CALGARY, Nov. 5 /CNW/ - Breaker Energy Ltd. ("Breaker" or "Company") (TSX: WAV) is pleased to announce its financial and operating results for the quarter ended September 30, 2008.
Financial and Operating Summary
3 Months Ended 9 Months Ended
Sept. Sept. Sept. Sept.
30, 30, % 30, 30, %
2008 2007 Change 2008 2007 Change
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Financials ($000s
except per share
amounts)
Petroleum sales 36,721 13,947 163 93,962 34,981 169
Natural gas sales 13,778 7,356 87 40,119 27,658 45
Processing sales 530 322 65 1,385 753 84
Total petroleum
and natural gas
revenue 51,029 21,625 136 135,466 63,392 114
Funds from
operations(1) 30,216 10,584 186 80,571 31,551 155
Per share basic 0.76 0.29 162 2.06 0.86 140
Per share diluted 0.74 0.28 164 2.02 0.85 138
Net earnings 11,078 607 1,725 31,845 1,943 1,539
Per share basic 0.28 0.02 1,300 0.81 0.05 1,520
Per share diluted 0.27 0.02 1,250 0.80 0.05 1,500
Capital
expenditures(2) 99,773 15,671 537 149,299 42,696 250
Net debt 86,418 47,026 84 86,418 47,026 84
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Operating, General
and Administrative
(G&A)
Production
Crude oil (incl.
natural gas
liquids)
(bbls per day) 3,402 1,993 71 3,019 1,829 65
Natural gas
(mcf per day) 18,408 15,073 22 16,804 15,235 10
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Total (boe per day) 6,470 4,506 44 5,820 4,368 33
Average realized
price:
Crude oil
($ per bbl) 117.34 76.05 54 113.59 70.07 62
Natural gas
($ per mcf) 8.14 5.30 53 8.71 6.65 31
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Combined average
(incl. processing
revenue) 85.73 52.17 64 84.95 53.16 60
($ per boe)
Netback ($ per boe)
Petroleum and
natural gas sales 85.73 52.17 64 84.95 53.16 60
Royalties (16.23) (9.02) 80 (16.83) (9.77) 72
Operating expenses (11.64) (11.77) (1) (10.59) (10.60) -
Transportation
expenses (2.58) (1.63) 58 (2.81) (1.72) 63
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Operating netback 55.28 29.75 86 54.72 31.07 76
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G&A expenses (2.75) (2.84) (3) (2.69) (2.86) (6)
Interest expense (1.69) (1.39) 22 (1.34) (1.36) (1)
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Corporate netback 50.84 25.52 99 50.69 26.85 89
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Common Shares (000s)
Class A Shares
outstanding,
end of period 40,204 35,127 14 40,204 35,127 14
Weighted average
Class A shares 39,713 35,125 13 39,120 35,078 12
Weighted average
Class B shares - 900 Nm - 900 Nm
Conversion of
Class B shares -
weighted average(3) - 1,552 Nm - 1,552 Nm
Weighted average
basic shares
outstanding(3) 39,713 36,675 8 39,120 36,630 7
Stock option
dilution
(treasury method) 981 497 97 740 510 45
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Weighted average
diluted shares
outstanding(3) 40,694 37,172 9 39,860 37,140 7
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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, dispositions, and capitalized
general and administrative expense.
(3) For the period ended September 30, 2007 the Class B shares are
converted at the quarter-end Class A share price of $5.80 and added
to the Class A shares to calculate basic shares outstanding. The
Class B shares were fully converted to Class A shares on August 13,
2008, and therefore were not outstanding at September 30, 2008.
Overview and Highlights
- In the first nine months of 2008 Breaker achieved a 90 percent
success rate drilling 40 gross (35.5 net) wells. Breaker drilled 17
horizontal multi-frac wells at Irricana, as of October 31, 2008. In
the fourth quarter, Breaker plans to drill wells at Fireweed and
Provost using similar horizontal multi-frac technology utilized at
Irricana.
- Breaker achieved record production of 6,470 boe/d in the third
quarter, a 44 percent increase over the third quarter of 2007
production rate of 4,506 boe/d and a 9 percent increase over the
second quarter 2008 average of 5,922 boe/d. The Company expects to
average more than 7,000 boe/d in the fourth 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 third quarter of 2008. This increase in
liquids production was accomplished to take advantage of the high
value of oil relative to natural gas during this time period. In the
third quarter of 2008, 72 percent of revenue resulted from the sale
of oil and natural gas liquids.
- Breaker achieved funds from operations per basic share of $0.76 in
the third quarter, an increase of 162 percent from $0.29 in the same
period of 2007. Funds from operations grew by 186 percent in the
third quarter of 2008 to $30.2 million from $10.6 million in the
third quarter of 2007.
- Net earnings per basic share increased to $0.28 from $0.02 in the
same period of 2007. Net earnings for the third quarter of 2008 were
$11.1 million, driven by increases in production and revenue per boe
in the third quarter of 2008 as compared to the same period of 2007.
- Breaker's operations in the third 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 $55.28
per boe and a corporate netback (defined as operating netback per boe
less G&A and interest expense per boe) of $50.84 per boe.
- On July 15, 2008, the Company completed the acquisition of the
Fireweed petroleum and natural gas property in north-east British
Columbia for $63.75 million, subject to final adjustments. 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 fourth quarter of 2008.
- Concurrent with the Fireweed acquisition, Breaker announced the
issuance of 3,000,000 Class A shares on a bought deal, private
placement basis at an issue price of $11.50 per Class A share for
total gross proceeds of $34.5 million.
- Breaker's revolving credit facility was syndicated and increased to
$125 million during the third quarter. At the end of the third
quarter, Breaker had a working capital deficit including bank debt of
$86.4 million, leaving unutilized borrowing capacity of $38.6
million. Breaker's debt to annualized third quarter 2008 funds from
operations ratio was 0.7 times at the end of the third quarter.
- On August 13, 2008 the Company completed the conversion of its Class
B shares into Class A shares. Each Class B Share was exchanged for
0.8675 of a Class A Share. In total 900,000 Class B shares were
converted into 780,753 Class A shares. As a result of the conversion,
the Class B Shares were delisted at the close of trading on the TSX
on Friday, August 8, 2008, and the Class A Shares are now listed on
the TSX under the symbol "WAV".
Operations Update
Irricana, Alberta
Breaker continues to increase its significant light oil production at Irricana with horizontal multi-frac drilling development drilling four wells in the third quarter of 2008. Three wells were placed on production in mid-September with the fourth starting production at the end of October. Each of the new wells has produced at average initial rates of approximately 500 boe/d per well.
Additionally, Breaker tested an innovative packer technology development in mid-July through restimulation of an existing producing well. This well has been back on production for over three months and continues to produce at rates 100 percent greater than those before the stimulation. 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.
Breaker commissioned a pipeline loop of the major gathering system line from the main field satellite to the oil battery. This pipeline loop allows for additional production volumes to be brought on stream without affecting existing production. Minor facility modifications are ongoing to ensure future production growth can be brought on in a timely manner.
Breaker plans to drill two wells in the fourth quarter. As of year-end, fourteen locations remain in inventory at 400 metre inter-well spacing with an additional 57 possible at 200 metre inter-well spacing. Breaker received regulatory approval for the pilot waterflood scheme and injection is expected to commence later in 2008. A successful waterflood pilot could lead to a significant increase in light oil recovery in this large pool.
Girouxville, Alberta
Breaker continued drilling deep light oil exploratory prospects that qualify for the one million dollar maximum royalty holiday. Three gross (1.5 net) wells were drilled during the quarter with a 67 percent success rate. Approximately 150 bbls/d (net) of production has commenced as a result of new discoveries in the third quarter of 2008. The 7-3-76-22W5 well drilled during the second quarter received GPP approval effective November 1, 2008 at which time will produce at an unrestricted rate of 350 bbls/d (160 bbls/d net) of light sweet oil.
Breaker successfully acquired significant exploratory acreage at land sales in Q3, more than doubling its holdings of undeveloped land in the area.
East Prairie, Alberta
In May, Breaker received regulatory approval for an Enhanced Recovery Scheme and downspacing for two wells per quarter section to be drilled on the lands encompassing the waterflood area of the Viking light oil pool. Independent reserve evaluators estimate that oil recoveries will double with the implementation of a waterflood.
Pipeline work at the Viking light oil pool waterflood project is complete, facility work is underway, and the final step of converting a well to injection will occur after freeze-up. Breaker captured an opportunity to save considerable capital costs by delaying the conversion of the water injector until freeze-up. This operation is expected to be complete by the end of November at which time the waterflood will commence.
Breaker drilled one gross (0.75 net) well in the third quarter of 2008 and completed drilling 1 gross (0.75 net) well early in the fourth quarter, adding initial production of approximately 75 bbls/d (net). The Company is well positioned for further infill drilling of this high quality reservoir of light oil.
Provost, Alberta
Breaker had greater than 90 percent success at Provost, with 11 of 12 wells drilled in the third quarter 2008 being successful for their primary target. Breaker also re-completed two additional wells. Results on all successful wells were at or above Company expectations. One exploratory well encountered seven potentially productive zones, with two zones completed and placed on production. The first zone produces at approximately 300 mcf/d while the second is shut-in pending installation of an H2S scavenger tower to remove trace amounts of H2S. Initial production rates for the second zone are in excess of 500 mcf/d. Breaker also discovered a new heavy oil pool that tested at rates exceeding 40 bbls/d of oil. A recently completed proprietary 3-D seismic program is being evaluated to define follow up drilling locations to both wells.
Breaker achieved higher than expected production rates from a number of wells in the program at Provost. Two oil wells swab tested at rates greater than 50 bbls/d each, both being extensions to two of Breaker's main oil pools in the area, one of which is currently under waterflood. In addition, a vertical well in the Viking sand tested in excess of 500 mcf/d at high flowing pressure. This is the second highest test rate from over 50 wells drilled by Breaker in this unconventional Viking resource play.
In the fourth quarter, Breaker plans to drill its first horizontal multi-frac well into the Viking sand. The technology is being applied successfully in similar zones in Saskatchewan, and Breaker anticipates horizontal multi-frac technology will significantly increase the profitability of drilling in the area. In addition, injection for the innovative enhanced recovery scheme on Breaker's large heavy oil pool will commence in the fourth quarter of 2008.
Monias, British Columbia
At its deep gas exploration play in Monias, British Columbia, Breaker recently drilled and cased its re-entry to a total measured depth of 4360m, completely penetrating the thick Leduc Reef target at a bottom hole location approximately 200m away from the original wellbore. Approximately 190m of true vertical thickness of dolomite was encountered, significantly more than in the original wellbore. Based on log analysis, overall reservoir quality throughout this very thick target zone did not materially improve compared to the original tight reservoir intersected historically. However, several metres of possible net pay are indicated from log analysis. This possible pay zone corresponds to the best mud gas show seen while drilling through the thick target zone.
Breaker has several other drilling locations in the vicinity as defined on proprietary 3D seismic and will complete this possible pay zone to define potential gas charge and reservoir characteristics. The drilling operation finished significantly under budget, validating the Company's strategy of advancing its understanding of this high-impact play through a low-cost re-entry.
Fireweed, British Columbia
Breaker commenced operations at Fireweed in July 2008. The area has experienced very little decline since acquisition and has recently produced at approximately 800 boe/d of natural gas and natural gas liquids. 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. Breaker plans to drill the property using horizontal multi-frac wells, similar to developments elsewhere in the Montney/Doig formations of British Columbia. This is Breaker's third horizontal multi-frac resource play property in addition to Irricana and Provost.
Breaker is using 3-D seismic and reservoir technical data to position the first horizontal well which is expected to spud in the fourth quarter 2008. Based on 500 meter inter-well spacing, a 16 well program is contemplated for the substantially undrained portion of this resource play. Additionally, Breaker has commenced the evaluation of the potential of the approximately 8,000 acres of undeveloped Montney rights included in the acquisition.
Outlook
Breaker had an excellent first nine months of 2008 and achieved a 90 percent success rate drilling 40 gross (35.5 net) wells and has excellent prospects for continued per share growth in reserves, production and funds from operations. The Company is well positioned with a base of operated, long- life natural gas and light oil reserves and production, an inventory of more than 400 primarily development drilling locations and a strong balance sheet.
Breaker's full year 2008 guidance assumes average fourth quarter pricing of US$70.00/bbl WTI, CDN$7.25/mcf AECO and US$/CDN$0.825. Average production rate 6,200 boe/d Exit production rate 7,700 boe/d Funds from operations $103 million Funds from operations per basic share $2.62 Capital program $190 million Year-end debt $105 million Authorized bank line $125 million Unused bank line capacity $20 million Debt/trailing funds from operations 1.0 times
Financial Statements and Management's Discussion and Analysis
Breaker filed with Canadian securities regulatory authorities its unaudited financial statements for the quarter ended September 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 trades on the TSX under the symbol WAV.
Breaker has 40.2 million Class A Shares and 3.8 million Options outstanding as at November 5, 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 fourth 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) funds from operations for 2008, (v) capital expenditures for 2008, (vi) year end debt, (vii) annualized Q4 debt to funds from operations, (viii) exploration and development activities, and (ix) plans to decrease the future depletion per boe amount by adding reserves on previous acquisitions through the drill bit at a lower cost per boe.
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