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Bonavista Energy Corp
Symbol BNP
Shares Issued 260,561,511
Close 2020-02-13 C$ 0.48
Recent Sedar Documents

Bonavista Energy loses $389.99-million in 2019

2020-02-13 20:32 ET - News Release

Mr. Jason Skehar reports

BONAVISTA ANNOUNCES 2019 FOURTH QUARTER AND YEAR END RESULTS AND 2020 CAPITAL PLAN

Bonavista Energy Corp. has released to its shareholders its financial and operating results for the three months and year ended Dec. 31, 2019. The financial statements and notes, as well as management's discussion and analysis (MD&A), are available on SEDAR and on Bonavista's website.

Message to shareholders

Two thousand nineteen underscores another year committed to enhancing corporate sustainability through the consolidation and optimization of assets within the company's core area operations. Prudent and practical capital allocation, establishing a position in the Duvernay shale resource play, and environmental stewardship were all highlights throughout the year.

There is no better example than the acquisition completed on Dec. 4, 2019, of 48.4 million barrels of oil equivalent (boe) total proved and probable reserves (2P), and 8,340 barrels of oil equivalent per day (boe/d) of liquids rich natural gas and oil production. Located in the heart of Bonavista's operations in its west-central core area, this acquisition is valued at $316-million, the future net revenue attributable to the company's gross proved plus probable reserves discounted at a rate of 10 per cent, before deducting future income tax expenses (BTNPV10) inclusive of both active and inactive liability and based upon GLJ Petroleum Consultants Ltd.'s Jan. 1, 2020, price forecast effective as at Dec. 31, 2019. The addition of this low-decline, predictable production base complemented the company's existing operations while enhancing the economic quality of Bonavista's future development plans.

Two thousand nineteen firmly established Bonavista as a Duvernay player in the emerging liquids-rich play with the accumulation of over 211 net sections of prospective Duvernay mineral rights and the drilling of the company's first horizontal well in this resource play. Industry has been successfully delineating and developing this vast condensate-rich reservoir over the past few years, and the company looks forward to learning from these efforts and prudently allocating capital accordingly over the coming five years.

Bonavista replaced 138 per cent of 2019 total production volumes through the addition of 31.9 million boe of proved developed producing (PDP) reserves, inclusive of 12.2 million barrels (bbl) of PDP natural gas liquid (NGL) reserves equal to 195 per cent of 2019 natural gas liquids production with net capital expenditures amounting to 97 per cent of adjusted funds flow. Prudent capital allocation resulted in a 41-per-cent improvement in PDP finding, development and acquisition (FD&A) costs to $5.42 per boe and a 21-per-cent improvement in Bonavista's production efficiency to $10,290 per boe/d, notwithstanding allocating 29 per cent of Bonavista's capital program to land, seismic and facilities expenditures.

For 22 years, Bonavista has taken great pride in its environmental and social responsibilities as it protects and restores the environment in which it operates. Over the past decade, Bonavista has spent $198.3-million, equal to 6 per cent of its exploration and development (E&D) expenditures over this period, to reclaim and retire its inactive liabilities. In 2019, alone Bonavista spent $9.7-million managing its liabilities, largely allocated to the abandonment and reclamation of 81 and 25 wells, respectively. The estimated net present value of Bonavista's total decommissioning liability has been reduced over the course of 2019 by 14 per cent to $370.6-million at Dec. 31, 2019. On a final environmental note, in 2019, Bonavista invested $2.8-million on environmental risk mitigation, of which $1.6-million was allocated to various emission reduction technologies, eliminating nearly 65,000 tonnes of CO2 (carbon dioxide) emissions from the company's operations.

Notwithstanding volatile and unpredictable commodity prices experienced throughout 2019, Bonavista successfully hedged and diversified the sales points of its natural gas portfolio, allowing the company to achieve a realized natural gas price premium of 37 per cent as compared with the average benchmark AECO natural gas price.

Bonavista's operating, financial, reserve and environmental stewardship highlights in 2019 once again prove the quality, resilience and sustainability of the company's asset base. The integrity and philosophy of Bonavista's capital allocation over the course of the past few tumultuous years in the Canadian energy sector will undoubtedly enhance the company's ability to create shareholder value in the future.

2019 fourth quarter financial and operating highlights:

  • Strategically enhanced Bonavista's operating presence in its west-central core area with a significant property acquisition that closed on Dec. 4, 2019. This acquisition added 8,340 boe/d, 23.8 million boe of PDP reserves and $177-million of PDP BTNPV10 value, inclusive of active and inactive liability, based upon GLJ's Jan. 1, 2020 price forecast.
  • Modestly improved daily production over the prior quarter to 62,923 boe/d despite the absence of any operated drilling activity throughout the quarter;
  • Enhanced oil and natural gas liquids weighting of Bonavista's production to 33 per cent in December from 31 per cent a year ago.
  • Adjusted funds flow per boe increased 37 per cent over the third quarter.

                                                                      Three months ended                   Years ended
                                           Sept.  30, 2019  Dec. 31, 2019  Dec. 31, 2018  Dec. 31, 2019  Dec. 31, 2018
Financial                
(in thousands of dollars,
except per-share amounts)
Production revenues                             $   69,542     $  100,742     $  124,302     $  372,405     $  514,967
Net income (loss)                                 (307,489)       (44,201)        81,227       (389,997)        11,815
Per share (1)                                   $    (1.16)    $    (0.17)    $     0.31     $    (1.48)    $     0.05
Cash flow from operating activities                 37,113         47,952         77,581        195,736        291,191
Per share (1)                                   $     0.14     $     0.18     $     0.30     $     0.74     $     1.13
Adjusted funds flow (2)                             34,565         47,702         61,075        180,972        259,595
Per share (1)                                   $     0.13     $     0.18     $     0.23     $     0.69     $     1.00
Dividends declared                                       -              -          2,555          2,558         10,168
Per share                                       $        -     $        -     $     0.01     $     0.01     $     0.04
Total assets                                     2,547,412      2,495,297      2,923,709      2,495,297      2,923,709
Shareholders' equity                             1,212,177      1,169,757      1,552,184      1,169,757      1,552,184
Long-term debt (4)                                 766,569        805,767        801,625        805,767        801,625
Net debt (2)                                       801,921        808,588        835,905        808,588        835,905
Net capital expenditures (2)                        27,332         67,983         56,430        174,628        171,290
Exploration and development                         43,284         11,966         45,172        139,550        164,492
Acquisitions, net of dispositions (3)              (16,299)        55,637         11,037         33,923          6,038
Corporate                                              347            380            221          1,155            760

(1) Basic-per-share calculations include exchangeable shares tat are convertible into common shares on certain terms and conditions.

(2) Non-GAAP (generally accepted accounting principles) measure that does not have any standardized meaning under IFRS (international financial reporting standards and therefore may not be comparable with similar measures presented by other entities.

(3) Property acquisitions, net of proceeds on property dispositions.

(4) Long-term debt includes $207.7-million of the current portion of long-term debt for the three months and year ended Dec. 31, 2019. There was no long-term debt classified as current in the comparative 2018 period or in the three months ended Sept. 30, 2019.

                                                                      Three months ended                   Years ended
                                           Sept.  30, 2019  Dec. 31, 2019  Dec. 31, 2018  Dec. 31, 2019  Dec. 31, 2018
Operating                     
(boe conversion -- 6:1 basis) 
Production                   
Natural gas (mmcf/d)                                   260            260            281            266            297
Natural gas liquids (bbl/d)                         17,310         18,003         19,131         17,162         17,366
Oil (bbl/d) (1)                                      1,813          1,587          2,108          1,804          2,221
Total oil equivalent (boe/d)                        62,437         62,923         68,011         63,357         69,154
Product prices (2)                                                                                            
Natural gas ($/mcf)                                   2.02           2.39           2.91           2.32           2.78
Natural gas liquids ($/bbl)                          19.98          27.34          24.99          24.97          29.30
Oil ($/bbl) (1)                                      63.24          60.51          28.47          61.47          53.07
Total oil equivalent ($/boe)                         15.78          19.23          19.91          18.26          21.04
Operating expenses ($/boe)                            5.59           5.76           5.66           5.76           5.70
Transportation expenses ($/boe)                       1.38           1.37           1.37           1.40           1.34
General and administrative expenses ($/boe)           0.90           0.86           0.87           0.89           0.96
Cash costs ($/boe) (3)                                9.42           9.55           9.27           9.56           9.39
Operating netback ($/boe) (3)                         8.49          11.04          11.99          10.35          12.64

(1) Oil includes light, medium and immaterial amounts of heavy oil.

(2) Product prices include realized gains and losses on financial instrument commodity contracts.

(3) Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable with similar measures presented by other entities.

Q4 2019 capital program

Net capital expenditures increased to $68.0-million in the quarter from $27.3-million in the third quarter of 2019. In the fourth quarter, Bonavista spent $12.0-million on exploration and development activities, down from $43.3-million spent in the prior quarter, to allow for the investment in the synergistic property acquisition that closed in the latter part of the quarter. Bonavista drilled 0.2 net well in the quarter as compared with 5.5 net wells in the third quarter of 2019. Remaining exploration and development expenditures were primarily focused on completion projects with two (1.5 net) wells completed in the fourth quarter in addition to continuing infrastructure projects.

Q4 2019 production

Production volumes for the quarter averaged 62,923 boe/d, consisting of 260 million cubic feet per day of natural gas, 18,003 boe/d of natural gas liquids and 1,587 barrels per day (bbl/d) of oil. Bonavista's 2019 fourth quarter production volumes were similar to that of the prior quarter at 62,437 boe/d despite the impact of disposition and acquisition activity. Non-core assets at Kaybob were disposed of in mid-September, which impacted fourth quarter average production by approximately 1,400 boe/d. The decrease was offset by incremental production volumes from the synergistic property acquisition that closed on Dec. 4, 2019, which positively impacted fourth quarter average production volumes by approximately 2,500 boe/d.

Q4 2019 production revenue, marketing and risk management

Production revenues for the fourth quarter, including $10.6-million of realized gains on financial instrument commodity contracts, were $111.3-million, or $19.23 per boe, representing a 22-per-cent increase on a per-barrel-of-oil-equivalent basis from prior quarter. Realized pricing on natural gas volumes in the quarter was $2.39 per thousand cubic feet (mcf), an 18-per-cent increase from the previous quarter and representing a 3-per-cent premium over the average AECO monthly index. Financial hedging accounted for a pricing premium of three cents per mcf and $6.07 per bbl for natural gas and natural gas liquids, respectively. Production revenues, excluding realized gains on financial instrument commodity contracts, were $100.7-million or $17.40 per boe.

Q4 2019 operating and transportation expenses

Operating expenses for the fourth quarter displayed a modest 3-per-cent increased to $5.76 per boe from $5.59 per boe in the third quarter. The slight increase in costs can largely be attributed to the acquisition of assets occurring late in the fourth quarter that currently have a higher operating cost structure per barrel of oil equivalent than the company's corporate average.

Transportation expenses were relatively unchanged between the fourth quarter and third quarter of 2019 at $1.37 per boe and $1.38 per boe, respectively. Similarly, absolute transportation costs of $7.9-million in the fourth quarter compared with $7.9-million in the third quarter.

Q4 2019 general, administrative and interest expenses

General and administrative expenses decreased 4 per cent in the current quarter to $5.0-million as compared with $5.2-million in the third quarter, due to lower salaries and benefits recorded in the quarter.

Interest expenses of $9.0-million recorded in the fourth quarter of 2019 were comparable with the $8.9-million recorded in the third quarter of 2019.

Q4 2019 net loss and comprehensive loss

For the fourth quarter, Bonavista reported a net loss and comprehensive loss of $44.2-million (17 cents per share, basic) compared with a net loss and comprehensive loss of $307.5-million ($1.16 per share, basic) reported in the prior quarter. The magnitude of the net loss in the prior quarter was largely due to a $278.0-million impairment charge recognized due to the sustained decline in the forward commodity benchmark prices for natural gas, natural gas liquids and oil. In the fourth quarter, an additional impairment charge of $14.3-million was recognized.

Q4 2019 cash flow from operating activities and adjusted funds flow

Cash flow from operating activities in the fourth quarter of 2019 was $48.0-million, a 29-per-cent increase from the third quarter of 2019 of $37.1-million, due to a 23-per-cent increase in production revenues, inclusive of gains on financial instrument commodity contracts, and on a per-barrel-of-oil-equivalent basis increased to $19.23 per boe from $15.78 per boe in the prior quarter. Adjusted funds flow for the quarter was $47.7-million as compared with $34.6 million in the previous quarter for similar reasons as discussed above.

2019 year in review

The quality and predictability of Bonavista's asset portfolio, combined with the discipline and determination of the company's technical teams to innovate, enhance development practices and execute on synergistic acquisition opportunities, have resulted in a 7-per-cent increase in 2P reserves with reserve additions of 54.1 million boe replacing 234 per cent of 2019 production while spending 97 per cent of adjusted funds flow. With continued emphasis on light oil and liquids-rich natural gas development, Bonavista increased oil and NGL PDP reserves by 12 per cent and replaced 183 per cent of 2019 oil and NGL production with PDP reserves.

2019 reserve highlights:

  • Replaced 234 per cent of 2019 production volumes with the addition of 54.1 million boe of 2P reserve additions;
  • Proved plus probable reserves growth of 7 per cent to 489.9 million boe;
  • Increased the composition of oil and NGL reserves to 159.2 million boe or 32 per cent of 2P reserves;
  • Invested $55.4-million for the acquisition of synergistic assets in Bonavista's west-central core area, adding 48.4 million boe of 2P reserves;
  • Proved producing FD&A costs improved 41 per cent to $5.42 per boe, including changes in future development capital (FDC), resulting in a proved producing FD&A recycle ratio of 1.9:1;
  • Replaced 406 per cent of 2019 NGL production with the addition of 25.4 million boe of 2P NGL reserve additions. Bonavista's corporate 2P NGL ratio increased 12 per cent or eight barrels per million cubic feet (mmcf) of sales gas, resulting in a 15-per-cent growth in 2P NGL reserves;
  • Notwithstanding continued price erosion in GLJ's price forecasts from year-end 2018 to 2019 and a constrained 2019 development program, Bonavista's 2P BTNPV10 reserves were valued by GLJ at $2,648 million, virtually unchanged from year-end 2018. When adjusted for net debt undeveloped land value and corporate decommissioning liabilities (inflated at 2 per cent and discounted at 10 per cent), Bonavista's net asset value is approximately $1,921-million, which is equal to $7.24 per share.

2019 independent reserves evaluation

Bonavista retained the independent qualified reserve evaluator GLJ to evaluate 100 per cent of its total light crude oil and medium crude oil (combined), heavy crude oil, conventional natural gas, and natural gas liquids reserves. The reserves data set forth in this news release are based upon the evaluation by GLJ with an effective date of Dec. 31, 2019, as contained in the reserve report of GLJ dated Feb. 3, 2020 (the 2019 GLJ reserve report). The 2019 GLJ reserve report used GLJ's forecast price and cost assumptions. The effective date of the forecast prices used in the 2019 GLJ reserve report was Jan. 1, 2020.

The reserves data set forth in this news release also contain information regarding Bonavista's 2018 reserve estimates, which were based upon the evaluation by GLJ with an effective date of Dec. 31, 2018, as contained in the reserve report of GLJ dated Feb. 13, 2019 (the 2018 GLJ reserve report). The 2018 GLJ reserve report used GLJ's forecast price and cost assumptions. The effective date of the forecast prices used in the 2018 GLJ reserve report was Jan. 1, 2019.

Reserves summary

The attached table summarizes the estimates of Bonavista's gross reserves at Dec. 31, 2019, and Dec. 31, 2018, using the forecast price and cost assumptions in effect at the applicable reserve evaluation date.

Reserve category (1)                     Dec. 31, 2019    Dec. 31, 2018
(thousand barrels of oil equivalent)  

Proved                                                             
Developed producing                            157,390          148,613
Developed non-producing                          4,516            9,057
Undeveloped                                    147,104          136,506
Total proved                                   309,010          294,177
Probable                                       180,843          164,704
Total proved plus probable                     489,853           458,88
1

(1) Amounts may not add due to rounding.

Net present value of future net revenue

The attached table highlights the net present value of future net revenue attributable to Bonavista's reserves at Dec. 31, 2019, before deducting future income tax expense using GLJ's forecast price and cost assumptions.

Reserve category (1)                        Net present value of future net revenue    Unit value before income taxes 
                             as of Dec. 31, 2019, before income taxes discounted at                  discounted at (2)
                            0%/year     5%/year    10%/year    15%/year    20%/year         10%/year         10%/year
                             ($ 000)     ($ 000)     ($ 000)     ($ 000)     ($ 000)          ($/boe)         ($/Mcfe)
Proved                                                                                                                
Developed producing        1,863,914  1,447,945   1,175,254     989,883     857,841             8.45             1.41
Developed non-producing       38,994     29,909      23,060      18,073      14,403             5.85             0.98
Undeveloped                1,491,008    878,687     543,357     345,539     220,947             4.11             0.68
Total proved               3,393,916  2,356,541   1,741,671   1,353,495   1,093,191             6.32             1.05
Probable                   2,861,179  1,497,349     906,019     606,536     435,114             5.63             0.94
Total proved plus probable 6,255,095  3,853,890   2,647,690   1,960,031   1,528,305             6.07             1.01

(1) Amounts may not add due to rounding.

(2) Unit values are based on net reserves.

GLJ commodity price forecasts have continued to erode for most products relative to a year ago. The GLJ pricing forecast for 2020 has experienced a 9-per-cent erosion in AECO pricing and a 5-per-cent decrease in Edmonton light oil prices. Ethane, propane and pentane pricing has also decreased by 11 per cent, 12 per cent and 2 per cent, respectively, while butane price has increased 30 per cent. Despite the continued challenges in both near-term and long-term price forecasts in addition to a restricted capital development program, Bonavista's net present value of future net revenue attributable to Bonavista's 2P BTNPV10 of $2,647.7-million was relatively unchanged when compared with the prior year at $2,635.1-million with a reserve life index of 18.8 years.

The 2019 GLJ reserve report includes the abandonment and reclamation liability associated with producing wells and future development locations but does not include inactive wells, facilities, pipelines and gathering systems. Based on Bonavista's decommissioning estimates, the liability of these items amount to $42.2-million inflated at 2 per cent and discounted at 10 per cent. This would modestly reduce 2P BTNPV10 value at Dec. 31, 2019, by 1.6 per cent to $2,605.5-million.

Core area review

West-central operations

In 2019, 79 per cent of Bonavista's exploration and development expenditures were invested in its west-central core area. Of the $111-million invested in this area, $80-million was allocated to value capital and $31-million was allocated to support capital. During the year, Bonavista drilled 20 gross wells (18.6 net wells) comprising 15 gross (13.6 net) glauconite wells, three gross (3.0 net) Spirit River (Falher) wells, one gross (1.0 net) Cardium well and one gross (1.0 net) Duvernay well. Average 2019 production in the west-central area was 39,269 boe/d, comprising 41 per cent oil and natural gas liquids.

The focus for development expenditures in the west-central core area continued to be in the Strachan area, where 49 per cent of the west-central E&D expenditures were allocated. This included drilling seven gross (6.4 net) glauconite wells and one gross (1.0 net) Cardium well. The last two glauconite wells in the 2019 program were completed and came on production at the beginning of November, and have an average 60-day production rate of 4.4 million cubic feet per day (mmcf/d) with wellhead condensate ratios of 12 barrels per million cubic feet (bbl/mmcf) combined with shallow decline rates. The average horizontal lateral length for the 2019 glauconite wells at Strachan was 19 per cent greater than 2018 and Bonavista achieved a 19-per-cent reduction in cost per lateral metre drilled. Additional compression was installed in the second half of 2019, which allowed Bonavista to achieve peak production at Strachan of 41 million cubic feet per day in the fourth quarter. This facility addition leaves Bonavista with 20 million cubic feet per day of additional capacity to accommodate the 2020 program, which consists of drilling six gross (5.3 net) wells in the glauconite at Strachan.

The Hoadley glauconite program accounted for 36 per cent of the west-central E&D expenditures in 2019, with the drilling of seven (7.0 net) wells mainly in the Willesden Green area of the Hoadley glauconite trend. The average performance of the 2019 wells was characterized with a 7-per-cent increase in natural gas liquid content when compared with 2018 production performance. The plan for 2020 is to drill six gross (6.0 net) glauconite wells in the Willesden Green area, where four of the extended reach horizontal wells incorporate lands acquired in Bonavista's property acquisition that occurred in the fourth quarter of 2019.

Three gross (3.0 net) wells were drilled in the Morningside Falher play in 2019, which amounted to 8 per cent of the west-central E&D program. Well performance continued to improve as the average cost to add production over the first year was $4,500 per boe/d, which was an 18-per-cent improvement over 2018. While Bonavista continue to consolidate land in this area to accommodate extended reach horizontal wells, the 2020 plan will be limited to two gross (2.0 net) wells.

In the fourth quarter, Bonavista participated in its first non-operated well in the oil/condensate-rich Garrington glauconite play, a play the company acquired in the fourth quarter of 2019. This well was recently completed with rates expected to be 350 bbl/d of light oil and 1.8 million cubic feet per day of liquids-rich natural gas, similar to the offset well. A second well (0.2 net) is planned for the first quarter of 2020.

Deep basin operations

In 2019, $24-million or 18 per cent of Bonavista's E&D expenditures were invested in the company's Deep basin core area, with $15-million allocated to drilling and completions, and $9-million allocated to support capital. With an unsustainable low-natural-gas-price environment this past summer, Bonavista only drilled three gross wells (2.6 net wells), comprising two gross (2.0 net) Wilrich wells and one gross (0.6 net) Cardium well. Average 2019 production in the Deep basin area was 21,926 boe/d, comprising 88 per cent natural gas.

In late 2018, Bonavista brought on its second Notikewin horizontal well at Edson that has produced at an average raw gas rate of 5.5 million cubic feet per day over the first year of production. At a well cost of $3.4-million to drill, complete, equip and tie in, this well has outstanding production efficiency of approximately $3,800 per boe/d over the first year of production and a payout of 1.2 years based on 2019 commodity pricing. With limited excess facility capacity in 2019, follow-up development was delayed until 2020, when Bonavista will drill two (2.0 net) additional Notikewin wells, including one extended reach horizontal well.

In 2019, Bonavista drilled two (2.0 net) and completed three (3.0 net) Ansell Wilrich wells that did not meet expectations, resulting from unexpected parent-child interwell communication. Average production for the three wells is 2.5 million cubic feet per day over the first 11 months of production. For 2020, Bonavista plans to drill three (3.0 net) Wilrich wells northeast of Ansell, where there is less prior development and a reservoir that is richer in natural gas liquids.

Duvernay

Meaningful progress was made to enhance Bonavista's position and delineate the Duvernay play in 2019. During the year, Bonavista acquired 30,400 acres of Duvernay rights through Crown land sales. This brings the company's total Duvernay land acreage to 135,000 acres with the majority located within the oil/condensate window of the reservoir. Bonavista's first Duvernay well was drilled over 22 days in the third quarter of 2019, which included a pilot vertical well (to capture technical reservoir information) and achieved a lateral length of 3,260 metres. The lateral length for this well was 50 per cent longer than the offsetting Duvernay horizontal wells that had an average initial one-month production rate of 564 bbl/d of light oil and 1.6 million cubic feet per day of natural gas. Bonavista will analyze the technical information retrieved from the vertical pilot and evaluate offsetting well performance before determining the company's completion strategy in 2020.

Acquisitions and divestitures

In 2019, property acquisitions amounted to $55.4-million and proceeds from property dispositions totalled $21.5-million for a net expenditure of $33.9-million. The most significant transaction was the fourth quarter acquisition in Bonavista's west-central area, which added approximately 8,340 boe/d of production, 48.4 million boe of 2P reserves and $316-million BTNPV10, inclusive of both active and inactive liability, and based upon GLJ's Jan. 1, 2020, price forecast effective as at Dec. 31, 2019. This acquisition adds 62.4 net locations to Bonavista's inventory mainly in the Willesden Green glauconite play and the Garrington oil/condensate glauconite play. Since the transaction closed in early December, Bonavista has made meaningful progress toward its projected 30-per-cent reduction in operating costs given the synergy to its west-central core area operations. Current production of the acquired assets is 8,300 boe/d (45 per cent oil and NGL) and Bonavista is forecasting production to exit the year in excess of 10,000 boe/d with 23 per cent of 2020 drilling locations planned in its west-central core area on the acquisition lands.

To balance this significant acquisition, Bonavista closed two dispositions in 2019, which resulted in disposing of 1,880 boe/d of non-core production for proceeds of $21.5-million. The net effect of the 2019 acquisitions and dispositions was the addition of net 6,460 boe/d of synergistic, low-decline production rich in oil and natural gas liquids for $33.9-million.

Corporate production

Bonavista achieved annual average production of 63,357 boe/d in 2019. This annual average production was 8 per cent lower than 2018 due to a 15-per-cent ($24.9-million) reduction in exploration and development expenditures and natural production declines in excess of new well production growth. As a result of an uncertain commodity price outlook in both years, natural declines in well performance have outpaced new well production growth as Bonavista has looked to create incremental financial flexibility by allocating funds toward its net debt repayment. Further in both 2019 and 2018, production volumes were impacted by production curtailments in response to uneconomic natural gas prices, the impact of significant scheduled and unscheduled third party turnaround activity, egress constraints, and non-core property dispositions. Positively impacting 2019 production was the synergistic property acquisition in Bonavista's west-central core area that closed on Dec. 4, 2019.

Production, revenues, marketing and risk management

Production revenues for the year totalled $422.3-million, inclusive of $49.9-million of realized gains on financial instrument commodity contracts, a decrease of 20 per cent over the prior year of $531.1-million. The $108.7-million decrease can be attributed to an 8-per-cent decrease in production volumes from the prior year, with the remainder due to a substantial decrease in both natural gas liquids and natural gas pricing, the result of continued headwinds the industry is facing with egress constraints and supply/demand imbalances. Notwithstanding these pressures, Bonavista's realized natural gas price, inclusive of realized gains on financial instrument commodity contracts, for 2019 was $2.32 per mcf, a 37-per-cent premium to the average benchmark AECO price. Hedging activities throughout the year led to a 36-cent-per-thousand-cubic-feet premium in Bonavista's realized natural gas price, a $2.56-per-barrel premium to the company's realized NGL price and a $2.07-per-barrel discount to its realized oil price.

Operating and transportation expenses

Aggregate operating expenses of $133.3-million declined 7 per cent in 2019 from $143.9-million in 2018, largely due to lower production volumes offset by the seasonality impact of prolonged winter conditions and significant third party turnaround activity experienced in the first half of 2019. This overall decrease was offset by per-unit operating costs modestly increasing by six cents in 2019 from $5.70 per boe to $5.76 per boe. The majority of the per-unit cost increase was due to the temporary shut-in of wells in response to low natural gas prices, third party turnarounds activities and the fourth quarter acquisition, which currently has a higher operating cost structure than the company's corporate average.

Transportation expenses for the year were $32.5-million as compared with $33.7-million in 2018, with natural gas transportation expenses making up the majority of the total transportation expenses at approximately 90 per cent in both years. On a per-unit basis, transportation costs increased six cents from $1.34 per boe to $1.40 per boe. The per-barrel-of-oil-equivalent increase was primarily impacted by firm service obligations where transportation restrictions occurred on the NGTL system, which reduced utilization but increased firm transportation charges on a per-barrel-of-oil-equivalent basis.

General, administrative and interest expenses

General and administrative expenses for 2019 were $20.6-million compared with $24.3-million in 2018. The 15-per-cent reduction in general and administrative costs was largely due to the adoption of IFRS 16, Leases, which changed the accounting treatment of the company's head office lease, in addition to reduced staffing, compensation levels and Bonavista's continued commitment of reducing costs.

Interest expenses were relatively unchanged at $34.9-million in 2019 compared with $35.1-million in 2018. The modest decrease in 2019 was primarily due to lower average borrowings on Bonavista's bank credit facility for the first nine months of the year.

Net income (loss) and comprehensive income (loss)

For the year ended 2019, Bonavista reported a net loss and comprehensive loss of $390.0-million ($1.48 per share, basic) compared with net income and comprehensive income of $11.8-million (five cents per share, basic) in the prior year. The change from a net income position to a net loss position can be attributed to a 20-per-cent decrease in production revenues, including realized gains on financial instrument commodity contracts in addition to a $292.3-million impairment charge recognized as a result of a sustained decline in the forward commodity benchmark prices for natural gas, natural gas liquids and oil. The benchmark prices referenced in Bonavista's impairment test were based on the average price forecasts as prepared by four independent reserve evaluators effective on Oct. 1, 2019, and Jan. 1, 2020.

Cash flow from operating activities and adjusted funds flow

Cash flow from operating activities for the year ended 2019 was $195.7-million, a 33-per-cent decrease from the year ended 2018 of $291.2-million. The decrease in cash flow from operating activities was primarily due to a 20-per-cent decrease in production revenues, including realized gains on financial instrument contracts, in addition to an 8-per-cent decrease in production volumes.

For the year ended Dec. 31, 2019, adjusted funds flow decreased 30 per cent to $181.0-million (69 cents per share, basic) from $259.6-million ($1 per share, basic) for the same period of 2018. The decrease in adjusted funds flow was primarily due to lower realized natural gas and natural gas liquids prices, and an 8-per-cent decline in production volumes.

Long-term debt and net debt

For the year ended 2019, long-term debt, including the current portion of long-term debt of $207.7-million, was $805.8-million. This was an increase of $4.1-million from year-end 2018 of $801.6-million. Long-term debt consists of $53.2-million (Canadian) drawn on Bonavista's bank credit facility and $753.9-million (Canadian) in senior unsecured notes ($565-million (U.S.) and $20.0-million (Canadian)), with a current average remaining life of 2.5 years. The slight increase in Bonavista's long-term debt balance was the result of drawings on the company's bank credit facility in the fourth quarter to close the synergistic property acquisition, partially offset by the result of changes to the Canadian-dollar/U.S.-dollar exchange rate and the corresponding impact on the revaluation of Bonavista's U.S.-dollar-denominated senior unsecured notes.

Net debt for the year ended 2019 was $808.6-million as compared with $835.9-million for the year ended 2018, with the difference largely due to the revaluation of Bonavista's U.S.-dollar-denominated senior unsecured notes (2019 -- $1.2990 (U.S.) to $1 (Canadian), compared with 2018 -- $1.3641 (U.S.) to $1 (Canadian)).

2020 outlook and capital plans

With the flip of the calendar page, a new year and a new decade begins, and with it a forecast that the first half of the coming decade will undoubtedly be more constructive than the last half of the previous one for the Canadian energy sector. Bonavista closed the books on 2019 and looks forward to a year that could bring a change in tone for the energy landscape in North America.

Having endured back to back years of challenging AECO pricing, largely due to a contracting imbalance of supply and demand on the NGTL system, the year ended on a relatively positive note with establishment of the temporary service protocol (TSP). With overwhelming support of the majority of stakeholders, including the government of Alberta, TSP has and will meaningfully improve the supply and demand fundamentals of operation on the NGTL system during times of construction and maintenance this summer, creating a more efficient market in the short term.

As for the long term, the $10-billion multiyear expansion of the NGTL system through Alberta and northeastern British Columbia is well under way. It is designed to increase transportation capacity and egress for Canadian producers resulting in a total demand increase of 3.5 billion cubic feet per day. In addition, the $6.6-billion Coastal GasLink pipeline project to connect to the LNG Canada plant in Kitimat, the first large-scale liquefied natural gas (LNG) export facility in Canada, has progressed with 32 per cent of the route cleared and construction under way across the 670-kilometre route. Notably, almost $1-billion in contracts have been awarded since the final investment decision (FID) of LNG Canada in October, 2018, leaving no doubt that this project, the largest privately financed infrastructure project in Canadian history, will fundamentally change the natural gas sector in Western Canada for decades to come.

With the extended period of critically low-natural-gas-pricing conditions, particularly through 2019, Canadian natural gas supplies fell for the first time in seven years. The reduced supply following 24 months of limited drilling activity and strengthened market access certainly sets a constructive foundation for Canadian natural gas as Bonavista moves into the coming decade. The supply story south of the border has followed a remarkably different path. Production rates for dry gas outpaced consumption growth in the United States and in conjunction with mild weather caused an inventory build through the winter months. NYMEX February natural gas futures fell to three-year lows earlier in the year and have not been able to fully recover in the wake of the coronavirus outbreak. Global prices have plunged on concerns that China's demand for all forms of energy will be severely impacted. These market anomalies, while seemingly quite dire over the short term, have not dampened longer-term sentiment meaningfully, but more so have been viewed as a correction in the supply demand imbalance that currently exists. Correspondingly, natural gas production growth is expected to slow in the U.S. in 2020 to be more aligned with demand growth in the coming three years.

Domestic demand in the U.S. has been driven in recent years by increasing base-load natural gas demand within the power generation sector, now feeding about 40 per cent of the market. Natural gas has been steadily replacing coal as a more cost-effective, cleaner energy source to meet growing electrical demand. This phenomenon is not isolated to the U.S. as Canada also marked a record year for natural gas power generation. In the U.S., the switch from coal to natural-gas-fired power generation has been a primary contributor to the U.S. significantly reducing greenhouse gas (GHG) emissions in 2019, speaking volumes to the value of natural gas as a clean, reliable source of energy to power the globe.

Alongside significant domestic demand growth, export demand has skyrocketed in the U.S. Recent start-ups of new natural gas pipelines built from the U.S. into Mexico have resulted in new daily highs of nearly six billion cubic feet per day late last year, doubling the export volumes seen four years ago. LNG expansion has provided for significantly more export capacity, having grown in that same four-year period from zero to nearly 10 billion cubic feet per day at present. Both LNG and Mexican export capacity is forecasted to continue to grow at unprecedented rates in the coming five years.

Given the global market conditions, Bonavista sremain confident that there is a place at the table for Canadian energy. Forecasts for energy usage over the next decade show significant growth for all sources of energy, particularly natural gas. Bonavista is proud to represent Canada on the world stage to aid in the reduction of GHG emissions as the world transitions to cleaner energy and provides for more access to affordable, reliable and modern energy services. Undoubtedly, energy is an ingredient to each and every goal among the 17 sustainable development goals adopted by the general assembly of the United Nations. Specifically, goal seven of 17, affordable and clean energy, states: "Energy is central to nearly every major challenge and opportunity the world faces today. Be it for jobs, security, climate change, food production or increasing incomes, access to energy for all is essential." Clean Canadian natural gas is clearly available in abundance to serve the world.

In 2019, Bonavista remained focused on enhancing sustainability in this continued tumultuous commodity price environment. Working ferociously to strengthen the company's core operating areas and remain active with acquisitions in a distressed merger and acquisition (M&A) market has underpinned Bonavista's success throughout the year. These efforts have created a more predictable and profitable asset portfolio built for reliability in any commodity price environment and destined to generate long-term value for Bonavista's shareholders.

Bonavista's business philosophy over the coming year will remain consistent with that of 2019, with a recurring focus on sustainability and building for the future. Bonavista's plan, initially, will be to spend within adjusted funds flow, targeting an E&D program of between $100-million and $120-million, the majority allocated to its west-central core area. Spending levels are designed to maintain production levels with those of 2019 and the goal is to generate excess adjusted funds flow for debt repayment. Bonavista continues to have continuing negotiations regarding its covenant relief process with both its noteholders and its banking syndicate, with the expectation of a successful resolution over the next few months.

Bonavista's capital program is designed to be sensitive to market conditions such that the company can adapt to preserve adjusted funds flow in any environment. Continued commodity price volatility will keep Bonavista agile and flexible with its capital allocation, and will undoubtedly lead to conservative organic spend levels as the company remains enrolled in the M&A market in its core areas. Bonavista fully expects the next 12 months will bring challenges and opportunities, however, it remains confident that its has built a resilient business philosophy to weather the continuing turbulence as it strengthens its foundation for growth in future years.

Bonavista thanks its employees for their commitment and dedication, its board of directors for its guidance, and its shareholders for their long-term support.

            CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
                       (in thousands of dollars, except per-share amounts)

                                            Three months ended Dec. 31,         Years ended Dec. 31,
                                                  2019            2018            2019         2018
Revenues          
Production                                   $ 100,742       $ 124,302       $ 372,405    $ 514,967
Royalties                                       (6,123)         (5,544)        (17,377)     (34,360)
Production revenues, net of royalties           94,619         118,758         355,028      480,607
Financial instrument commodity contracts        
Realized gains on financial instrument 
commodity contracts                             10,583             268          49,940       16,083
Unrealized gains (losses) on financial 
instrument commodity contracts                 (35,293)        139,841         (82,106)      43,014
Production revenues, net of royalties and 
financial instrument commodity contracts        69,909         258,867         322,862      539,704
Expenses                                        
Operating                                       33,333          35,383         133,312      143,935
Transportation                                   7,929           8,602          32,490       33,728
General and administrative                       4,961           5,413          20,577       24,291
Share-based compensation                         1,680           1,732           9,961       10,381
Loss on disposition of property, 
plant and equipment                                222          12,057          15,337        6,725
Loss (gain) on disposition of 
exploration and evaluation assets                    -               9           1,772         (167)
Depletion, depreciation, amortization 
and impairment                                  62,374          56,177         499,290      227,447
Net finance costs                                3,611          22,958          23,131       66,450
Total expenses                                 114,110         142,331         735,870      512,790
Income (loss) before taxes                     (44,201)        116,536        (413,008)      26,914
Deferred income tax expense (recovery)               -          35,309         (23,011)      15,099
Net income (loss) and
comprehensive income (loss)                    (44,201)         81,227        (389,997)      11,815
Net income (loss) per share                     
Basic                                        $   (0.17)      $    0.31       $   (1.48)   $    0.05
Diluted                                      $   (0.17)      $    0.30       $   (1.48)   $    0.04

We seek Safe Harbor.

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