CALGARY, May 6 /CNW/ - Breaker Energy Ltd. ("Breaker" or "Company") (TSX: WAV) is pleased to announce its financial and operating results for the quarter ended March 31, 2009.
Financial and Operating Summary
Quarter Ended
March March % Change
31, 31,
2009 2008
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Financials ($000s except per share amounts)
Oil and NGL sales 13,514 21,844 (38)
Natural gas sales 10,884 11,021 (1)
Processing sales 277 243 14
Total oil, natural gas and NGL revenue 24,675 33,108 (25)
Funds from operations(1) 7,943 19,283 (59)
Per share basic ($) 0.18 0.52 (65)
Per share diluted ($) 0.18 0.51 (65)
Net earnings (loss) (5,750) 6,544 (188)
Per share basic ($) (0.13) 0.18 (172)
Per share diluted ($) (0.13) 0.17 (176)
Capital expenditures(2) 22,990 30,903 (26)
Net debt (end of period) 100,321 62,562 60
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Operating Highlights
Production:
Oil and NGL (bbls per day) 3,159 2,484 27
Natural gas (mcf per day) 22,341 15,458 45
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Total (boe per day) (6:1) 6,883 5,060 36
Average realized price:
Oil and NGL ($ per bbl) 47.53 96.63 (51)
Natural gas ($ per mcf) 5.41 7.83 (31)
Realized loss on commodity contracts
($ per boe) (0.24) - nm
Combined average (incl. processing
revenue) ($ per boe) 39.59 71.90 (45)
Netback ($ per boe)
Oil, natural gas and NGL sales 39.59 71.90 (45)
Royalties (8.96) (14.00) (36)
Operating expenses (11.85) (9.37) 26
Transportation expenses (2.25) (2.62) (14)
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Operating netback 16.53 45.91 (64)
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G&A expenses (2.88) (2.54) 13
Interest expense (0.77) (1.16) (34)
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Corporate netback 12.88 42.21 (69)
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Common Shares (000s)
Class A Shares outstanding, end of period 46,030 36,298 27
Weighted average Class A shares 43,307 36,254 19
Weighted average Class B shares - 900 (100)
Conversion of Class B shares
- weighted average(3) - 1,104 (100)
Weighted average basic shares outstanding(3) 43,307 37,358 16
Stock option dilution (treasury method) - 318 (100)
Weighted average diluted shares
outstanding(3) 43,307 37,676 15
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(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
including, acquisition additions net of dispositions.
(3) For the period ended March 31, 2008 the Class B shares were converted
at the quarter-end Class A share price of $8.15 and added to the
Class A shares to calculate basic shares outstanding. On August 13,
2008, the Company converted all of its Class B shares to Class A
shares. Each Class B share was exchanged for 0.8675 of a Class A
Share, resulting in the issuance of 780,753 Class A shares.
Strategic Rebalancing to Oil Development
Breaker has shifted its focus to its various oil projects in light of the recent commodity price environment and to capitalize on recent drilling incentives introduced by the Alberta government. The Company has the flexibility to switch capital within its large portfolio of drilling opportunities.
Breaker's balanced oil and natural gas asset base provides significant opportunity for the Company to shift its capital focus towards oil projects until such time as the natural gas outlook improves. Breaker's oil projects provide a superior rate of return under the new provincial incentive programs, even with current commodity prices. Breaker will continue the successful development of large light oil in place pools at Irricana, Girouxville and East Prairie and medium/heavy oil at Millard and Provost.
Breaker has demonstrated its ability to strategically drill for and acquire high netback light oil and natural gas assets and deliver strong reserve and production growth by applying its technical expertise. The Company's acquisition and operating strategy targets large light oil and natural gas in place pools with low recovery factors. Through waterflood, infill and horizontal drilling and multi-frac completions Breaker grew production in these pools by increasing recovery factors and typically increasing the estimated size of original resource in place through delineation. Using this operating strategy Breaker grew its oil and natural gas liquids production from zero at start up in late 2004 to more than 3,100 boe/d with a production weighting to oil and natural gas liquids of 52 percent in 2008.
Overview and Highlights
- Breaker's average production rate grew to 6,883 boe/d, a 36 percent
increase over the first quarter of 2008 average of 5,060 boe/d and a
three percent increase over the fourth quarter 2008 average of
6,702 boe/d. This occurred even with production and capital deferrals
in the first quarter of 2009. Breaker realized a 46 percent oil and
natural gas liquids weighting in the first quarter of 2009. This
represents Breaker's 18th consecutive quarter of production growth
since inception.
- Breaker achieved 17 percent production per share growth in the first
quarter of 2009 as compared to the same period of 2008.
- In the first quarter of 2009, the Company invested $23.0 million and
achieved a 100 percent success rate drilling three 100 percent
working interest wells, focused at Fireweed and Irricana.
- At Fireweed, Breaker brought two horizontal multi-frac wells on
stream and more than doubled the capacity of its 100 percent working
interest compression facilities. Through these operations, Breaker
has almost tripled production at its Fireweed liquids rich natural
gas resource play in northeast British Columbia.
- Fireweed continues to perform with high production rates. Breaker's
first well, on stream in the first quarter of 2009, produced 91 mboe
after just over two months of production.
- At Irricana, Breaker continues to increase its significant light oil
production with its horizontal multi-frac drilling development.
Breaker drilled two 100 percent working interest light oil wells
during the first quarter of 2009. These wells came on stream at 425
and 325 boe/d respectively.
- At Millard, Breaker drilled a well in the fourth quarter of 2008 with
an initial production rate of 170 bbls/d. The well continues to
perform in line with the best historical wells in the pool.
- The Company began waterflood operations at Breaker's large light oil
discovery at East Prairie. Independent reserve evaluators estimate
that oil recoveries should more than double under waterflood.
- Breaker's large high quality drilling inventory of more than 400
locations includes more than 175 (gross) oil locations. Breaker has
grown oil production by drilling similar locations in past years to
increase access to more than 50 million barrels of oil in place at
Millard, almost 90 million barrels of light oil in place at Irricana
and more than 10 million barrels of light oil in place at East
Prairie from internal estimates. Breaker estimates recovery factor to
date on all three of these pools to be less than five percent.
- At Girouxville, where the company has demonstrated a success rate of
approximately 90 percent drilling light sweet oil discoveries,
Breaker doubled its undeveloped land position and shot its largest
proprietary 3D seismic program to date last year. This significantly
increased Breaker's drilling inventory in the area, most of which
qualify for royalty-free initial production and high initial
netbacks. Breaker has already discovered 13 new light oil pools in
the area, with the best discovery to date testing at initial rates of
1,500 bbls/d with cumulative production to date of over three hundred
thousand barrels.
- Breaker took advantage of the Alberta government's new royalty
incentive programs announced during the first quarter of 2009. The
Company deferred the tie-in of more than 1 mmcf/d in its greater East
Prairie area until April 2009. This ensures an initial crown royalty
rate of five percent. Breaker also delayed the spudding of a well in
its Medicine Hat area in early April 2009 to obtain both the drilling
depth royalty credit and the five percent initial royalty rate.
- Breaker obtained cost savings in all recent projects compared with
prior quarters and remains focused on finding further operational
efficiencies.
- Breaker has an inventory of more than 400 low risk predominantly
light oil and natural gas drilling locations with spacing approvals
in hand. Many of these locations provide very high internal rates of
return and are well placed to take advantage of the recent Alberta
royalty incentives. The Company's current production mix includes
significant light oil weighting which allows for higher than average
netbacks and significant cash flow at current commodity prices.
- Breaker's high quality drilling inventory provides operational
flexibility and puts the Company in a great position to respond to
the changing economic, governmental and commodity price environment
and to increase capital spending should conditions improve during the
year.
Fireweed, British Columbia
Breaker nearly tripled production since acquisition at its Fireweed liquids rich, natural gas resource play in north east British Columbia during the first quarter of 2009. The Company brought two horizontal multi-frac wells on stream and more than doubled the capacity of its 100 percent working interest compression facilities.
Breaker's first horizontal multi-frac well at Fireweed continues to produce at high rates. In its first two and a half months of high rate production ending April 15, 2009, the well produced approximately 91 mboe of cumulative production and had an instantaneous raw production rate of approximately 1,000 boe/d. Breaker notes that this well's decline rate has started to flatten which is consistent with the Company's interpretation that the well has tapped into a large resource.
Breaker successfully treated its second horizontal multi-frac well with eight fracs in mid-March 2009 and tied the well into Breaker's compressor station at the end of March of this year. Field measurements recorded that the well flowed at an average raw rate of approximately 1,000 boe/d (which includes approximately 5.3 mmcf/d of natural gas and approximately 120 bbls/d of natural gas liquids) for the last 24 hours of the test ending the morning of April 3, 2009. Breaker drilled this well in the north end of the property where wells historically produced at lower rates. The Company is pleased with the results as the well has also confirmed gas saturation in previously untested sands. Instantaneous raw gas production on April 15, 2009 was approximately 3 mmcf/d which, when combined with the historical natural gas yields for the field, translates to a sales rate of approximately 570 boe/d for the new well.
Both horizontal wells measured initial bottom hole pressures exceeding 16 MPa at a true vertical depth of approximately 1,645 metres, indicating only a small amount of drainage from over 20 vertical legacy wells which have cumulative production of over 17 bcf.
With Breaker's facility expansion complete, the Company anticipates average total production rates from the Fireweed property of approximately 2,300 boe/d for April 2009, close to triple the production rate when Breaker acquired the property less than one year ago. Due to the high pressure and flow rates of Breaker's two new horizontal wells, a portion of Breaker's pre-existing Fireweed production of approximately 750 boe/d will continue to be curtailed pending completion of the pipeline gathering system looping project planned for the second half of 2009. This project will further enhance the production capability from all wells and accommodate growing volumes in the area.
In addition to the value of the natural gas liquids produced at Fireweed, the high heat content of the gas enables Breaker's Fireweed gas production to obtain a significantly higher sales price per mcf than typical dry gas.
This ongoing success confirms the potential of the Fireweed high rate, liquids rich resource play. Currently, Breaker has identified 14 additional drilling locations in the Doig at Fireweed bringing the Company's total horizontal resource play inventory to approximately 190 potential new locations.
Irricana, Alberta
Breaker continues to increase its significant light oil production at Irricana with its horizontal multi-frac drilling development. Breaker drilled two 100 percent working interest light oil wells during the first quarter of 2009. These wells came on stream at 425 and 325 boe/d respectively. Twelve light oil locations remain in inventory at 400 metre inter-well spacing, with approximately 57 additional locations possible at 200 metre inter-well spacing.
Provost, Alberta
At Provost, Breaker's first horizontal multi-frac well into the extensive Viking sand continues to outperform initial expectations. In four months, the well has produced over 85 mmcf of natural gas and continues to produce over 600 mcf/d. In comparison, the best offset vertical well took over 3.5 years to produce 85 mmcf of natural gas. The improved performance of its first horizontal multi-frac well confirms Breaker's hypothesis that similar horizontal wells will be the key to capturing the large gas-in-place at superior economics to vertical wells. Breaker has identified up to 80 follow up horizontal locations to this well.
Millard, Alberta
In the fourth quarter of 2008, Breaker drilled a well into its large oil-in-place resource and the well continues to perform in line with the best historical wells in the pool. Currently, the well is producing at over 70 bbls/d. Breaker has identified 32 similar drill locations in the pool.
Medicine Hat, Alberta
Breaker drilled one well in the previously defined extensive gas charged sand at Medicine Hat in early April 2009 to capture an initial crown royalty rate of five percent, in addition to the drilling depth royalty credit. Three further wells will be drilled late in the second quarter of 2009 and testing of all four wells will occur early in the third quarter of the year.
East Prairie, Alberta
Breaker commissioned the water injection scheme early in the first quarter of 2009. Independent reserve evaluators estimate that oil recoveries should more than double under waterflood to greater than 25 percent from this large pool of light sweet oil.
Breaker took advantage of the Alberta government's new royalty incentive programs in its greater East Prairie area. Breaker completed the installation of a booster compressor and a 9.6 kilometre pipeline during the first quarter of 2009, however delayed the start-up until April 2 of this year to ensure an initial crown royalty rate of five percent on 100 percent working interest production of approximately 170 boe/d.
Outlook
Breaker has shifted its focus to its various oil projects in light of the recent commodity price environment and to capitalize on recent drilling incentives introduced by the Alberta government. The Company has the flexibility to switch capital within its inventory of more than 400 low risk light oil and natural gas drilling locations.
Breaker's balanced oil and natural gas asset base provides significant opportunity for the Company to shift its capital focus towards oil projects until such time as the natural gas outlook improves. Breaker's oil projects provide a superior rate of return under the new provincial incentive programs, even with current commodity prices. Breaker will continue the successful development of light oil at Irricana, Girouxville and East Prairie and medium/heavy oil at Millard and Provost. Many of these locations provide very high internal rates of return and are well placed to take advantage of the recent Alberta royalty incentives. The Company's current production mix includes significant light oil weighting which allows for higher than average netbacks and significant cash flow at current commodity prices.
Breaker's high quality drilling inventory provides operational flexibility and puts the Company in a great position to respond to the changing economic, governmental and commodity price environment and to increase capital spending should conditions improve during the year.
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, 2009 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 had 46.0 million Class A shares and 4.0 million options outstanding at May 6, 2009.
Breaker Energy trades on the TSX under the symbol WAV.
Forward-looking Statements
This press release contains forward-looking statements. More particularly, this press release contains statements concerning anticipated: (i) capital expenditures for 2009, (ii) exploration and development activities, (iii) average oil & natural gas production during 2009, and (iv) effects on Breaker of the Alberta royalty regime.
The forward-looking statements are based on certain key expectations and assumptions made by Breaker, including expectations and assumptions concerning the performance of existing wells and success obtained in drilling new wells, anticipated expenses, cash flow and capital expenditures and the application of regulatory and royalty regimes.
Although Breaker believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Breaker can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (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), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in Breaker's Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.
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 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 equivalent per day.
In this press release: (i) mcf means thousand cubic feet; (ii) mcf/d means thousand cubic feet per day (iii) mmcf means million cubic feet; (iv) mmcf/d means million cubic feet per day; (v) bbls means barrels; (vi) bbls/d means barrels per day; (vii) bcf means billion cubic feet; (viii) mboe means thousand barrels of oil equivalent; and (ix) MPa means million pascals.
The TSX does not accept responsibility for the adequacy or accuracy of this release.
%SEDAR: 00021180E