CALGARY, March 18 /CNW/ - Breaker Energy Ltd. ("Breaker" or "Company") (TSX: wav) is pleased to announce its financial and operating results for the quarter and year ended December 31, 2008.
Financial and Operating Summary
Year Quarter
ended % ended %
December December Change December December Change
31, 31, 31, 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Financial ($000s
except per
share amounts)
Petroleum sales 113,702 48,949 132 19,740 13,968 41
Natural gas sales 52,507 36,623 43 12,388 8,966 38
Processing sales 1,983 1,061 87 597 306 95
Total petroleum
and natural gas
revenue 168,192 86,633 94 32,726 23,240 41
Funds from
operations(1) 94,947 41,384 129 14,376 9,833 46
Per share
basic ($) 2.46 1.13 118 0.35 0.27 30
Per share
diluted ($) 2.43 1.11 119 0.35 0.26 35
Net earnings 32,166 3,999 704 321 2,057 (84)
Per share
basic ($) 0.83 0.11 655 0.01 0.06 (83)
Per share
diluted ($) 0.82 0.11 645 0.01 0.06 (83)
Capital
expenditures(2) 183,512 61,954 196 34,211 19,258 78
Net debt
(end of period) 99,700 51,155 95 99,700 51,155 95
-------------------------------------------------------------------------
Operating Highlights
Production:
Crude oil
(bbls per day) 3,141 1,833 71 3,503 1,845 90
Natural gas
(mcf per day) 17,404 15,444 13 19,192 16,066 20
Total (boe
per day) (6:1) 6,041 4,407 37 6,702 4,523 48
Average realized price:
Crude oil
($ per bbl) 98.91 73.17 35 61.25 82.29 (26)
Natural gas
($ per mcf) 8.24 6.50 27 7.02 6.07 16
Hedging
($ per boe) - (0.34) nm - - -
Combined average
($ per boe) 76.07 53.52 42 53.08 55.85 (5)
Netback ($ per boe)
Petroleum and
natural gas
sales 76.07 53.52 42 53.08 55.85 (5)
Royalties (14.89) (9.64) 54 (9.89) (9.25) 7
Operating
expenses (11.09) (11.52) (4) (12.37) (14.14) (13)
Transportation
expenses (2.97) (1.87) 59 (3.38) (2.31) 46
-------------------------------------------------------------------------
Operating netback 47.11 30.49 55 27.44 30.15 (9)
-------------------------------------------------------------------------
G&A expenses (2.65) (2.99) (11) (2.56) (3.36) (24)
Interest
expense (1.29) (1.41) (9) (1.15) (1.56) (26)
-------------------------------------------------------------------------
Corporate netback 43.17 26.09 65 23.73 25.23 (6)
-------------------------------------------------------------------------
Common Shares (000s)
Shares outstanding,
end of period 41,028 37,144 11 41,028 37,114 11
Weighted average
Class A shares 38,609 35,192 10 40,508 35,529 14
Weighted average
Class B shares - 900 nm - 900 nm
Conversion of
Class B shares
- weighted
average(3) - 1,500 nm - 1,500 nm
Weighted average
basic shares
outstanding(3) 38,609 36,692 5 40,508 37,029 9
Stock option
dilution
(treasury method) 533 469 14 193 351 (45)
Weighted average
diluted shares
outstanding(3) 39,142 37,161 6 40,701 37,380 9
-------------------------------------------------------------------------
(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 December 31, 2007 the Class B shares were
converted at the quarter-end Class A share price of $6.00 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.
Overview and Highlights
- Breaker is proud to have continued its consistent track record of
rapidly building shareholder value in 2008. Breaker increased
production per share, reserves per share and funds from operations per
share in 2008.
- In 2008 Breaker achieved a success rate of 90 percent (gross) in
drilling 48 gross (42.8 net) wells.
- Breaker's inventory of well locations that make use of horizontal
multi-frac technology continues to grow with a total of more than 160
horizontal multi-frac locations at Fireweed, Provost and Irricana.
- Production grew by 37 percent to an average of 6,041 boe per day from
the 2007 average of 4,407 boe per day, with an oil weighting of
52 percent.
- Proved plus Probable reserves grew by 51 percent, to 27.2 million boe
at December 31, 2008 from 18.0 million boe at year-end 2007.
- Funds from operations grew by 129 percent to $94.9 million in 2008
from $41.4 million in 2007.
- Production per basic share grew by 29 percent, Proved plus Probable
reserves per share grew by 43 percent and funds from operations per
share grew by 118 percent in 2008.
- Breaker continued its track record of achieving exceptional finding,
development and acquisition (FD&A) costs in 2008. Breaker's proved
plus probable FD&A costs before change in future development capital
for 2008 were $16.09 per boe. Including the change in future
development capital (discounted at 10 percent) estimated at
$47.4 million, Breaker's FD&A costs were $20.25 per boe in 2008.
Breaker's capital program for 2008 totalled $183.5 million.
- Based on fourth-quarter 2008 average production of 6,702 boe per day
and proved plus probable reserves of 27.2 million boe, Breaker's
reserve-life-index was 11.1 years at year-end 2008.
- During 2008, Breaker's average operating netback (defined as revenue
net of commodity derivatives per boe, less royalties per boe,
operating costs per boe and transportation costs per boe) was
$47.11 per boe. This high netback has resulted from Breaker's focus on
building a large, high quality inventory of drilling locations with
the flexibility to switch between predominantly light oil and natural
gas prospects.
- Breaker's recycle ratio (defined as the average operating netback per
boe divided by Proved plus Probable FD&A costs per boe) in 2008 was
2.9 times excluding future development capital and 2.3 times including
future development capital (discounted at 10 percent).
- On a per share basis net income increased 655 percent to $0.83 per
basic share in 2008 compared to $0.11 per basic share in 2007. Net
income was $32.2 million in 2008, an increase of over 705 percent from
$4.0 million in 2007.
- Breaker completed a $34.5 million common equity financing in July 2008
in conjunction with the acquisition of the Fireweed property and a
$7.0 million flow-through equity issue in November 2008 for total
gross proceeds of $41.5 million.
- Breaker also increased its bank line from $95 million to $125 million
in 2008 and converted its Class B shares in August 2008. With the
conversion of the Class B shares Breaker now has one class of shares
outstanding and trades under the symbol WAV on the TSX.
- Breaker's year-end debt to trailing 2008 funds from operations ratio
was 1.1 times. Breaker's year-end debt to annualized fourth quarter
funds from operations ratio was 1.7 times.
- Subsequent to year-end, in February 2009 Breaker issued $16.1 million
of equity to further enhance its balance sheet.
Operations Update
Fireweed, British Columbia
Breaker is very pleased with its first full month of production from its first horizontal multi-frac well at its wholly-owned Doig/Montney gas resource property in Fireweed, British Columbia. From its field production estimates and internal benchmarking studies based on public production data, Breaker believes that the well's first-month daily average production of approximately 1,540 boe/d is superior to all known horizontal wells in analogous deep basin Montney reservoirs. This benchmarking data set includes 181 producing horizontal wells drilled since January 2006 with public production data available up to year end 2008.
Initially tested at approximately 10 mmcf/d, the well produced an average of approximately 7.8 mmcf/d during February, with an additional 240 bbls/d of natural gas liquids, to total approximately 1,540 boe/d for the month. Entering March, the well was still producing at a strong daily rate of approximately 1,460 boe/d. Included in these numbers are estimated H2S content of 3.9 percent and CO2 content of 1.5 percent, both lower than the initial test. All numbers are raw gas and liquids production from field estimates. On an acid-gas free basis and after separation from lease condensates, the heating value of the gas is at least 1,225 btu/cf, enabling the Fireweed gas to obtain a significantly higher sales price per mcf than typical dry gas.
This industry-leading well was completed with six fracture treatments. The Company is investigating an increase in the number of frac treatments on subsequent wells to further improve results.
Due to the high pressure and flow rates of the new well, nearly all of Breaker's pre-existing Fireweed production of approximately 750 boe/d was backed out during the month of February. The Company is currently undertaking facility modifications to be completed before the end of the first quarter to accommodate production from its second multi-frac well. In addition, looping of the pipeline gathering system is planned for the second half of 2009 to enable full production from the Company's backed-out wells and accommodate its growing volumes in the area.
Breaker recently finished drilling the horizontal leg of its second Fireweed multi-frac well, with total drilling time approximately 17 percent faster than the Company's first well despite drilling approximately 200 metres more length. The Company experienced gas kicks while drilling, suggesting minimal depletion from offset wells and potential for good permeability. A multi-frac completion will be performed on the well before the end of the first quarter.
This ongoing success confirms the potential of the Fireweed high rate, liquids rich resource play. Currently, Breaker has identified 14 additional drilling locations at Fireweed and the Company's total horizontal multi-frac resource play inventory is now approximately 160 potential new locations. The resource play areas include Fireweed, Irricana light oil, and Provost sweet gas.
Provost
At Provost, Breaker drilled its first horizontal multi-frac well into the extensive Viking sand in December 2008. The well was stimulated with seven fracture treatments and produced a first month average 1.6 mmcf/d. The well has been flowing at restricted rates from its potential deliverability in order to optimize overall production from the field. Even at restricted rates, the well is outperforming initial expectations and continues to confirm Breaker's hypothesis that similar wells will be the key to capturing the large gas-in-place at superior economics to vertical wells. Breaker has identified 80 follow up locations to this well.
Also in the fourth quarter, Breaker drilled a well into its large oil-in-place heavy oil pool and first month average rates of 190 bbls/d were in line with the best historical wells in the pool. A new mud system was used on this well and appears to reduce the formation damage associated with previous wells. Breaker has identified 19 similar drill locations in the pool.
Irricana, Alberta
Breaker continues to increase its significant light oil production at Irricana with its horizontal multi-frac drilling development. Breaker drilled two wells in the fourth quarter of 2008, with one of the wells being placed on production in mid December at 450 boe/d. The second well was completed early in the first quarter of 2009 and was brought on stream at 325 boe/d. Twelve locations remain in inventory at 400 metre inter-well spacing, with an additional 57 possible at 200 metre inter-well spacing.
East Prairie, Alberta
At East Prairie, Breaker drilled one gross (0.75 net) well in the fourth quarter of 2008 which encountered 2.6 metres of net pay with excellent porosity and permeability, validating the inventory of infill drilling locations in this high quality reservoir of light oil.
Breaker commissioned the water injection scheme early in the first quarter of 2009. The water injection capacity exceeds the Company's needs. 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.
Outlook
Given the current depressed economic and commodity price environment we expect our cost structure to improve during the year and we are working to reduce costs throughout the organization. In 2009 we will remain focused on maintaining our balance sheet strength, finding operational efficiencies, reducing costs, taking advantage of long term value creation opportunities and growing shareholder value on a per share basis.
Breaker's 2009 capital program was originally set at up to $80 million with the majority of capital spending weighted to the second half of 2009. The Company will continue to be flexible in its capital spending in order to respond to changes in commodity prices, costs and capital markets.
Breaker estimates capital spending in the first quarter of 2009 to be approximately $20 million and deferred approximately $5.0 million of additional first quarter capital spending in light of this depressed commodity price environment. We are reviewing our capital program continually as the year progresses and adjusting capital spending as necessary.
Maintaining financial and operational flexibility has always been a key element in Breaker's business model. In order to further enhance Breaker's balance sheet, the Company issued $16.1 million of equity in February 2009.
Breaker is optimistic about its future prospects given the Company's high quality asset base, large inventory of opportunities, financial position, strong netbacks and the strength of our technical and financial professionals. Breaker has many more attractive oil and natural gas opportunities in its drilling inventory than available capital which puts the Company in a great position to ramp up capital spending on either commodity should conditions improve during the year.
Financial Statements, Management's Discussion and Analysis and Annual Information Form
Breaker has filed with Canadian securities regulatory authorities its audited financial statements for the quarter and year ended December 31, 2008 and the accompanying Management's Discussion and Analysis. The Company has also filed its Annual Information Form ("AIF") in respect of fiscal year 2008, which includes its reserves data and other oil and gas information for the period ended December 31, 2008, as mandated by National Instrument 51-101 Standards of Disclosure of Oil and Gas Activities. 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 46.0 million Class A shares and 3.8 million options outstanding at March 18, 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, and (iii) the estimated reserve-life-index.
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) bbl means barrel; (ii) bbls means barrels; (iii) bbls/d means barrels per day; (iv) cf means cubic feet; (v) mcf means thousand cubic feet; (vi) mmcf means million cubic feet; (vii) mmcf/d means million cubic feet per day; (viii) H2S means hydrogen sulfide; (ix) CO2 means carbon dioxide, and (x) btu means British thermal units.
The TSX does not accept responsibility for the adequacy or accuracy of this release.
%SEDAR: 00021180E