CALGARY, July 30 /CNW/ - Breaker Energy Ltd. ("Breaker" or "Company") (TSX: WAV) is pleased to announce its financial and operating results for the quarter ended June 30, 2009, including its 19th consecutive quarter of production growth since inception.
Financial and Operating Summary
3 Months Ended 6 Months Ended
June June % June June %
30, 30, Change 30, 30, Change
2009 2008 2009 2008
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Financials ($000s except
per share amounts)
Oil and NGL sales 16,213 35,398 (54) 29,728 57,242 (48)
Natural gas sales 8,678 15,320 (43) 19,561 26,341 (26)
Processing sales (35) 611 (106) 242 854 (72)
Total oil, natural gas
and NGL revenue 24,856 51,329 (52) 49,531 84,437 (41)
Funds from operations(1) 7,493 31,072 (76) 15,436 50,355 (69)
Per share basic ($) 0.16 0.84 (81) 0.34 1.36 (75)
Per share diluted ($) 0.16 0.82 (80) 0.34 1.34 (75)
Net earnings (loss) (5,435) 14,223 (138) (11,185) 20,767 (154)
Per share basic ($) (0.11) 0.38 (132) (0.25) 0.56 (145)
Per share diluted ($) (0.11) 0.37 (132) (0.25) 0.55 (145)
Capital expenditures(2) 6,676 18,623 (64) 29,666 49,526 (40)
Net debt (end of
period) 73,711 55,921 32 73,711 55,921 32
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Operating Highlights
Production
Oil & NGL
(bbls per day) 2,867 3,167 (9) 3,012 2,826 7
Natural gas
(mcf per day) 25,038 16,530 51 23,697 15,994 48
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Total
(boe per day) (6:1) 7,040 5,922 19 6,962 5,491 27
Average realized price:
Oil & NGL ($ per bbl) 62.15 122.83 (49) 54.53 111.31 (51)
Natural gas ($ per mcf) 3.81 10.19 (63) 4.56 9.05 (50)
Realized loss on
commodity contracts
($ per boe) (1.79) - nm (1.03) - nm
Combined average
(incl. processing
revenue) ($ per boe) 37.01 95.25 (61) 38.28 84.49 (55)
Netback ($ per boe)
Oil, natural gas
and NGL sales 37.01 95.25 (61) 38.28 84.49 (55)
Royalties (9.56) (19.90) (52) (9.27) (17.18) (46)
Operating expenses (9.95) (10.48) (5) (10.88) (9.97) 9
Transportation expenses (2.13) (3.24) (34) (2.19) (2.95) (26)
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Operating netback 15.37 61.63 (75) 15.94 54.39 (71)
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G&A expenses (2.93) (2.76) 6 (2.91) (2.66) 9
Interest expense (0.52) (1.13) (43) (0.64) (1.14) (44)
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Corporate netback 11.92 57.74 (79) 12.39 50.59 (76)
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Common Shares (000s)
Class A Shares
outstanding,
end of period 52,125 36,416 43 52,125 36,416 43
Weighted average
Class A shares 47,885 36,364 32 45,609 36,309 26
Weighted average
Class B shares - 900 (100) - 900 (100)
Conversion of Class B
shares - weighted
average(3) - 717 (100) - 717 (100)
Weighted average basic
shares outstanding(3) 47,885 37,081 29 45,609 37,026 23
Stock option dilution
(treasury method) - 1,014 (100) - 585 (100)
Weighted average diluted
shares outstanding(3) 47,885 38,095 26 45,609 37,611 21
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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 June 30, 2008 the Class B shares were converted
at the quarter-end Class A share price of $12.55 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's operations focused on aggressively developing its portfolio
of large oil-in-place resource plays while reducing costs and
maintaining financial and operational flexibility during the
depressed economic and natural gas price environment of the second
quarter of 2009.
- At Irricana, Breaker drilled its first horizontal multi-frac well
down-spaced to approximately 200 metre inter-well spacing. On initial
test the well flowed at over 300 boe/d while still recovering
significant load fluid, a very promising early result for tighter
inter-well spacing in the pool. Breaker believes the additional 56
possible follow-up locations in inventory at 200 metre inter-well
spacing will provide many years of future light oil production
increases.
- Breaker drilled two horizontal wells into its large oil-in-place
Leduc oil pool in the second quarter of 2009. The wells came on
production early in the third quarter at a restricted rate of
approximately 100 bbls/d each, with potential to ramp up production
rates after cleanup. Neither of these well locations had proved or
probable reserves booked as of year-end 2008, exemplifying the
significant reserve and value growth yet to come in the area. Breaker
has identified 15 similar drill locations in the pool.
- Breaker began taking advantage of the Alberta government's royalty
incentive programs near the end of the second quarter and achieved a
100 percent success rate drilling eight gross (8.0 net) wells and
invested $6.7 million of capital.
- Breaker marked its 19th consecutive quarter of record production,
achieved despite significant capital deferrals in the second quarter
of this year. The Company averaged 7,040 boe/d in the second quarter
of 2009, a 19 percent increase over the second quarter of 2008
production rate of 5,922 boe/d and a two percent increase over the
first quarter 2009 average of 6,883 boe/d.
- Breaker realized a 41 percent production weighting to oil and natural
gas liquids in the second quarter of 2009. The Company continues its
strategic shift to oil development and expects to exit the year with
a balanced production weighting of oil and natural gas liquids to
natural gas.
- Breaker obtained cost savings in all recent projects compared with
prior quarters and remains focused on finding further operational
efficiencies. Breaker achieved a 16 percent operating cost reduction
during the second quarter of 2009 as compared to the first quarter of
2009 and a five percent reduction compared to the same period of
2008. Operating costs were $9.95 per boe in the second quarter of
2009 as compared to $11.85 per boe in the first quarter of 2009 and
$10.48 per boe in the same period of 2008.
- Breaker completed its annual borrowing base redetermination during
the second quarter of 2009 and reaffirmed its $125 million bank line.
At quarter end, Breaker had $73.7 million of net debt, leaving $51.3
million available on its credit facility unutilized
- Breaker achieved funds from operations per basic share of $0.16 in
the second quarter of 2009. Funds from operations were $7.5 million
in the second quarter of 2009. Breaker's operating netback (defined
as revenue net of commodity derivatives per boe, less royalties per
boe, operating costs per boe and transportation costs per boe)
averaged $15.37 per boe in the second quarter of 2009.
- The Company continues to position itself to increase capital spending
in response to improvements in Alberta royalties, commodity prices,
costs and capital markets. Breaker has an inventory of more than 400
low risk 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 Alberta
royalty incentives. The Company's current production mix includes a
significant light oil weighting which allows for higher than average
netbacks and significant cash flow at current commodity prices.
Operations Update
Breaker is aggressively pursuing its portfolio of large oil-in-place resource plays dominated by horizontal wells, nearly all of which will qualify for an initial crown royalty rate of five percent and additional depth-based royalty incentives recently announced by the Province of Alberta. The Company also has an active oil exploration program in areas where it has experienced success in the past including Girouxville and Provost.
Irricana, Alberta
Breaker continues to increase its significant light oil production with its horizontal multi-frac drilling development. The Company drilled one well in the second quarter of 2009 which will be brought on stream early in the third quarter of this year. This was Breaker's first well to be down-spaced to approximately 200 metre inter-well spacing. On initial test, the well flowed at over 300 boe/d while still recovering significant load fluid, a very promising early result for closer inter-well spacing in the pool. Breaker plans to drill four more wells in the third quarter of 2009, including additional wells at 200 metre inter-well spacing. After three years of significantly increasing light oil production at Irricana through technological improvements, Breaker believes that development at tighter inter-well spacing will maximize reserve recovery and value. Eleven locations remain in inventory at 400 metre inter-well spacing, with an additional 56 possible at 200 metre inter-well spacing which should provide many years of future light oil production increases.
Provost, Alberta
Breaker drilled two horizontal wells into its large oil-in-place Leduc oil pool in the second quarter of 2009. The wells came on production early in the third quarter at a restricted rate of approximately 100 bbls/d each, with potential to ramp up production rates after cleanup. Neither of these well locations had proved or probable reserves booked as of year-end 2008, exemplifying the significant reserve and value growth yet to come in the area. Two further wells will be drilled in the third quarter of 2009 to follow up the success of the well drilled in late 2008 that continues to perform in line with the best historical producers in the field. Drilling costs in this area have been significantly reduced from those experienced in recent years, which combined with royalty incentives and high heavy oil prices has led to expected rates of return that are higher than previous years. Breaker has identified 15 similar drill locations in the pool.
The Company's first horizontal multi-frac well drilled into the extensive Viking resource play continues to perform in line with expectations and averaged 80 boe/d for the month of June. The well produced over 125 mmcf of natural gas in six months as compared with the best vertical offset well which produced only 110 mmcf of natural gas in almost five years. This exciting result confirms Breaker's hypothesis that similar horizontal wells are the key to capturing the large gas-in-place resource at superior economics to vertical wells. Breaker continues to refine the Viking resource play development technically and drilled a second horizontal well in the second quarter, with completion operations underway early in the third quarter. Early in the third quarter of 2009, a significantly longer horizontal well was drilled where 15 fracture treatments were placed to increase exposure to the reservoir and maximize reserve recovery per well. Breaker has identified 77 follow up locations to these wells and will develop the asset more aggressively upon improved natural gas pricing.
At Medicine Hat, Breaker drilled four wells in the previously-defined extensive gas charged sand. Testing of the wells will occur early in the third quarter of 2009.
Fireweed, British Columbia
Breaker continues to realize strong production performance from its Fireweed liquids rich, natural gas resource play in northeast British Columbia. The Company's two horizontal multi-frac wells led to 40 percent higher production in the second quarter of 2009 compared to the first quarter of this year. Another horizontal multi-frac well is planned for 2009, in addition to optimization of the pipeline gathering system to fully realize the benefit of new high pressure production.
The Company's first horizontal multi-frac well at Fireweed continues to produce at high rates. After the first five months of production ending June 30, 2009, the well produced approximately 150 mboe of cumulative production and had an average raw production rate of approximately 750 boe/d for June 2009. 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's second horizontal multi-frac well has performed up to expectations set by its closest vertical legacy offsets. Breaker drilled this well in the north end of the property where wells historically produce at lower rates. The Company is pleased with the results as the well has also confirmed gas saturation in previously untested sands. This well has a cumulative total production of about 35.2 mboe after three months of production, and averaged approximately 285 boe/d for the month of June 2009.
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.
As a result of the significant success of the first two horizontal wells, Breaker plans to drill a third horizontal multi-frac well in the third or fourth quarter of 2009. As this upcoming well is located in the historically more prolific southern area of the pool, Breaker anticipates results more akin to the first horizontal. The Company forecasts production to come onstream before year-end.
Due to the high pressure and flow rates of Breaker's two recent 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. All regulatory approvals for the pipeline expansion have been received, with construction start estimated to commence sometime in August, with a completion target commensurate with the onstream date of the third horizontal multi-frac well. The new pipeline infrastructure will allow both high and low pressure production to be sent to the Company-operated compression and dehydration facilities. Going forward, this should allow Breaker to realize the full production benefit of all of its new high pressure high rate volumes from horizontal development wells.
In addition to the value of the natural gas liquids produced at Fireweed, the high heat content of the gas enables Breaker's Fireweed natural 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.
East Prairie, Alberta
Breaker took advantage of the Alberta Government's new royalty incentive programs in its greater East Prairie area. The Company completed the installation of a booster compressor and 9.6 kilometres pipeline during the first quarter of the year, however delayed the start-up until April 2, 2009. This ensured an initial crown royalty rate of five percent on 100 percent working interest production of 0.9 mmcf/d.
Financial Statements, Management's Discussion and Analysis and Annual Information Form
Breaker has filed with Canadian securities regulatory authorities its unaudited financial statements for the quarter ended June 30, 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 has 52.1 million Class A shares and 4.7 million stock options outstanding at July 30, 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) production weighting for 2009, (ii) changes to the Alberta royalty regime regulations in force, (iii) effect on Breaker of changes to the Alberta royalty structure, (iv) capital expenditures for 2009 and (v) exploration and development activities and results.
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) bbl means barrel (vi) bbls means barrels (vii) bbls/d means barrels per day (viii) mboe means thousand barrels of oil equivalent (ix) MPa means million pascals; and (x) bcf means billion cubic feet
The TSX does not accept responsibility for the adequacy or accuracy of this release.
%SEDAR: 00021180E