Mr. Tony van Winkoop reports
ARSENAL ENERGY INC. ANNOUNCES 2014 SECOND QUARTER RESULTS AND INCREASE IN QUARTERLY DIVIDEND
Arsenal Energy Inc. has released its second quarter 2014 financial and operational results.
Cash flow for the second quarter was $11.6-million or 72 cents a share, a 14-per-cent increase from Q2 2013. The board of directors has declared a 7.7-per-cent increase in the quarterly dividend to seven cents per common share. This increase is the second increase in the dividend so far in 2014 and is consistent with Arsenal's dividend policy of paying out in dividends approximately 10 per cent of trailing quarterly cash flow. The dividend is payable (in either cash or, for shareholders that elect to participate in Arsenal's share dividend plan, in common shares) on Aug. 29, 2014, to shareholders of record at the close of business on Aug. 18, 2014. The ex dividend date is Aug. 14, 2014. Shareholders wishing to participate in the share dividend plan should contact their broker or intermediary or, in the case of registered shareholders, contact the company's transfer agent, Alliance Trust Company, or visit its website to obtain the necessary enrolment forms.
SUMMARY OF FINANCIAL RESULTS
(In thousands, except per share)
Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
Oil and gas revenue $30,902 $22,405 $58,508 $43,522
Net cash from operating activities 6,619 8,491 14,248 17,144
Funds from operations 11,610 10,011 22,663 17,151
Per share -- basic 0.72 0.63 1.41 1.09
Per share -- diluted 0.71 0.63 1.39 1.08
Net income (loss) (376) 2,957 652 (1,691)
Per share -- basic (0.02) 0.19 0.04 (0.11)
Per share -- diluted (0.02) 0.19 0.04 (0.11)
Net debt 84,416 67,078 84,416 67,078
Capital expenditures 17,451 9,116 29,640 20,693
Property acquisitions - - 152 -
Property dispositions - (3,934) - (3,934)
Shares outstanding -- end of period 16,074 16,070 16,074 16,070
Net wells drilled
Oil 3.16 1.87 7.76 4.70
Dry and other 1.20 - 1.20 -
Total net wells drilled 4.36 1.87 8.96 4.70
Financial
Funds from operations for Q2 2014 totalled $11.6-million, or 72 cents per share basic, versus $10.0-million, or 63 cents per share basic, for Q2 2013. The increase in cash flow is primarily attributable to increased production volumes from new Mannville wells at Princess. Average production of 4,292 barrels of oil equivalent per day during the second quarter was up 16 per cent when compared with the second quarter of 2013.
Arsenal's average price received increased by $12.70 per boe compared with the same period in 2013. The higher prices combined with the production increase boosted revenue to $30.9-million, up 38 per cent compared with Q2 2013. The higher prices were partially offset by hedging losses of $2.2-million, or $5.76 per boe, in the quarter.
Operating costs increased by $2.69 per boe compared with Q2 2013 due to temporary trucking at Princess and one-time prior period adjustments. Overall operating costs are expected to drop as battery modifications and water disposal facilities at Princess come on-line through the third quarter. Royalties increased by $5.72 per boe compared with Q2 2013 due to higher prices and a larger proportion of production coming from higher rate freehold lands. Arsenal's Q2 2014 production mix was 33 per cent light oil, 46 per cent medium and heavy oil, and 21 per cent natural gas. The resulting Q2 2014 operating margin of $40.69 per boe was 13 per cent higher than the $36.08 per boe operating margin in Q2 2013.
SUMMARY OF OPERATIONAL RESULTS
Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
Daily production
Heavy oil (bbl/d) 36 66 41 64
Medium oil and NGLs (bbl/d) 1,912 1,360 1,774 1,393
Light oil and NGLs (bbl/d) 1,438 1,303 1,368 1,298
Natural gas (mcf/d) 5,435 5,868 6,102 6,010
Oil equivalent (boe/d at 6:1) 4,292 3,707 4,201 3,756
Realized commodity prices
Heavy oil (bbl) $87.94 $75.60 $78.85 $67.09
Medium oil and NGLs (bbl) 89.93 78.54 88.17 74.01
Light oil and NGLs (bbl) 96.56 87.96 96.58 88.13
Natural gas (mcf) 4.71 3.38 5.15 3.11
Oil equivalent (boe at 6:1) 79.12 66.42 76.95 64.02
Netback ($ per boe)
Revenue 79.12 66.42 76.95 64.02
Royalty (17.54) (12.14) (16.14) (12.75)
Operating cost (20.89) (18.20) (21.09) (20.16)
Operating netback per boe 40.69 36.08 39.72 31.10
General and administrative (2.94) (3.39) (2.81) (3.29)
Finance expenses (1.80) (1.62) (1.80) (1.85)
Realized (loss) on risk management
contracts (5.76) (0.51) (4.99) (0.29)
Other (FX and current tax) (0.46) (0.88) (0.32) (0.45)
Funds from operations per boe 29.72 29.68 29.81 25.23
Operations
So far in 2014, Arsenal has participated in operations on 10 (3.1 net) Bakken/ThreeForks horizontal wells in North Dakota. Three of those (1.8 net) were fracked and placed on production at the end of the second quarter. Results of those wells were previously released. It is anticipated that the remaining seven wells (1.3 net) will be completed and placed on production by the end of the third quarter. Bakken wells typically produce at an average rate of 630 boe/d for the first month and 260 boe/d for the first year.
At Princess, Alberta, commencing in the second quarter and continuing into the third quarter Arsenal drilled a four-well (four net) program targeting Lower Mannville channels. Three wells were cased as oil wells and one was abandoned. Subsequent to quarter end the three oil wells were completed. The first well swab tested oil at a rate of 330 barrels per day, the second well flow tested oil at a rate of 280 bbl/d and the third well flow tested at a rate of 585 bbl/d. It is anticipated that all three wells will be tied in by the end of the third quarter. Arsenal expects that the sustained production rates from these wells will be approximately half the test rate. Production from Princess is limited by oil processing capacity and water disposal capacity. Arsenal has initiated a debottlenecking program to accommodate the restricted volumes. An expansion of oil processing capacity at Arsenal's eastern battery has been completed. Capacity has been doubled from approximately 1,000 bbl/d of oil to 2,000 bbl/d of oil. An expansion of the water disposal capacity is continuing and should be completed by the end of the third quarter.
Outlook
Because of Arsenal's exploration success at Princess, the capital budget has been increased from $44-million to $56-million. The increased capital will finance the facility expansion, as well as large increases in the land and seismic budgets at Princess, Alberta. Since the end of first quarter 2014, Arsenal has increased its Princess undeveloped land base and currently holds approximately 29,000 net acres. The drilling inventory has increased from 20 locations to 35 locations, and includes a mix of relatively low-risk development wells, moderate risk step-out wells and higher-risk exploration tests. The increased capital budget is expected to be financed from the recently closed $7.5-million flow-through equity financing and from higher-than-budgeted cash flow.
Due to the drilling results at Princess, Arsenal is raising its estimate of average production for the year to 4,600 boe/d. Cash flow guidance for 2014 is increased to $52-million. Debt at year-end is projected at $73-million, or 1.4 times 2014 estimated cash flow.
Full financial details are contained in the financial statements and management's discussion and analysis filed on SEDAR and the company's website.
We seek Safe Harbor.
© 2024 Canjex Publishing Ltd. All rights reserved.