
|
Boe |
| $ 28.62 |
12%
|
$ 25.60
|
| $ 27.16 |
16%
|
$ 23.37
|
|
|
|
|
|
|
|
|
|
Production Expenses |
|
|
|
|
|
|
|
|
Production Expenses
|
| $ 3,531 |
-5%
|
$ 3,732
|
| $ 14,091 |
-31%
|
$ 20,460
|
Production Taxes
|
| 861 |
-3%
|
891
|
| 3,713 |
-1%
|
3,761
|
|
|
|
|
|
|
|
|
|
Production Expenses per Boe |
|
|
|
|
|
|
|
Production Expenses
|
| $ 5.89 |
-5%
|
$ 6.23
|
| $ 5.99 |
-23%
|
$ 7.79
|
Production Taxes
|
| $ 1.44 |
-3%
|
$ 1.49
|
| $ 1.58 |
10%
|
$ 1.43
|
|
Revised, see Note 18 in Form 10-K for additional information.
|
Non-GAAP Financial Measures
Management uses certain industry benchmarks to analyze financial
performance. Management feels that these benchmarks are key measures of
profitability and overall sustainability for Equal. These benchmarks as
presented do not have any standardized meanings prescribed by GAAP and
therefore may not be comparable with the calculation of similar
measures presented by other entities.
We believe the use of these non-GAAP financial measures provides useful
information to investors to gain an overall understanding of our
current financial performance. Specifically, we believe the non-GAAP
financial measures included herein provide useful information to both
management and investors by excluding certain expenses and gains and
losses that our management believes are not indicative of our core
operating results. In addition, these non-GAAP financial measures are
used by management for budgeting and forecasting as well as
subsequently measuring our performance, and we believe that we are
providing investors with financial measures that most closely align to
our internal measurement processes. We consider these non-GAAP measures
to be useful in evaluating our core operating results as they more
closely reflect our essential revenue generating activities and direct
operating expenses (resulting in cash expenditures) needed to perform
these revenue generating activities. Our management also believes,
based on feedback provided by the investment community, that the
non-GAAP financial measures are necessary to allow the investment
community to construct its valuation models to better compare our
results with our competitors and market sector.
The non-GAAP financial information is presented using consistent
methodology from year to year. These measures should be considered in
addition to results prepared in accordance with GAAP. In addition,
these non-GAAP financial measures are not based on any comprehensive
set of accounting rules or principles. We believe that non-GAAP
financial measures have limitations in that they do not reflect all of
the amounts associated with our results of operations as determined in
accordance with GAAP and that these measures should only be used to
evaluate our results of operations and financial position in
conjunction with the corresponding GAAP financial measures. The
adjustment factors are described more fully in the table below.
WORKING CAPITAL
|
|
| December 31, 2013 |
|
December 31, 2012
|
(in thousands) |
|
|
|
|
|
|
Cash
|
| $ | 15,631 |
|
$
|
23,086
|
Accounts receivable
|
|
| 13,581 |
|
|
14,830
|
Prepaid expenses, deposits and other
|
|
| 1,051 |
|
|
931
|
Accounts payable and accrued liabilities
|
|
| (17,134) |
|
|
(10,291)
|
Assets - discontinued operations
|
|
| - |
|
|
2,179
|
Liabilities - discontinued operations
|
|
| - |
|
|
(5,870)
|
Working capital
|
| $ | 13,129 |
|
$
|
24,865
|
|
|
|
|
|
|
|
CASH FLOW BEFORE BALANCE SHEET CHANGES |
|
|
|
|
|
|
|
|
Year ended December 31
|
(in thousands) |
| 2013 |
|
2012
|
Net cash provided by operating activities
|
| $ | 30,546 |
|
$
|
34,673
|
Adjustments:
|
|
|
|
|
|
|
Changes in assets and liabilities
|
|
| (3,312) |
|
|
2,443
|
Net cash provided by (used in) operating activities - discontinued
operations
|
|
| 2,749 |
|
|
(7,285)
|
Cash flow before balance sheet changes
|
| $ | 29,983 |
|
$
|
29,831
|
Additional information
In connection with the Arrangement Agreement, Equal filed a preliminary
proxy statement with the Securities and Exchange Commission (the "SEC")
on December 31, 2013. The preliminary proxy statement has also been
filed on the Canadian SEDAR filing system at www.sedar.com, and is available on Equal's website at www.equalenergy.ca The preliminary proxy statement contains important information about
the proposed Arrangement and related matters. INVESTORS AND
SHAREHOLDERS ARE URGED TO CAREFULLY READ THE PRELIMINARY PROXY
STATEMENT, AND WHEN AVAILABLE, THE FINAL PROXY STATEMENT. Investors and
shareholders may obtain free copies of the preliminary proxy statement
and other documents filed with the SEC by Equal through the website
maintained by the SEC at www.sec.gov. In addition, investors and shareholders may obtain free copies of the
preliminary proxy statement from Equal by telephone at (405) 242-6000,
or by mail at: Equal Energy Ltd., 4801 Gaillardia Pkwy, Suite 325,
Oklahoma City, OK, 73142 Attn: Investor Relations. Equal will furnish
the finalized proxy statement to its shareholders when it is available.
Equal and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from the shareholders of
Equal in connection with the proposed transaction. Information
regarding the interests of these directors and executive officers in
the transaction described herein is included in the proxy statement
described above. Additional information regarding these directors and
executive officers is also included in Equal's proxy statement for its
2013 Annual and Special Meeting of Shareholders, which was filed with
the SEC on April 4, 2013. This document is available free of charge at
the SEC's web site at www.sec.gov, and from Equal by telephone at (405) 242-6000, or by mail at: Equal
Energy Ltd., 4801 Gaillardia Pkwy, Suite 325, Oklahoma City, OK, 73142
Attn: Investor Relations.
Any Equal shareholder that has questions or requires more information
with regard to the voting of Equal shares should contact Kingsdale
Shareholder Services Inc. by toll-free telephone in North America at
1-866-581-1479 or collect call outside North America at 416-867-2272,
or by e-mail at contactus@kingsdaleshareholder.com.
About Equal Energy Ltd.
Equal Energy is an oil and gas exploration and production company based
in Oklahoma City, Oklahoma. Our oil and gas assets are centered on the
Hunton liquids-rich natural gas property in Oklahoma. Our shares are
listed on the New York Stock Exchange and the Toronto Stock Exchange
under the symbol (EQU). Our convertible debentures are listed on the
Toronto Stock Exchange under the symbols EQU.DB.B.
Forward-Looking Statements
Certain information in this press release constitutes forward-looking
statements under applicable securities laws including statements
relating to the completion of the Arrangement and payment of
consideration pursuant to the Arrangement, and Equal's sources of cash
being sufficient to fund its operations. Any statements that are
contained in this press release that are not statements of historical
fact may be deemed to be forward-looking statements. Forward-looking
statements are often identified by terms such as "may," "should,"
"anticipate," "expects," "seeks" and similar expressions.
Forward-looking statements necessarily involve known and unknown risks,
such as risks associated with oil and gas production; marketing and
transportation; loss of markets; volatility of commodity prices;
currency and interest rate fluctuations; imprecision of reserve and
future production estimates; environmental risks; competition;
incorrect assessment of the value of acquisitions; failure to realize
the anticipated benefits of dispositions; inability to access
sufficient capital from internal and external sources; changes in
legislation, including but not limited to income tax, environmental
laws and regulatory matters; and failure to obtain shareholder approval
or to meet other closing conditions for the Arrangement, including the
failure of Petroflow to obtain financing for the completion of the
Arrangement. Readers are cautioned that the foregoing list of factors
is not exhaustive.
Readers are cautioned not to place undue reliance on forward-looking
statements as there can be no assurance that the plans, intentions or
expectations upon which they are placed will occur. Such information,
although considered reasonable by management at the time of
preparation, may prove to be incorrect and actual results may differ
materially from those anticipated. Forward looking statements contained
in this press release are expressly qualified by this cautionary
statement.
Additional information on these and other factors that could affect
Equal's operations or financial results are included in Equal's reports
on file with Canadian and U.S. securities regulatory authorities and
may be accessed through the SEDAR website (www.sedar.com), the SEC's website (www.sec.gov), Equal's website (www.equalenergy.ca) or by contacting Equal. Furthermore, the forward looking statements
contained in this press release are made as of the date of this press
release, and Equal 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
expressly required by securities law.
Conversion: Natural gas volumes recorded in thousand cubic feet ("mcf")
are converted to barrels of oil equivalent ("boe") using the ratio of
six (6) mcf to one (1) barrel of oil ("bbl"). Boe's may be misleading,
particularly if used in isolation. A boe conversion ratio of 6 mcf: 1
bbl is based on an energy equivalent conversion method primarily
applicable at the burner tip and does not represent a value equivalent
at the wellhead. All dollar values are in US dollars unless otherwise
stated.
SOURCE Equal Energy Ltd.