An anonymous director reports
MADALENA ANNOUNCES Q3 - 2016 RESULTS
Madalena Energy Inc. has released its operating and financial results for the three and nine months ended Sept. 30, 2016. (All dollar figures are expressed in U.S. dollars unless otherwise stated.) Selected information is outlined herein and should be read in conjunction with Madalena's unaudited condensed interim consolidated financial statements for the three and nine months ended Sept. 30, 2016, and the associated management's discussion and analysis, which are available for review under the company's profile at SEDAR and on the company's website.
SUMMARY FINANCIAL AND OPERATIONAL RESULTS
Three months ended Nine months ended
Sept. 30, Sept. 30,
2016 2015 2016 2015
Financial ($000s, except per-share amounts)
Oil and gas revenue $11,728 $20,816 $39,609 $63,824
Funds flow from continuing operations (1) 840 15,959 5,821 25,369
Per share -- basic and diluted (1) 0.00 0.03 0.01 0.05
Net income (loss) from continuing operations (12,715) 7,939 (22,697) 6,345
Per share -- basic and diluted (1) (0.02) 0.01 (0.04) 0.01
Operating
Average daily sales
Crude oil and NGLs -- bbl/d 1,853 2,705 2,114 2,817
Natural gas -- Mcf/d 2,368 3,843 2,659 4,064
Total -- boe/d 2,247 3,346 2,557 3,494
Average sales prices
Crude oil and NGLs -- $/bbl $61.65 $75.76 $62.10 $75.81
Natural gas -- $/Mcf 5.60 5.54 4.99 4.98
Total -- $/boe 56.72 67.62 56.53 66.91
Operating netbacks (2) -- $/boe 17.23 29.59 23.04 30.00
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(1) This table contains the term funds flow from continuing operations, which is a non-generally accepted
accounting principle measure and should not be considered an alternative to, or more meaningful than, cash
flows from operating activities as determined in accordance with international financial reporting
standards as an indicator of the company's performance. Funds flow from operations and funds flow from
operations per share (basic and diluted) do not have any standardized meanings prescribed by IFRS and may
not be comparable with the calculation of similar measures for other entities. Management uses funds flow
from continuing operations to analyze operating performance and considers funds flow from continuing
operations to be a key measure as it demonstrates the company's ability to generate the cash necessary to
finance future capital investment. The reconciliation between funds flow from continuing operations and
cash flows from operating activities can be found in manangement's discussion and analysis. Funds flow
from continuing operations per share is calculated using the basic and diluted weighted-average number of
shares for the period, consistent with the calculations of earnings (loss) per share.
(2) Operating netback is a non-GAAP measure calculated as the average per boe of the company's oil and gas
sales, less royalties and operating costs.
Crude oil and natural gas liquids sales volumes for the three months ended Sept. 30, 2016, decreased to 1,853 barrels of oil equivalent per day from 2,705 barrels of oil equivalent per day for the three months ended Sept. 30, 2015. The change compared with third quarter 2015 can be attributed to production declines at both Surubi and Rinconada-Puesto Morales. Natural gas sales volumes for the quarter of 2,368,000 cubic feet per day decreased compared with 3,843,000 cubic feet per day for third quarter 2015 due to lower production at Rinconada-Puesto Morales and Coiron Amargo-Norte.
While the decrease at Rinconada-Puesto Morales was from natural declines, the Surubi decline was a function of a delay in remedial work. Subsequent to Sept. 30, 2016, the remedial work program at Surubi commenced and is currently in progress. The company believes that the remedial work program will allow incremental production to be brought back on-line.
While the Argentine government has not announced adjustments to regulated Medanito oil pricing, the company was advised by the refineries to which it delivers its oil production that the oil price it will receive for November and December, 2016, oil production will be reduced by approximately 30 per cent, bringing prices to be received in those months in line with international levels. The company is undertaking a review of its operating assets to determine the extent of the financial impact caused by lower oil prices. While this analysis is not complete, it is clear that the reduction in oil prices communicated to the company by the refiners will have a significant negative impact.
As at Sept. 30, 2016, the company had a working capital deficit of approximately $3.8-million and continued to face significant liquidity challenges. Of that amount, approximately $2-million relates to overdue amounts payable to the operator at CA-Norte. This payable is fully recorded as part of trade and other payables in the condensed interim consolidated statements of financial position at Sept. 30, 2016.
Madalena has received a notice from this operator relating to Madalena's overdue payable and has been advised that Madalena's share of oil and gas sales is being applied against the outstanding payable. The company is in discussions with the operator to satisfy the outstanding payable. Should the matter not be resolved prior to April 21, 2017, a potential outcome is the ultimate forfeiture of Madalena's working interest at CA-Norte.
Management in Canada and Argentina has been taking measures for some time now to reduce expenses and conserve cash. Office and field personnel has been reduced in both countries, office space has been downsized in Canada, and other cost-saving measures have been implemented wherever possible. Cash has been preserved by deferring the payment of amounts owed to directors and management fees owed to the interim chief executive officer of the company. In addition, all capital spending has been limited or deferred.
Strategic alternatives update
The strategic alternatives process previously announced continues. The company, along with its financial adviser, Evercore Group LLC, is actively involved in negotiations with a number of parties which have expressed interest in various transactions with Madalena. There can be no assurance that such transactions will be consummated.
Outlook
The current year-to-date losses, current working capital deficiency and the expectation of reduced near-term cash flow resulting from lower oil prices in Argentina, as well as the capital commitments in 2016 and 2017, are expected to result in cash outflows that exceed anticipated future funds from operations. The company continues to include a note of going-concern uncertainty in the condensed interim consolidated financial statements. Without an infusion of capital and/or a successful outcome from the strategic alternatives process in the near term, Madalena may not be able to continue as a going concern.
About Madalena Energy
Madalena is an independent, Canadian-headquartered Argentine upstream oil and gas company with operations in four provinces of Argentina, where it is focused on the delineation of unconventional resources in the Vaca Muerta shale, Lower Agrio shale and Loma Montosa oil plays. The company is implementing horizontal drilling and completions technology to develop both its conventional and resource plays.
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