CALGARY, July 31 /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 June 30, 2008.
Financial and Operating Summary
3 Months Ended 6 Months Ended
June June % June June %
30, 30, Change 30, 30, Change
2008 2007 2008 2007
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Financials
($000s except per share
amounts)
Petroleum sales 35,398 11,383 211 57,242 21,034 172
Natural gas sales 15,320 10,396 47 26,341 20,302 30
Processing sales 611 233 162 854 431 98
Total petroleum and
natural gas revenue 51,329 22,011 133 84,437 41,767 102
Funds from operations(1) 31,072 11,757 164 50,355 20,967 140
Per share basic 0.84 0.32 163 1.36 0.57 139
Per share diluted 0.82 0.32 156 1.34 0.57 135
Net earnings 14,223 1,523 834 20,767 1,336 1454
Per share basic 0.38 0.04 850 0.56 0.04 1300
Per share diluted 0.37 0.04 825 0.55 0.04 1275
Capital expenditures(2) 18,623 7,087 163 49,526 27,025 83
Net debt 55,921 41,904 33 55,921 41,904 33
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Operating, General and
Administrative (G&A)
Production
Crude oil
(bbls per day) 3,167 1,806 75 2,826 1,745 62
Natural gas
(mcf per day) 16,530 15,881 4 15,994 15,317 4
Total (boe per day) 5,922 4,453 33 5,491 4,298 28
Average realized price:
Crude oil ($ per bbl) 122.83 69.26 77 111.31 66.60 67
Natural gas ($ per mcf) 10.19 7.19 42 9.05 7.32 24
Combined average
(incl. processing
revenue) ($ per boe,) 95.25 54.32 75 84.49 53.70 57
Netback ($ per boe)
Petroleum and natural
gas sales 95.25 54.32 75 84.49 53.70 57
Royalties (19.90) (8.92) 123 (17.18) (10.17) 69
Operating expenses (10.48) (9.91) 6 (9.97) (9.98) -
Transportation expenses (3.24) (1.77) 83 (2.95) (1.77) 67
Operating netback 61.63 33.72 83 54.39 31.78 71
G&A expenses (2.76) (2.96) (7) (2.66) (2.86) (7)
Interest expense (1.13) (1.33) (15) (1.14) (1.36) (16)
Corporate netback 57.74 29.43 96 50.59 27.56 84
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Common Shares (000s)
Class A Shares
outstanding, end of
period 36,416 35,124 4 36,416 35,124 4
Weighted average
Class A shares 36,364 35,124 4 36,309 35,054 4
Weighted average
Class B shares 900 900 - 900 900 -
Conversion of Class B
shares - weighted
average(3) 717 1,449 (51) 717 1,449 (51)
Weighted average basic
shares outstanding(3) 37,081 36,573 1 37,026 36,503 1
Stock option dilution
(treasury method) 1,014 489 107 585 467 25
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Weighted average diluted
shares outstanding(3) 38,095 37,062 3 37,611 36,970 2
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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,
acquisition additions, dispositions, and capitalized general and
administrative expense.
(3) For the period ended June 30, 2008 the Class B shares are converted
at the quarter-end Class A share price of $12.55 and added to the
Class A shares to calculate basic shares outstanding. For the period
ended June 30, 2007 the Class B shares are converted at the
quarter-end Class A share price of $6.21.
Overview and Highlights
The second quarter of 2008 was Breaker's most successful in its history, achieving record production, funds from operations and net income. At Irricana 2 gross (2.0 net) horizontal wells were drilled and completed with the Packers Plus multi-frac technology. As of July 31, 2008 Breaker has drilled 14 horizontal wells with multi-frac completions. Breaker continued development in the Medicine Hat area drilling 4 gross (4.0 net) wells and exploring at Girouxville where 1 gross (0.5 net) well was drilled.
- Breaker achieved record production of 5,922 boed in the second
quarter, a 33 percent increase over the second quarter of 2007
production rate of 4,453 boed and a 17 percent increase over the
first quarter 2008 average of 5,060 boe per day. The Company
expects to average more than 6,800 boe per day in the third quarter
and reiterates its guidance of average production of 6,375 boe per
day for 2008.
- Oil and natural gas liquids production increased entirely through
the drill bit by 75 percent, increasing from 1,806 bbls/d in the
second quarter of 2007 to 3,167 bbls/d in the second quarter of
2008.
- Breaker's oil and natural gas liquids weighting based on production
has increased from 30 percent in the first quarter of 2006 to a 53
percent weighting in the second quarter of 2008 with 69 percent of
revenue in the second quarter of 2008 resulting from the sale of
oil and natural gas liquids. Breaker forecasts an average
production weighting to oil and natural gas liquids of 51 percent
for 2008.
- Breaker achieved record funds from operations per basic share of
$0.84 in the second quarter, an increase of 163 percent from $0.32
in the same period of 2007. Funds from operations grew by 164
percent in the second quarter of 2008 to $31.1 million from $11.8
million in the first quarter of 2007.
- Net earnings per basic share increased by more than 800 percent to
$0.38 from $0.04 in the same period of 2007. Net earnings for the
second quarter of 2008 were $14.2 million, driven by increases in
production and revenue per boe in the second quarter of 2008 as
compared to the same period of 2007.
- Breaker's operations in the second 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 $61.63 per boe and a corporate netback (defined as
operating netback per boe less G&A and interest expense per boe) of
$57.74 per boe.
- On June 23, 2008, the Corporation entered into an agreement to
acquire the Fireweed petroleum and natural gas property in
north-east British Columbia for cash of $63.75 million, subject to
final adjustments, with a deposit of $6.375 million paid to the
vendor on that same date. The acquisition closed on July 15, 2008.
This property is Breaker's third multi-frac horizontal resource
play property, in addition to its ongoing light oil success at
Irricana and the Company's large tight gas resource play at
Provost. The first multi-frac horizontal wells at both Provost and
Fireweed are planned for the second half of 2008.
- Concurrent with the acquisition Breaker announced the issuance of
3,000,000 subscription receipts for Class A Shares on a bought
deal, private placement basis at an issue price of $11.50 per
Subscription Receipt to raise gross proceeds of $34.5 million. The
financing closed on July 15, 2008.
- Breaker's bank line was increased to $125 million early in the
third quarter and management forecasts a conservative level of
leverage at year-end with a debt to annualized fourth quarter 2008
funds from operations ratio of 0.7. At the end of the second
quarter, Breaker's debt to annualized second quarter 2008 funds
from operations ratio was 0.5.
Dan O'Neil, President & CEO, stated that "the Company is excited as it looks forward to continued drilling activity weighted to high rate light oil opportunities."
Operations Update
Irricana
Breaker has continued to realize significant light oil production gains from its horizontal multi-frac drilling development. Due to the usual break up period in the second quarter, two new wells were drilled and completed as compared to the six new wells in the first quarter. However, average production for the second quarter exceeded 2,900 BOE/d, an increase of 30% over the first quarter average due to the prolonged strong performance of the first quarter drills, and the success of the two new completions.
The results from the two new wells support the high quality and potential of the Swalwell pool. The first well completed encountered some mechanical difficulties in placing the multi-frac liner, resulting in the ability to place only half of the planned frac intervals. However, initial produced volumes were comparable to some of the best clean-up rates achieved to date, at over 800 boe/d. The second well is located in an area where historically poor (unfracced) production performance was observed, but initial rates are also analogous to the top quartile of producers in the pool. These results continue to support the likelihood the multi-frac technology is accessing previously untapped hydrocarbons from this very large original-oil and solution gas-in-place reservoir.
There are currently two rigs drilling in the field. Additionally, an innovative development in packer technology was tested mid-July in a restimulation of an existing producer.
Twenty one 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.
Breaker also maintains a diverse portfolio of gas prospects in Irricana, one of which was tested in early July. An uphole horizon was successfully fracture stimulated in a bypassed pay interval of an existing well, the results of which are currently being evaluated along with potential follow up locations.
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.
Girouxville
At Girouxville, Breaker is capitalizing on its recent 100 percent success rate and large inventory of deep light oil exploratory prospects that qualify for the $1 million maximum royalty holiday. The 7-3-76-22W5, drilled during the second quarter, has initial production rates of 375 bbls/d (170 bbls/d net) of light sweet oil with netbacks near $120/bbl based on mid-July oil prices. A four gross (2 net) well program with multi-zone targets supported by joint proprietary 3D seismic was kicked off early in the third quarter. The first well in this program was completed in the Granite Wash formation, with Beaverhill Lake sand still behind pipe, and tested at rates over 500 bbls/d (250 bbls/d net) light, sweet oil. Additional operated wells at varying working interests and increased seismic acquisitions are also planned.
East Prairie
At East Prairie, performance of the wells drilled during the winter program has remained strong. Production from the property over the 2nd quarter has averaged above 1,200 boe/d net to the Company, of which 325 boe/d is light sweet oil. On May 2nd Breaker received ERCB approval for an Enhanced Recovery Scheme for the Viking Oil Pool. The ERCB also granted a Holding disposition on May 23rd which allows for 2 wells per quarter section to be drilled on the lands encompassing the waterflood area of the Viking light oil pool. Progress on this waterflood project has accelerated with full operation now expected by the end of September 2008. Independent reserve evaluators estimate that oil recoveries will double with the implementation of a waterflood.
As a result of the down spacing approval and strong performance of the Viking oil producers, Breaker has initiated a 3 gross (2.25 net) well program which will be completed during the 3rd quarter 2008. The first well in this program has been drilled and encountered 2.5m of pay in the Viking light oil sand. The Company is well positioned for further infill drilling immediately after the shooting and interpretation of a 3D seismic program, planned for the winter of 2008/2009.
Southeast Alberta
At Medicine Hat Breaker drilled four wells, two of which confirmed extension to the North of the previously defined regionally extensive gas charged sand. Both wells will be brought on production in the third quarter, bringing Breaker's total number of producing wells in this sand to 11.
At Provost, injection commenced at Breaker's sizeable water flood of a medium gravity oil pool. Injection for the innovative enhanced recovery scheme on its large heavy oil pool is expected to commence in the third quarter, pending receipt of final ERCB approval.
Breaker has commenced a sizeable third quarter drilling program consisting of 14 wells, with encouraging results to date. One well encountered 7 potentially productive zones, with two zones having been completed and tested. The zones tested a combined 450 mcf/d at high flowing pressures, indicating strong initial deliverability. A 3D seismic program is planned for the fall to further identify follow up drilling locations in this unconventional Viking resource play. Late in the quarter, Breaker will drill its first horizontal well using multiple fracturing technology into the Viking sand. The technology is being applied successfully in similar zones in Saskatchewan, and Breaker anticipates success on this well will significantly increase the profitability of future drilling in the area. In addition to the drilling, four wells will be re-completed and three standing wells will be tied in.
Monias, British Columbia
Breaker's 100% working interest deep Devonian reef play is progressing with the 3D seismic program now complete and interpreted. A re-entry of the existing deep well is planned for the 4th quarter pending rig availability.
Fireweed, British Columbia
Breaker has closed the acquisition of the Fireweed property currently producing approximately 850 boe/day of natural gas and natural gas liquids in British Columbia. The current production consists of vertical wells producing from an extensive tight gas sand, with up to 55 meters of gross pay in the Triassic Doig formation. The company plans to drill the property using multi-frac horizontal wells, similar to developments elsewhere in the Montney/Doig formations of British Columbia. This is Breaker's third multi-frac horizontal resource play property, in addition to ongoing light oil success at Irricana and the large tight gas resource play at Provost.
3D seismic and other technical data were evaluated and the first horizontal well location is now expected to spud in the 4th quarter. Based on 500 meter inter-well spacing, a 16 well program is contemplated for the substantially undrained portion of this resource play.
Appointment of New Vice President, Business Development
Breaker is pleased to announce the appointment of Doug Seams to the position of Vice President, Business Development. Doug is a registered Professional Engineer in Alberta and Texas with 22 years of varied oil and gas activities and is the author of 6 patents. Prior to joining Breaker, Doug was President of CDX Gas Canada. He has worked in both the United States and Canada and has extensive experience in economics, large scale project management, and unconventional gas. Doug is a petroleum engineering graduate of Texas A&M University.
Conversion of the Class B Shares to Class A Shares
Breaker has elected to convert all of its outstanding Class B Shares to Class A Shares effective August 13, 2008. Upon conversion, each Class B Share will be exchanged for 0.8675 of a Class A Share. The conversion ratio was arrived at by dividing $10.00 by $11.5272, being the weighted average trading price of the Class A Shares on the TSX for the thirty day period beginning on June 18, 2008. Registered holders of Class B Shares will be mailed certificates for Class A Shares following the conversion date and do not need to submit their certificates for Class B Shares to Breaker. A notice of conversion will be mailed to all of the registered holders of Class B Shares.
The conversion of the Class B shares will result in the issuance of 780,749 Class A shares. Breaker estimates that it will have approximately 40,201,486 Class A shares outstanding following the conversion of the Class B shares.
Outlook
Breaker had an excellent first half of 2008 achieving a 90 percent success rate drilling 20 gross (18.0 net) wells and has great prospects for continued per share growth in reserves, production and cash flow. The Company is well positioned with a base of operated, long-life natural gas and light oil reserves and production, a drilling inventory of more than 400 locations and a strong balance sheet.
Breaker is well positioned to meet or exceed its 2008 guidance.
The guidance below assumes US$105.00/Bbl WTI, CDN$9.50/mcf AECO and US$/CDN$1.00 for 2008.
Average Production Rate 6,375 boe/d Exit Production Rate 7,700 boe/d Cash flow $104 million Cash flow per basic share $2.70 Capital Program $174 million Year-End Debt $89 million Authorized Bank Line $125 million Unused Bank Line Capacity $36 million Q4 Annualized Debt to Cash Flow 0.7 times
Financial Statements and Management's Discussion and Analysis
Breaker has filed with Canadian securities regulatory authorities its unaudited financial statements for the quarter ended June 30, 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 Energy trades on the TSX under the symbols WAV.A and WAV.B.
Breaker has 39,420,737 Class A shares and 900,000 Class B shares outstanding as at July 31, 2008.
Forward-looking Statements
This press release contains forward-looking statements. More particularly, this press release contains statements concerning anticipated: (i) average oil and gas production for the third quarter of 2008 and for the full year 2008, (ii) weighting of oil and natural gas production, (iii) year end exit rate of production, (iv) cash flow for 2008, (v) capital expenditures for 2008, (vi) year end debt, (vii) annualized Q4 debt to cash flow and (viii) exploration and development activities.
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'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 equivalent 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