Advertisement
Royalties as a percentage of total oil and gas sales are highly sensitive to prices and adjustments to gas cost allowance and so royalty rates can fluctuate from quarter to quarter and year to year.
Three months ended Year ended December 31 December 31 2012 2011 2012 2011Gross Crown royalties 9.4% 8.0% 8.5% 9.2%Gas cost allowance (3.8%) (1.5%) (3.8%) (4.2%)Other royalties 4.1% 6.3% 5.6% 6.8% --------------------------------------Total royalties 9.7% 12.8% 10.3% 11.8%Total royalties ($/BOE)(1) $ 3.57 $ 5.71 $ 3.59 $ 4.92----------------------------------------------------------------------------(1) 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.Operating expenses. Operating expenses were $12.11 per BOE for the three months ended December 31, 2012 compared to $11.28 per BOE in the third quarter of 2012 and $8.30 per BOE in the fourth quarter of 2011. The lower operating expense for the fourth quarter of 2011 was primarily due to a reduction in estimated accrued liabilities related to certain gas plant processing fees from earlier periods. Operating expenses were $10.90 per BOE for the year ended December 31, 2012 compared to $10.52 per BOE in 2011.
Transportation expenses. For the year ended December 31, 2012, transportation expenses were $0.22 per BOE (December 31, 2011 - $0.58 per BOE). For the fourth quarter of 2012, transportation expenses were $0.10 per BOE compared to $0.13 per BOE in the third quarter of 2012 and $0.44 per BOE in the fourth quarter of 2011. The decrease in transportation expenses in 2012 relative to 2011 is due to the direct tie-in of the Garrington battery to a newly constructed lateral pipeline in late October 2011, thereby replacing clean oil trucking charges with a pipeline tariff, which is netted from the Company's oil sales price.
Depletion and depreciation. Depletion and depreciation was $44.4 million ($19.96 per BOE) for the year ended December 31, 2012 compared to $52.9 million ($18.85 per BOE) in 2011. Depletion and depreciation was $9.0 million ($21.70 per BOE) in the fourth quarter of 2012 compared to $10.1 million ($19.01 per BOE) in the third quarter of 2012 and $15.0 million ($20.49 per BOE) in the fourth quarter of 2011. The decrease in the amount of depletion and depreciation for the year and the fourth quarter of 2012 compared to the same periods of 2011 is due to lower overall production volumes. Proved plus probable reserves volumes are included in the determination of depletion expense. Natural gas reserves volumes were reduced due to low natural gas prices, property dispositions, and the termination of the Edmonton Sands farm-in agreement, thus resulting in higher depletion and depreciation expense per BOE.
Impairment loss. Oil and natural gas assets are grouped into cash generating units ("CGUs") for impairment testing. The Company had previously grouped its development and production assets into the following CGUs: Horizontal Oil, Deep Gas, Shallow Gas and Non-Core. In 2012, a significant portion of the assets in the Deep Gas and Non-core CGUs were sold and the remaining assets were regrouped into the following CGUs: Gas, and Horizontal Cardium. The Horizontal Cardium CGU retained the same group of assets, but was renamed to better reflect the nature of those assets. The remaining assets in the Deep Gas and Non-core CGUs more closely resemble the operational, management and monitoring, product composition, and cash inflows of the assets within the Shallow Gas CGU. Accordingly, the remaining Deep Gas and Non-core assets have been grouped with the Shallow Gas assets to form the new Gas CGU.
