CALGARY, May 7 /CNW/ - Breaker Energy Ltd. ("Breaker" or "Company") (TSX: WAV.A and wav.b) is pleased to announce its financial and operating results for the quarter ended March 31, 2008.
Financial and Operating Summary
Quarter Ended
March 31, March 31, %
2008 2007 Change
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Financials ($000s except per share amounts)
Petroleum sales 21,844 9,650 126
Natural gas sales 11,021 9,906 11
Processing sales 243 200 23
Total petroleum and natural gas revenue 33,108 19,756 68
Funds from operations(1) 19,283 9,210 109
Per share basic 0.52 0.26 100
Per share diluted 0.51 0.25 104
Net earnings (loss) 6,544 (187) nm
Per share basic 0.18 (0.01) nm
Per share diluted 0.17 (0.01) nm
Capital expenditures(2) 30,903 19,938 55
Net debt 62,562 46,402 34
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Operating, General and Administrative (G&A)
Production:
Crude oil (bbls per day) 2,484 1,683 48
Natural gas (mcf per day) 15,458 14,746 5
Total (boe per day) (6:1) 5,060 4,141 22
Average realized price:
Crude oil ($ per bbl) 96.63 63.72 52
Natural gas ($ per mcf) 7.83 7.46 5
Combined average (incl. processing revenue)
($ per boe) 71.90 53.01 36
Netback ($ per boe)
Petroleum and natural gas sales 71.90 53.01 36
Royalties (14.00) (11.53) 21
Operating expenses (9.37) (10.07) (7)
Transportation expenses (2.62) (1.76) 49
Operating netback 45.91 29.65 54
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G&A expenses (2.54) (2.76) (8)
Interest expense (1.16) (1.39) (17)
Corporate netback 42.21 25.50 66
Common Shares (000s)
Class A Shares outstanding, end of period 36,298 35,124 3
Weighted average Class A shares 36,254 34,984 4
Weighted average Class B shares 900 900 -
Conversion of Class B shares - weighted
average(3) 1,104 1,613 (32)
Weighted average basic shares outstanding(3) 37,358 36,597 2
Stock option dilution (treasury method)(4) 318 435 (27)
Weighted average diluted shares
outstanding(3)&(4) 37,676 37,032 2
(1) Management uses funds from operations (before changes in non-cash
working capital) to analyze operating performance and leverage. Funds
from operations as presented does not have any standardized meaning
prescribed by Canadian GAAP and, therefore, may not be comparable
with the calculation of similar measures for other entities.
(2) Capital expenditures includes cash additions for the period,
acquisition additions, dispositions, and capitalized general and
administrative expense.
(3) For the period ended March 31, 2008 the Class B shares are converted
at the quarter-end Class A share price of $8.15 and added to the
Class A shares to calculate basic shares outstanding. For the period
ended March 31, 2007 the Class B shares are converted at the quarter-
end Class A share price of $5.58.
(4) In computing the net loss per diluted share for the quarter ended
March 31, 2007, nil shares were added to the weighted average number
of shares outstanding because they were anti-dilutive.
Overview and Highlights
The first quarter 2008 drilling program was one of Breaker's most successful in its history, achieving a 100 percent success rate, drilling 13 gross (11.5 net) wells and investing $30.9 million of capital. Operations were focused at Irricana where 6 gross (6.0 net) horizontal wells were drilled and completed with the Packers Plus multi-frac technology. Breaker has now drilled 10 horizontal wells with multi-frac completions at Irricana resulting in property oil production increasing more than threefold since the fourth quarter of 2006 to more than 1,500 barrels per day in early April.
Breaker continued development of its other core areas in the first quarter as well. At East Prairie 4 gross (3.5 net) wells were drilled, at Girouxville 2 gross (1.0 net) wells were drilled and 1 gross (1.0 net) well was drilled in the Medicine Hat area.
- Breaker achieved production growth of 22 percent to an average of
5,060 boe per day in the first quarter of 2008 from an average of
4,141 boe per day in the first quarter of 2007 and a 12 percent
increase over the fourth quarter 2007 average of 4,523 boe per day.
The Company expects to average approximately 5,900 boe per day in the
second quarter and reiterates its guidance of average production of
5,900 boe per day for 2008.
- Breaker's natural gas weighting has transitioned from a 70 percent
natural gas weighting in the first quarter of 2006 to a 51 percent
weighting in the first quarter of 2008 with 66 percent of revenue in
the first quarter of 2008 resulting from the sale of oil and natural
gas liquids.
- Funds from operations per basic share grew by 100 percent to $0.52 in
the first quarter of 2008 from $0.26 in the same period of 2007.
Funds from operations grew by 109 percent in the first quarter of
2008 to $19.3 million from $9.2 million in the first quarter of 2007.
- Net earnings per share increased to $0.18 from a loss of $0.01 per
share in the same period of 2007. Net earnings for the first quarter
of 2008 was $6.5 million, driven by increases in production and
revenue per boe in the first quarter of 2008 as compared to the same
period of 2007.
- Breaker reduced operating costs by 7 percent to $9.37 per boe in the
first quarter of 2008 from $10.07 per boe in the same period of 2007.
- Breaker's operations in the first quarter of 2008 resulted in a very
strong average operating netback (defined as revenue; less royalties,
operating and transportation expenses on a per boe basis) of $45.91
per boe and a corporate netback (defined as operating netback per boe
less G&A and interest expense per boe) of $42.21.
- Breaker's bank line is $95 million and management forecasts a
conservative level of leverage at year-end with a debt to annualized
fourth quarter 2008 funds from operations ratio of 0.8 to 1. At the
end of the first quarter, Breaker's debt to annualized first quarter
2008 funds from operations ratio was 0.8 to 1.
The Company is excited as it looks forward to continued drilling activity weighted to high rate light oil opportunities.
Operations Update
Irricana
Breaker has recently seen significant light oil production gains from its horizontal multi-frac drilling development in this large original-oil-in-place pool. All six wells drilled since mid-December have now been completed and brought on stream. As of early April, average production at Irricana has exceeded 2,800 boe per day, well over double the production rates of the property at the time of acquisition. The vast majority of the production gains have been light oil, significantly increasing the Company's oil weighting and netback.
Individual well results continue to meet or exceed expectations, with initial rates improving with time and experience. Breaker's last two wells have performed at initial rates that rank second and third out of the ten drilled to date, with peak measured rates of approximately 800 boe per day each (from field estimates). Notably, both wells were drilled directly beside old wells that had historically performed at below average rates, confirming that the multiple fracture technique can be even more lucrative in less-developed portions of the pool. There is the possibility the multi-frac technology is accessing previously untapped reserves from this very large original-oil and gas-in-place reservoir.
From field estimates, average drill, complete and tie-in costs per well for the six well program were $2.8 million, a reduction of almost $1 million from the all-in costs for the first well drilled in 2007. It is anticipated that further experience and refinement of techniques could continue to drive costs lower.
Twenty three locations remain in inventory at 400 metre inter-well spacing, with an additional 57 possible at 200 metre inter-well spacing. A waterflood study and design is ongoing, and pilot injection is planned for later in 2008 which could significantly increase light oil recovery in this large pool.
Due to high rate wells outperforming expectations, some minor facility upgrades will be addressed throughout 2008 to ensure future production growth can continue to come on-stream in a timely fashion.
After breakup, the Company plans to increase its exploitation of the property's natural gas opportunities, including a horizontal re-entry targeting potential high-rate Pekisko gas, and several bypass pay recompletions.
Girouxville
At Girouxville, Breaker continued its recent 100 percent success rate in discovering new oil pools. Three more gross wells (1.5 net) were completed in the first quarter, adding approximately 225 bbls per day net of light sweet oil. Breaker's two discovery wells (1.5 net) drilled in late 2007 continue to produce at combined rates of more than 300 bbls/d net to Breaker, with one well producing under Good Production Practice and the other producing at an MRL-limited rate. Additional uphole pay zones behind pipe have also been identified.
Tie-in projects that connect most new wells to the main Breaker battery site are now complete. These new pipelines will result in 2008 operating cost savings of approximately $2 million net through the elimination of costly trucking seen in the fourth quarter of 2007.
Because most locations in this core area are new pool wildcats and all are greater than 2000 metres in depth, Breaker anticipates that the new 'unintended consequences' New Royalty Framework royalty holiday for deep oil exploration will greatly benefit future drilling programs. As Breaker's average all-in well cost in the area is approximately $2 million, the $1 million maximum royalty holiday will effectively pay half the well cost of a successful well, greatly speeding payout via initial netbacks exceeding $100 per barrel with current oil prices.
In light of high oil prices and Breaker's extensive and growing drilling inventory, 6 gross locations are currently being prepared for potential summer drilling.
East Prairie
At East Prairie, the Company has completed its winter drilling program with four more successful wells. The Viking light oil pool discovered by Breaker continues to expand with new drillers extending the oil leg to the north and south. The 8-17 well drilled late in 2007 is presently producing at a gross rate of 135 bbls per day and the more recent 2-21 success has recently been equipped and is producing at 90 bbls per day (Breaker 75% working interest in both wells).
All new wells in the pool are tied in to the recently completed central battery which has significantly reduced operating costs.
Breaker has made significant progress in waterflood implementation. On May 2nd Breaker received ERCB approval for an Enhanced Recovery Scheme. Breaker will have the waterflood in full operation in 2008. An excellent water source well was completed and tested last year. Independent reserve evaluators estimate that oil recoveries will double with the implementation of a waterflood.
Southeast Alberta
At Provost three gas wells brought on stream in mid March continue to produce at a combined rate of 500 mcf per day. Breaker is in the process of commencing injection at both its sizeable water flood of a medium gravity oil pool and its innovative enhanced recovery scheme on its large heavy oil pool. Post breakup, Breaker plans to drill eight wells and tie in several standing wells.
At Medicine Hat, Breaker drilled its ninth successful well into a regionally extensive gas charged sand, with plans to drill four more wells in the second quarter to further exploit the Company's drilling inventory of more than 50 defined locations in the area.
Monias, British Columbia
Breaker has a 100% working interest in a deep Devonian reef play with potential target size of 1 TCF (unrisked). In April, the Company finished shooting a 20 square mile proprietary 3D seismic program spanning the prospect area. The seismic data is currently in processing and will help direct drilling activity planned for later in 2008.
Outlook
Breaker has had an excellent start to 2008 with the operations it performed in the first quarter and it's prospects for continued per share growth in reserves, production and cash flow are excellent. The Company is well positioned with a base of operated, long-life natural gas and light oil reserves and production.
Breaker is well positioned to meet or exceed its 2008 guidance.
Financial Statements and Management's Discussion and Analysis
Breaker has filed with Canadian securities regulatory authorities its unaudited financial statements for the quarter ended March 31, 2008 and the accompanying Management's Discussion and Analysis. These filings are available for review at www.sedar.com.
Breaker Energy Ltd. is a junior oil and gas company focused on creating shareholder value by growing per share production and reserves through acquisitions and a focused exploration, development and exploitation plan.
Breaker has 36,341,571 Class A shares and 900,000 Class B shares outstanding as at May 6, 2008.
Breaker Energy trades on the TSX under the symbols WAV.A and WAV.B.
Forward-looking Statements
This press release contains forward-looking statements including management's assessment of future plans and operations, expectations of future production, cash flow and earnings. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (e.g. operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses and health, safety and environmental risks), acquisitions, commodity price and exchange rate fluctuation and uncertainties resulting from competition from other producers and ability to access sufficient capital from internal and external sources. Additional information on these and other factors that could affect Breaker's operations and/or financial results are included in Breaker's reports on file with Canadian securities regulatory authorities. The forward-looking statements contained in this press release are made as of the date hereof and Breaker undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boe/d means barrel of oil per day.
In this press release: (i) mmboe means million boe; (ii) boe/d means boe per day; (iii) bbls/d means barrels per day; (iv) mcf means thousand cubic feet; (v) mmcf means million cubic feet; (vi) mcf/d means thousand cubic feet per day; and (vii) mmcf/d means million cubic feet per day.
The TSX does not accept responsibility for the adequacy or accuracy of
this release.
%SEDAR: 00021180E