News Column

Exall Energy Corporation announces results for the three and six months ended June 30, 2014

August 13, 2014

CALGARY, Aug. 13, 2014 /CNW Telbec/ - Exall Energy Corporation ("Exall" or the "Company") (TSX: EE and TSX: EE.DB) is pleased to announce its financial and operating results for the three and six months ended June 30, 2014. Exall's public filings can all be found at www.exall.com or www.sedar.com.

Highlights:

• A second quarter 2014 production average of 772 boe per day for a 6 month production average of 866 boe per day, • Production was negatively affected by the shut in of producing wells due to AER mandated pressure surveys and water injection well downtime due to workovers and a metering error. All of the operating wells are back on production or injection and production is coming back to pre-shut in levels, • A second quarter 2014 field net back of $45.66 per boe for a 6 month field net back of $46.07 per boe, and • A second quarter 2014 cash flow from operations of $757,000 for a 6 month cash flow from operations of $2,716,000.





SUMMARY OF FINANCIAL RESULTS AND OPERATIONS
 
  Three months ended

June 30,
Six months ended

June 30,
In thousands of dollars 2014 2013 %

change
2014 2013 %

change
             
Financial ($)            
Gross revenue 6,894 9,204 (25) 15,010 18,957 (21)
Funds from operations 757 3,458 (78) 2,716 8,416 (68)
  Basic per share 0.01 0.05 (80) 0.04 0.12 (67)
  Diluted per share 0.00 0.02 (100) 0.02 0.05 (60)
Net income (loss) (882) 351 (351) (2,049) 1,247 (264)
  Basic per share (0.01) 0.00 N/A (0.03) 0.01 (400)
  Diluted per share (0.01) 0.00 N/A (0.03) 0.00 N/A
Capital expenditures, net 1,561 1,162 34 1,823 7,859 (77)



  Three months ended

June 30,
Six months ended

June 30,
In thousands of dollars 2014 2013 %

change
2014 2013 %

change
Operations            
Daily production            
  Crude oil (bbl) 709 1,084 (35) 797 1,150 (31)
  Natural gas liquids (bbl) 21 20 5 22 20 10
  Natural gas (mmcf) 253 343 (26) 286 368 (22)
Total daily production (boe @ 6:1) 772 1,161 (34) 866 1,232 (30)
Netback per boe (6:1) ($) 45.66 45.34 1 46.07 49.74 (7)



Exall's production for the three month period ended June 30, 2014 averaged 772 boe per day, a 34 percent decrease from the same period in 2013. This decrease was primarily the result of well workovers and turnaround shut in at the Exall battery, as well as the connected oil and gas handling facilities. Production was also negatively affected by shut in of producing wells due to AER mandated pressure surveys and water injection well downtime due to workovers and a metering error. All of the operating wells are back on production or injection and production is coming back to pre-shut in levels.

Production for the six month period ended June 30, 2014 averaged 866 boe per day, a 30 percent decrease from the same quarter in 2013. These decreases were primarily the result of well cleanout operations performed during the first quarter of 2014, casing gas compressor issues resulting from the severe cold weather experienced during the first quarter of 2014 and the battery maintenance and well build up reporting requirements for the AER that were performed during the second quarter of 2014, which resulted in three weeks of lost production time.

Corporate Developments

Outlook

While Exall continues to seek debt restructuring alternatives, and will maintain this focus until completed, the Capital Expenditure Program for 2014 has been deferred to the second half of 2014. Once resumed the Capital Expenditure Program is slated to continue to explore and develop the North Waterflood Gilwood channel extension of the Central Waterflood channel. Successful drilling on the Central Waterflood / North Waterflood channel extension in the second half of 2014 is expected to add 320 boepd net (based on an average working interest of 71.5 percent). It is a tribute to the quality of the Gilwood reservoir that Exall has been able to maintain the level of production it has today utilizing a modest amount of maintenance capital.

Capital expenditures through the second half 2014 will continue to focus on the "low-hanging fruit" (LHF) opportunities. Short term focus of capital will be firstly waterflood implementation and secondly the lowest-risk, lowest-cost infill wells in the North Waterflood area. Two water injector conversions are to be implemented through the third quarter of 2014. Exall plans to drill up to 3 gross development wells in the third and fourth quarters of 2014 with a further 5 gross development wells and 1 gross exploration well in 2015, subject to cash flow from operations. These wells are all high-impact, low risk locations identified through previous drilling and could have a significant impact on the Company's production if successful. Continued drilling success on the North Waterflood channel extension will drive production growth on an annual basis through 2014 and 2015.

The Company's Marten Mountain oil production attracts a price based on the average of the daily settlement price of the NYMEX near month Light Sweet Crude Oil contract as it trades, excluding weekends / holidays, for the calendar month of production, plus the weighted average of the Net Energy Index and the NGX index for Light Sweet Crude Oil, plus the one month prior Enbridge Sweet WADF. The Company's oil price received averaged approximately $1.98 less than the posted Edmonton Par price at the wellhead for the first half of 2014. Based on the $1.98 differential, Exall expects that its July 2014 price received was $99.10 per barrel. This pricing estimate is approximately $13.55 higher than the posted Western Canadian Select price being received by other entities during these periods.

Exall's current debt level is approximately $59.0 million which includes $26.0 million of revolving demand credit held under a facility with an alternate Canadian lender that bears interest at the lender's base prime rate plus 3.00 percent, $10.0 million of revolving demand credit held under a facility with an alternate Canadian lender that bears interest at the lender's base prime rate plus 3.00 percent, which are reviewed periodically by the lender. To date, the facility review for 2014 has not been finalized. The balance of the debt is a $23.0 million Convertible Debenture with a maturity date of March 2017 that pays an annual interest rate of 7.75 percent.

Exall is a light oil-weighted company with high operating margins. Starting from a modest production base of light oil and gas, the Company has historically, excluding the 2013 Reservoir conformance challenges in the south waterflood, shown itself capable of setting and achieving ambitious production and cash flow targets (as can be seen in the chart below reflecting production), production growth that currently translates to 25.3 percent compounded annually from 2007. Exall will continue to focus on organic growth through exploitation and expansion of its existing oil producing properties.



http://files.newswire.ca/357/Outlook.pdf



Overview

Exall's average daily production for the three month period ended June 30, 2014 decreased 34 percent to 772 barrels of oil per day ("boe/d") from the 1,161 boe/d recorded in the same period of 2013.

http://files.newswire.ca/357/Overview.pdf



Results of Operations

Oil and gas exploration and development expenditures were $1,561 for the three month period ended June 30, 2014.  During the second quarter of 2014 the Company participated in the drilling of 0.0 gross oil wells (0.00 net) in the Marten Mountain / Mitsue area.  During the second quarter of 2013 the Company participated in the drilling of 0.0 gross oil wells (0.00 net) in the Marten Mountain / Mitsue area.

As at June 30, 2014, the Company had 188,960 acres (140,728 acres net) of undeveloped land in Alberta, Canada.

Exall realized the following netbacks from oil and gas operations:

               
  Three months ended

June 30,
Six months ended

June 30,
Netback per boe (6:1) $ 2014 2013 % Change   2014 2013 % Change
               
Production revenue 98.19 87.10 13   95.72 85.04 13
Royalties 37.21 29.16 28   35.86 24.13 49
Operating expenses 15.32 12.60 22   13.79 11.17 23
Operating netbacks ($/boe) 45.66 45.34 1   46.07 49.74 (7)
Realized loss on Financial contracts 10.30 - 100   7.98 - 100
Abandonment expense 0.24 - 100   0.11 - 100
Administrative expenses 10.37 5.02 107   8.31 4.67 78
Interest expenses 13.83 7.60 82   12.29 7.02 75
Corporate netbacks ($/boe) 10.92 32.72 (67)   17.38 38.05 (54)



Operating netbacks for the three month period ended June 30, 2014 increased 1 percent to $45.66 per boe compared to the three months ended June 30, 2013 operating netbacks of $45.34 per boe. This is the result of 1) the 13 percent increase in commodity prices received for the three months ended June 30, 2014 as compared to 2013 combined with, 2) the overall royalty expense increase of 28 percent on a second quarter over second quarter basis as a result of wells having produced out their allowable production under the NOWPP and reverting from a 5 percent rate to the Alberta maximum Royalty Rate of 40 percent with no new wells being brought on at the 5 percent NOWPP rate, and 3) the overall operating expense increase of 22 percent on a second quarter over second quarter basis.

Operating netbacks for the six month period ended June 30, 2014 decreased 7 percent to $46.07 per boe compared to the six months ended June 30, 2013 operating netbacks of $49.74 per boe. This is the result of 1) the 13 percent increase in commodity prices received for the six months ended June 30, 2014 as compared to 2013 combined with, 2) the overall royalty expense increase of 49 percent on a second quarter over second quarter basis as a result of wells having produced out their allowable production under the NOWPP and reverting from a 5 percent rate to the Alberta maximum Royalty Rate of 40 percent with no new wells being brought on at the 5 percent NOWPP rate, and 3) the overall operating expense increase of 23 percent on a second quarter over second quarter basis.

Corporate netbacks for the three month period ended June 30, 2014 decreased 67 percent to $10.92 per boe compared to the three months ended June 30, 2013 corporate netbacks of $32.72 per boe. This is the result of 1) the operating netback increase of 1 percent on a second quarter over second quarter basis, 2) the realized loss on financial contracts from the Canadian $99.05 WTI Hedge of $723 as the average WTI price in Canadian Dollars was $112.34/bbl versus the swap price of $99.05/bbl, 3) the 107 percent increase in administrative expenses, on a per boe basis, as a result of the 14,050 percent increase in bank fees, and 4) the overall interest expense increase of 82 percent on a second quarter over second quarter basis, directly attributable to the increased interest rate being charged by the Company's lender on its revolving loan.

Corporate netbacks for the six month period ended June 30, 2014 decreased 54 percent to $17.38 per boe compared to the six months ended June 30, 2013 corporate netbacks of $38.05 per boe. This is the result of 1) the operating netback decrease of 7 percent on a second quarter over second quarter basis, 2) the realized loss on financial contracts from the Canadian $99.05 WTI Hedge of $1,251 as the average WTI price in Canadian Dollars was $110.62/bbl versus the swap price of $99.05/bbl, 3) the 78 percent increase in administrative expenses, on a per boe basis, as a result of the 7,000 percent increase in bank fees, and 4) the overall interest expense increase of 75 percent on a year to date basis, directly attributable to the increased interest rate being charge by the Company's lender on its revolving loan.

Net income, as a result, for the second quarter of 2014 was negative $882,000 or a loss of $0.01 per share compared to a net income for the second quarter of 2013 of $351,000 or $0.00 per share. For the six month period ended June 30, 2014, net income was negative $2,049,000 or a loss of $0.03 per share compared to a net income for the six month period ended June 30, 2013 of $1,247,000 or $0.01 per share.

Subsequent Events

Effective July 30, 2014 Exall signed an Amended Purchase and Sale Agreement with a private corporation for the sale of approximately 18% of Exall's working interest in the Mitsue property in Alberta, located from Townships 71 to 75 within Ranges 3 to 6 West of the 5th Meridian. The transaction terms had been previously disclosed on May 15, 2014. The purchase price for the working interest disposition is $14,000,000 CDN and is targeted to close on August 29, 2014 with an effective date of July 1, 2014. Proceeds from the working interest disposition will be used to retire existing revolving debt with the Company's Canadian lender. Exall will retain an average working interest in Mitsue, Alberta of 67.72%, with a range of 54.12 to 100% as well as retaining operatorship.

About Exall

Exall is a junior oil and gas company active in its business of oil and gas exploration, development and production from its properties in Alberta. Exall Energy is currently developing the new Mitsue area "Marten Mountain" discovery in north-central Alberta.

Exall Energy currently has 66,634,854 common shares outstanding. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol EE. The Company's convertible debentures are listed on the Toronto Stock Exchange under the trading symbol EE.DB.

Reader Advisory

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions, including those relating to results of operations and financial condition, capital spending, financing sources, commodity prices and costs of production. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. A number of factors could cause actual results to differ materially from the results discussed in such statements, and there is no assurance that actual results will be consistent with them. Such factors include fluctuating commodity prices, capital spending and costs of production, and other factors described in the Company's most recent Annual Information Form under the heading "Risk Factors" which has been filed electronically by means of the System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. Such forward-looking statements are made as at the date of this news release, and the Company assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, except as may be required under applicable securities law.

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.

 

SOURCE EXALL ENERGY CORPORATION

PDF available at: http://stream1.newswire.ca/media/2014/08/13/20140813_C7131_DOC_EN_42419.pdf

PDF available at: http://stream1.newswire.ca/media/2014/08/13/20140813_C7131_DOC_EN_42420.pdf


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Source: Canada Newswire


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