Mr. Michael Kabanuk reports
GRANITE OIL CORP. REPORTS YEAR END 2018 FINANCIAL RESULTS
Granite Oil Corp. has released its financial results for the year ended Dec. 31, 2018. Granite has filed its audited financial statements for the year ended Dec. 31, 2018, and related management discussion and analysis with the applicable Canadian securities regulatory authorities. Granite's annual financial materials may be viewed in their entirety on
and on the company's website.
FINANCIAL AND OPERATING HIGHLIGHTS
(000s, except per-share amounts)
Year ended Dec. 31,
Oil and natural gas revenues $43,371 $52,667
Funds from operations (1) 9,175 24,336
Per share -- basic 0.27 0.72
Per share -- diluted (2) 0.26 0.71
Net income (loss) 753 (5,508)
Per share -- basic 0.02 (0.16)
Per share -- diluted (2) 0.02 (0.16)
Capital expenditures (3) 10,211 18,750
Net debt (4) 47,731 39,839
Shareholders' equity 192,106 200,155
Natural gas (Mcf/d) 102 417
Crude oil (bbl/d) 1,978 2,598
Total (boe/d) 1,995 2,668
Average wellhead prices
Natural gas ($/Mcf) $1.85 $2.78
Crude oil and NGLs ($/bbl) 59.95 55.09
Combined average ($/boe) (6) 59.55 54.09
Operating netback prior to realized hedging gains (losses) ($/boe) (7) 29.75 29.90
Operating netback ($/boe) (8) 21.79 29.72
Proven (Mboe) 14,326 14,302
Proven plus probable 19,194 19,534
Total net present value -- proven plus probable
(10% discount before taxes) 310,322 318,159
Gross (acres) 57,201 104,748
Net (acres) 57,201 103,487
Gross (net) wells drilled
Oil (number) 3 (3.0) 9 (9.0)
Dry and abandoned (number) - (-) 1 (1.0)
Total (number) 3 (3.0) 10 (10.0)
Average working interest (%) 100 100
(1) Funds from operations and funds from operations per share are not recognized measures
under international financial reporting standards (IFRS).
(2) The company uses the weighted-average common shares (basic) when there is a net loss
for the period to calculate net income (loss) per share diluted. The company uses the
weighted-average common shares (diluted) to calculate the funds from operations diluted.
(3) Total capital expenditures, excluding acquisitions and excluding non-cash
transactions. Refer to commentary in management's discussion and analysis under capital
expenditures for further information.
(4) Net debt, which is calculated as current liabilities (excluding derivative financial
instruments) and bank debt less current assets (excluding derivative financial
instruments), is not a recognized measure under IFRS.
(5) Note the barrel of oil equivalent conversion ratio.
(6) Combined average realized prices includes all oil, gas and natural gas liquids sales
revenue, excluding other income.
(7) Operating netback prior to adjusting for any realized hedging on financial
instruments, which is calculated by deducting royalties, operating expenses and
transportation expenses from oil and gas revenue, is not a recognized measure under IFRS.
(8) Operating netback, which is calculated by deducting royalties, operating expenses and
transportation expenses from oil and gas revenue and adjusting for any realized hedging
on financial instruments, is not a recognized measure under IFRS.
2018 oil reserves highlights
During 2018, the company shut in its shallow gas production, resulting in a reserves category shift from proven developed producing (PDP) oil reserves to proven developed non-producing (PDNP) reserves in the independent report in respect of the company's reserves prepared by Sproule Associates Ltd., with an effective date of Dec. 31, 2018. Accordingly, to provide a more accurate representation of relevant reserves metrics, all finding and development costs and recycle ratios set out in this news release have been calculated for company gross reserves for oil and NGL volumes using an adjusted operating netback (prior to hedging) of $30.01 per barrel, versus the company's all-in operating netback (prior to hedging) of $29.75 per barrel of oil equivalent.
Proven developed producing (PDP) reserves:
F&D (finding and development) costs were $13.26 per barrel, resulting in a PDP recycle ratio of 2.3 times;
Increased 0.7 per cent to 7,013,000 barrels in 2018 from 6,966,000 bbl in 2017;
Reserves replacement of 106 per cent.
Total proven (TP) reserves:
F&D costs, including change in future development capital (FDC), were $12.39 per barrel, resulting in a TP recycle ratio of 2.4 times;
Increased 1.0 per cent to 12,314,000 bbl in 2018 from 12,18,000 bbl in 2017;
Reserves replacement of 118 per cent.
Proven plus probable (P+P) reserves:
F&D costs, including change in FDC, were $20.40 per barrel, resulting in a 2P recycle ratio of 1.5 times;
Decreased 1.3 per cent to 16,364,000 bbl in 2018 from 16,571,000 bbl;
Reserves replacement of 71 per cent.
Oil reserves include all light, medium and heavy crude oil volumes, and natural gas liquids.
Recycle ratio is calculated as operating netback divided by F&D costs. The F&D cost includes changes in FDC, where applicable. Calculation is based on estimated 2018 operating netback for oil of $30.01 per barrel, which is calculated as revenue (prior to hedging) less royalties and production costs.
The fourth quarter of 2018 was exceptionally challenging for the Canadian energy sector as producers faced unprecedented discounts for Canadian oil products. This had a significant impact on the earnings of the company through the latter half of 2018. However, following the Alberta government's decision to mandate provincewide oil production curtailments, the Canadian oil price outlook for 2019 has significantly improved.
Granite has been diligent in its efforts to capitalize on this improved outlook and protect its earnings potential through 2019 by aggressively adding to its hedging portfolio. With the company's cost structure, the current portfolio provides Granite competitive pricing and correspondingly strong netbacks on hedged volumes through the year. Currently, the company has 600 barrels per day of West Texas Intermediate (WTI) hedges matched with Western Canada Select (WCS) differential hedges for the second and third quarters of 2019, along with 600 barrels per day of WTI hedges matched with 400 barrels per day of WCS differential hedges for the fourth quarter, all at favourable all-in prices.
Granite is also managing price volatility and market uncertainty in the Canadian energy sector through conservative capital spending and by actively optimizing its EOR scheme and field operations. The company has not drilled a well since early May, 2018, and incurred limited capital expenditures of approximately $1.0-million in the second half of 2018 as it navigated extraordinarily high price discounts for its oil.
In 2019, Granite will prioritize debt repayment with its significant free cash flow to rapidly deleverage and remains flexible in its capital spending plans for the year. The company has a significant advantage in its ability to create value with its highly efficient, effective and flexible EOR scheme with minimal capital. This is highlighted by the capital efficiency at which Granite replaced its production and developed producing reserves in the past number of years, including in 2018. See the company's March 12, 2019, news release for additional information regarding its reserves as at Dec. 31, 2018.
As the success of its 2018 wells has demonstrated, the company has the ability to add significant production volumes quickly through drilling. Granite is drill ready and will continue to be prudent in its capital spending to manage prevailing market conditions.
We seek Safe Harbor.
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