DEETHREE EXPLORATION LTD. ("DeeThree") ("Company") (TSX:DTX)(OTCQX:DTHRF) is
pleased to release an operational update and its financial and operational
results for the quarter ended March 31, 2014.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Financial and operational highlights for the interim period ended March 31, 2014
with comparative data for 2013 are set out below and should be read in
conjunction with the financial statements and related management's discussion
and analysis.
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Three Months Ended March 31,
2014 2013 Change
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(000s, except per share amounts) ($) ($) (%)
Financial
Oil and natural gas revenues 65,643 30,490 115
Funds from operations (1) 35,536 16,788 112
Per share - basic 0.43 0.23 87
Per share - diluted 0.42 0.23 83
Cash flow from operating activities 23,607 18,000 31
Net income (loss) 8,682 (627) 1,485
Per share - basic 0.11 (0.01) 1,200
Per share - diluted 0.10 (0.01) 1,100
Capital expenditures (2) 72,312 41,558 74
Working capital deficit (3) 155,517 70,174 122
Shareholders' equity 321,640 244,909 31
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(000s) (#) (#) (%)
Share Data
At period-end 82,065 76,168 8
Weighted average - basic 81,932 73,188 12
Weighted average - diluted 84,741 73,188 16
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Operating(4)
Production
Natural gas (mcf/d) 12,381 10,279 20
Crude oil (bbls/d) 6,743 3,924 72
NGLs (bbls/d) 565 289 96
Total (boe/d) 9,372 5,926 58
Average wellhead prices
Natural gas ($/mcf) 6.00 3.43 75
Crude oil and NGLs ($/bbl) 89.60 71.81 25
Combined average ($/boe) 77.83 57.17 36
Netbacks
Operating netback ($/boe) (1) 47.21 35.15 34
Funds flow netback ($/boe) (1) 42.05 31.45 34
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Gross (net) wells drilled
Gas (#) 1 (1.0) - (-) - (-)
Oil (#) 11 (10.97) 7 (6.22) 57 (76)
Standing (#) 3 (3.0) - (-) - (-)
Dry and abandoned (#) 2 (2.0) 1 (0.97) 100 (106)
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Total (#) 17 (16.97) 8 (7.19) 113 (136)
Average working interest (%) 100 90 11
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(1) Funds from operations, funds from operations per share, operating
netback and funds flow netback are not recognized measures under
International Financial Reporting Standards (IFRS). Refer to the
commentary below under "Reader Advisory - Non-IFRS Measurements".
(2) Total capital expenditures, including acquisitions and excluding non-
cash transactions. Refer to commentary in the Management's Discussion
and Analysis under "Capital Expenditures and Acquisitions" for further
information.
(3) Current assets less current liabilities, excluding current derivative
financial instruments.
(4) For a description of the boe conversion ratio, refer to the commentary
below under "Reader Advisory - BOE Presentation".
-- Record production for the tenth consecutive quarter averaging 9,372
boe/d, up 58% from the first quarter of 2013 and 9% from the fourth
quarter of 2013.
-- Funds flow from operations grew to $35.5 million, representing a 112%
increase over the first quarter of 2013 and a 44% improvement over the
fourth quarter of 2013.
-- Funds from operations per share increased to $0.42 fully diluted from
$0.23 in the same quarter last year and $0.31 in the final quarter of
2013, an increase of 83% and 35% respectively.
-- Increased operating netbacks to $47.21/boe from $35.15/boe in the first
quarter of 2013 and $37.38 in the final quarter of 2013.
-- Invested $72.3 million in our capital program, including the drilling of
17 (16.97 net) wells, including 14 (13.97 net) horizontal development
wells, 1 (1.0 net) horizontal gas injection well and 2 (2.0 net)
vertical exploration wells.
-- Exited the quarter with total net debt of $155.5 million representing a
debt to annualized cash flow ratio of 1.09:1.
-- Subsequent to the quarter end, the Company finalized its amended and
restated syndicated credit facility with a syndicate of five Canadian
chartered banks in the amount of $235 million, which replaces the
previous $165 million demand credit facility.
-- On May 5, 2014, DeeThree entered into an agreement, on a bought deal
basis, to raise $67 million (net of share issue expenses) through the
issuance of 5.4 million common and 752,000 flow through shares at $11.10
and $13.30 per share respectively. The Company has also granted the
underwriters an over-allotment option to increase the size of the
offering by an additional 450,000 common shares. Closing of the offering
is anticipated to occur on May 27, 2014.
Operational Update
The Company was very active throughout the first quarter of 2014 achieving exit
production in excess of 11,500 boe/d.
The Company currently has two rigs drilling Alberta Bakken horizontal wells in
the Ferguson area of southern Alberta where spring breakup conditions have
little effect on its operations. Two rigs are scheduled to commence drilling in
Brazeau by late June.
Current production is in excess of 11,000 boe/d with two Alberta Bakken wells
and one Belly River well awaiting completion in the coming weeks. With
approximately 28 gross wells to drill throughout the remainder of 2014, the
Company is well positioned and will be reviewing its guidance in the near
future.
Belly River
In Brazeau the Company continues to improve results, applying extended reach
technology and larger fracture stimulations in executing the most successful
drilling program to date. DeeThree achieved a 100% drilling success rate and
have finished testing 8 gross (7.97 net) wells to date with an average final
test rate of 820 bbls/d of oil and 750 mcf/d of gas as follows:
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Final Oil Test Rate Final Gas Test Rate
Location Days tested (bbl/d) mmcf/d
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1 10 488 0.86
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2 9 1617 1.19
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3 7 1083 0.51
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4 7 1051 1.30
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5 6.5 968 1.14
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6 6 670 0.47
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7 4.5 498 0.39
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8 3 181 0.15
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The program continued to test a combination of down-spacing potential and
extensions in three different previously tested Belly River sand intervals. In
addition, the Company drilled its first horizontal in the Basal Belly River A
sand interval and is anticipating completing this well in the coming weeks.
In order to handle the large increase in production volumes a field compressor
and oil transfer facility was commissioned in early May. The facility has the
capacity to transfer up to 6000 bbls/d of oil to the Company's central main
battery.
Bakken
Throughout the first quarter, the Company drilled four 100% working interest
Alberta Bakken horizontal wells including three infill producers and a third gas
injector for its gas reinjection enhanced oil recovery ("EOR") scheme. The three
infill producers successfully tested down spacing in different areas of the pool
with an average final test rate of 595 bbls/d of oil and 235 mcf/d of gas. In
addition, the Company drilled two 100% working interest vertical exploration
test wells.
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Location Days tested Final Oil Test Rate Final Gas Test Rate
(bbl/d) mmcf/d
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1 11 555 0.195
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2 6.5 270 0.177
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3 6 960 0.335
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The Company's gas re-injection EOR scheme has continued to exceed expectations.
The pilot, consisting of one central gas injector and ten producing wells, was
started in July of 2013. With more history and positive responses from the
producing wells, the pilot continues to demonstrate the potential to
significantly increase ultimate recoveries. As a result, the Company is
expanding the gas reinjection pipeline infrastructure and ordered a built for
purpose gas injection compressor which will increase injection capacity to 4
mmcf/d. By the end of the second quarter the Company is expecting to be
re-injecting a significant portion of its Alberta Bakken gas in three different
injectors strategically located throughout the pool.
DeeThree has recently acquired more than 70 sections of additional lands in the
Ferguson area prospective for the Alberta Bakken. In addition to acquired Crown
land, the Company executed an agreement with a senior producer to earn a 100%
working interest in up to 34.5 contiguous sections (22,080 acres) of land
located directly on trend with our existing Alberta Bakken production. The land
is strategic to the Company and its future plans as it was the majority block of
remaining available land between our original Alberta Bakken discovery well and
the existing pool that has now been delineated to exceed 70 sections. The land
block complements the Company's existing crown and farm in lands giving it a
100% working interest in a contiguous land base of approximately 200 sections of
Alberta Bakken rights stretching 30 miles between production in what it
currently defines as its primary Alberta Bakken development and exploration
fairway. As a result of these recent additions, the Company is now planning to
drill up to four Alberta Bakken exploration wells throughout the remainder of
2014 with the potential to materially increase the size of its Alberta Bakken
resource.
Peace River Arch
DeeThree has identified several development and exploration prospects in the
Charlie Lake, Doig and Montney formations on its land position in the Peace
River Arch. DeeThree will drill one 100% working interest Montney horizontal
well offsetting an existing vertical oil producer that will also test a Charlie
Lake oil exploration prospect.
Outlook
As a result of the Company's successful drilling program, its recent success in
securing additional lands along with pending projects furthering the development
and efficiency of its core production, DeeThree's Board of Directors has
approved an increase to our capital budget for 2014 to $270 million from $230
million. DeeThree is on target to reach its previously announced 2014 production
guidance averaging 11,500 - 11,700 boe/d and an exit production target of 13,000
- 13,500 boe/d. No production volumes have been attributed to the exploration
prospects. In addition, the Company will continue to evaluate strategic land
acquisitions in order to further consolidate its core areas.
With the increase to our credit facility and the pending closing of the equity
financing described in the highlights above, DeeThree's balance sheet is strong
and will allow us to execute our program and to continue to build our key growth
properties throughout the remainder of 2014. DeeThree continues to invest with
the goal of creating long term value and activity remains focused in its two
core areas where the Company owns and controls the vast majority of the land and
associated infrastructure. Overall, 2014 is shaping up to be another exciting
year for DeeThree.
Reader Advisory
Forward-Looking Statements. Certain statements contained in this press release
may constitute forward-looking statements. These statements relate to future
events or DeeThree's future performance. All statements other than statements of
historical fact may be forward-looking statements. Forward-looking statements
are often, but not always, identified by the use of words such as "seek",
"anticipate", "plan", "continue", "estimate", "expect", "may", "will",
"project", "predict", "potential", "targeting", "intend", "could", "might",
"should", "believe" and similar expressions. These statements involve known and
unknown risks, uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in such forward-looking
statements. DeeThree believes that the expectations reflected in those
forward-looking statements are reasonable, but no assurance can be given that
these expectations will prove to be correct and such forward-looking statements
included in this press release should not be unduly relied upon by investors.
These statements speak only as of the date of this press release and are
expressly qualified, in their entirety, by this cautionary statement.
In particular, this press release contains forward-looking statements,
pertaining to the following: projections of market prices and costs, supply and
demand for oil and natural gas, the quantity of reserves, oil and natural gas
production levels, capital expenditure programs, treatment under governmental
regulatory and taxation regimes, expectations regarding DeeThree's ability to
raise capital and to continually add to reserves through acquisitions and
development, and projections of market prices and costs.
With respect to forward-looking statements contained in this press release,
DeeThree has made assumptions regarding, among other things: the legislative and
regulatory environments of the jurisdictions where DeeThree carries on business
or has operations, the impact of increasing competition, and DeeThree's ability
to obtain additional financing on satisfactory terms.
DeeThree's actual results could differ materially from those anticipated in
these forward-looking statements as a result of risk factors that may include,
but are not limited to: volatility in the market prices for oil and natural gas;
uncertainties associated with estimating reserves; uncertainties associated with
DeeThree's ability to obtain additional financing on satisfactory terms;
geological, technical, drilling and processing problems; liabilities and risks,
including environmental liabilities and risks, inherent in oil and natural gas
operations; incorrect assessments of the value of acquisitions; competition for,
among other things, capital, acquisitions of reserves, undeveloped lands and
skilled personnel.
This forward-looking information represents DeeThree's views as of the date of
this document and such information should not be relied upon as representing its
views as of any date subsequent to the date of this document. DeeThree has
attempted to identify important factors that could cause actual results,
performance or achievements to vary from those current expectations or estimates
expressed or implied by the forward-looking information. However, there may be
other factors that cause results, performance or achievements not to be as
expected or estimated and that could cause actual results, performance or
achievements to differ materially from current expectations. There can be no
assurance that forward-looking information will prove to be accurate, as results
and future events could differ materially from those expected or estimated in
such statements. Accordingly, readers should not place undue reliance on
forward-looking information. . Except as required by law, the Company undertakes
no obligation to publicly update or revise any forward-looking statements.
Test Rates. Test rates are not necessarily indicative of long-term performance
or of ultimate recovery. Neither a pressure transient analysis nor a well-test
interpretation has been carried out and the data should be considered to be
preliminary until such analysis or interpretation has been done.
Non-IFRS Measurements. This news release contains the terms "funds from
operations" and "funds from operations per share", which should not be
considered an alternative to or more meaningful than cash flow from (used in)
operating activities as determined in accordance with IFRS. These terms do not
have any standardized meaning under IFRS. DeeThree's determination of funds from
operations and funds from operations per share may not be comparable to that
reported by other companies. Management uses funds from operations to analyze
operating performance and leverage, and considers funds from operations to be a
key measure as it demonstrates the Company's ability to generate cash necessary
to fund future capital investments and to repay debt, if applicable. Funds from
operations is calculated using cash flow from operating activities as presented
in the statement of cash flows, before changes in non-cash working capital.
DeeThree presents funds from operations per share whereby per share amounts are
calculated using weighted-average shares outstanding, consistent with the
calculation of earnings per share.
The Company considers corporate netbacks to be a key measure as they demonstrate
DeeThree's profitability relative to current commodity prices. Corporate
netbacks are comprised of operating and funds flow netbacks. Operating netback
is calculated as the average sales price of the Company's commodities, less
royalties, operating costs and transportation expenses. Funds flow netback
starts with the operating netback and further deducts general and administrative
costs, finance expense and unrealized gains on financial instruments, and then
adds any finance income and realized gains on financial instruments, if
applicable. No IFRS measure is reasonably comparable to netbacks. See "Netbacks
(per unit)" in the Company's management's discussion and analysis for the year
ended December 31, 2013 filed on www.sedar.com for the netback calculations.
Working capital deficit, which represent current assets less current
liabilities, excluding current derivative financial instruments, is used to
assess efficiency, liquidity and the Company's general financial strength. No
IFRS measure is reasonably comparable to working capital deficit.
BOE Presentation. References herein to "boe" mean barrels of oil equivalent
derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf)
of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used
in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy
conversion method primarily applicable at the burner tip and does not represent
a value equivalency at the wellhead. In addition, given that the value ratio
based on the current price of crude oil as compared to natural gas is
significantly different from the energy equivalency of 6: 1, utilizing a
conversion on a 6:1 basis may be misleading as an indication of value.
FOR FURTHER INFORMATION PLEASE CONTACT:
Martin Cheyne
President and Chief Executive Officer
DeeThree Exploration Ltd.
(403) 263-9130
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