Bank loans plus cash working capital deficiency (excludes unrealized gain or loss on derivative contracts) decreased to $64.5 million at December 31, 2012 from $132.7 million at December 31, 2011. Funds from operations of $29.6 million for 2012 were 46% lower than 2011 as a result of the substantial drop in natural gas prices (39% decrease), declines in NGL prices (18% decrease), oil prices (11% decrease) and overall lower production volumes (21% decrease). Funds from operations for the fourth quarter of 2012 were $5.7 million, consistent with the third quarter of 2012, but were $11.3 million lower than the fourth quarter of 2011 primarily due to reduced production volumes (43% decrease).
The Company drilled 7 gross (6.5 net capital) new wells during the 2012 financial year; 3 gross (2.5 net capital) wells early in the year and 4 gross (4 net capital) wells in the fourth quarter. Of the wells drilled in the fourth quarter, 2 gross (1.3 net revenue) wells were brought on late in the fourth quarter and the remaining 2 gross (1.5 net revenue) wells were brought on early in 2013. An additional 2 gross (1.75 net capital, 1.5 net revenue) wells were drilled and brought on production early in 2013.
Revenue and production for the fourth quarter and year ended December 31, 2012 declined substantially when compared to the same periods ended December 31, 2011 for three main reasons:
(1) reduced volumes due to the sale of assets during the year; (2) reduced volumes due to the impact of a curtailed drilling program on the replacement of natural declines; and (3) a decline in all commodity prices.
During the year ended December 31, 2012, Anderson sold interests in 17 properties for total consideration of $73.9 million (2011 - $11.6 million). Total production sold was approximately 2,292 BOED (71% natural gas) and includes 54 BOED of dry gas swapped in exchange for additional interests in Cardium drillable lands at Garrington.
The Company suspended its shallow gas drilling program prior to 2011 because of low natural gas prices, and curtailed its oil drilling program during 2012 due to the strategic review process and limited funds. Accordingly, natural production declines were not replaced, resulting in decreases in gas sales throughout 2011 and 2012, and declines in oil production in 2012. In addition, early in the year the Company shut-in over 700 Mcfd of natural gas production that was uneconomical to produce in the current price environment, thus contributing to lower natural gas sales during 2012.
PRODUCTION Three months ended Year ended December 31 December 31 2012 2011 2012 2011Natural gas (Mcfd) 18,159 30,576 23,878 31,620Oil (bpd) 1,135 2,122 1,507 1,743NGL (bpd) 338 715 591 679 ---------------------------------------Total (BOED) 4,500 7,933 6,078 7,692----------------------------------------------------------------------------PRICES Three months ended Year ended December 31 December 31 2012 2011 2012 2011Natural gas ($/Mcf)(1) $ 3.16 $ 3.20 $ 2.21 $ 3.60Oil ($/bbl)(2) 79.73 96.33 83.21 93.05NGL ($/bbl) 52.02 72.71 57.20 69.81 ------------------ -----------------Total ($/BOE)(2)(3)(4) $ 36.89 $ 44.70 $ 34.98 $ 42.13----------------------------------------------------------------------------OIL AND NATURAL GAS SALES Three months ended Year ended December 31 December 31(thousands of dollars) 2012 2011 2012 2011----------------------------------------------------------------------------Natural gas(1) $ 5,277 $ 8,999 $ 19,282 $ 41,605Oil(2) 8,328 18,807 45,896 59,184NGL 1,619 4,785 12,373 17,302Royalty and other 50 36 255 201----------------------------------------------------------------------------Total oil and gas sales(2) $ 15,274 $ 32,627 $ 77,806 $118,292----------------------------------------------------------------------------OPERATING NETBACK Three months ended Year ended December December 31 31(thousands of dollars) 2012 2011 2012 2011Revenue(2) $ 15,274 $ 32,627 $ 77,806 $118,292Realized gain (loss) on derivative contracts 2,231 (271) 5,429 (624)Royalties (1,478) (4,170) (7,991) (13,806)Operating expenses (5,016) (6,060) (24,239) (29,533)Transportation expenses (39) (322) (498) (1,626) --------------------------------------Operating netback $ 10,972 $ 21,804 $ 50,507 $ 72,703----------------------------------------------------------------------------Sales volume (MBOE)(4) 414.0 729.9 2,224.4 2,807.5Per BOE(4) Revenue(2) $ 36.89 $ 44.70 $ 34.98 $ 42.13 Realized gain (loss) on derivative contracts 5.39 (0.37) 2.44 (0.22) Royalties (3.57) (5.71) (3.59) (4.92) Operating expenses (12.11) (8.30) (10.90) (10.52) Transportation expenses (0.10) (0.44) (0.22) (0.58) -------------------------------------- Operating netback per BOE(4) $ 26.50 $ 29.88 $ 22.71 $ 25.89----------------------------------------------------------------------------(1) Includes gain on fixed price natural gas contracts of $0.1 million in 2012 (2011 - $1.2 million).(2) The three month numbers exclude the realized gain and unrealized loss on derivative contracts of $2.2 million and $2.8 million respectively during 2012 (2011 - $0.3 million loss and $7.9 million loss respectively). The yearly numbers exclude the realized gain of $5.4 million and unrealized loss on derivative contracts of $2.5 million during 2012 (2011 - $0.6 million loss and $3.3 million gain respectively).(3) Includes royalty and other income classified with oil and gas sales.(4) Barrels of oil equivalent ("BOE") may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
