Storm has also filed its unaudited condensed interim consolidated financial statements as at
Selected financial and operating information for the three and six months ended
Highlights
Thousands of Cdn$, except volumetric and per-share amounts | Three Months to | Three Months to | Six Months to | Six Months to | ||||
FINANCIAL | ||||||||
Revenue from product sales(1) | 30,191 | 37,568 | 72,114 | 93,334 | ||||
Funds flow | 10,904 | 12,590 | 27,793 | 29,107 | ||||
Per share – basic and diluted ($) | 0.09 | 0.10 | 0.23 | 0.24 | ||||
Net income (loss) | (11,665 | ) | 7,864 | (1,153 | ) | 8,471 | ||
Per share – basic and diluted ($) | (0.10 | ) | 0.06 | (0.01 | ) | 0.07 | ||
Cash return on capital employed (“CROCE”)(2) | 12% | 18% | 12% | 18% | ||||
Return on capital employed (“ROCE”)(2) | 2% | 11% | 2% | 11% | ||||
Capital expenditures | 2,394 | 23,145 | 28,869 | 40,089 | ||||
Debt including working capital deficiency(2)(3) | 130,317 | 102,268 | 130,317 | 102,268 | ||||
Common shares (000s) | ||||||||
Weighted average - basic | 121,557 | 121,557 | 121,557 | 121,557 | ||||
Weighted average - diluted | 121,557 | 121,557 | 121,557 | 121,557 | ||||
Outstanding end of period – basic | 121,557 | 121,557 | 121,557 | 121,557 | ||||
OPERATIONS | ||||||||
(Cdn$ per Boe) | ||||||||
Revenue from product sales(1) | 13.86 | 20.72 | 16.55 | 25.95 | ||||
Transportation costs | (5.50 | ) | (5.96 | ) | (5.24 | ) | (5.84 | ) |
Revenue net of transportation | 8.36 | 14.76 | 11.31 | 20.11 | ||||
Royalties | (0.44 | ) | (0.32 | ) | (0.70 | ) | (1.46 | ) |
Production costs | (4.50 | ) | (5.89 | ) | (4.83 | ) | (5.99 | ) |
Field operating netback(2) | 3.42 | 8.55 | 5.78 | 12.66 | ||||
Realized gain (loss) on risk management contracts | 2.99 | (0.22 | ) | 2.12 | (2.78 | ) | ||
General and administrative | (0.72 | ) | (0.68 | ) | (0.79 | ) | (1.13 | ) |
Interest and finance costs | (0.68 | ) | (0.71 | ) | (0.71 | ) | (0.66 | ) |
Decommissioning expenditures | (0.01 | ) | - | (0.03 | ) | - | ||
Funds flow per Boe | 5.00 | 6.94 | 6.37 | 8.09 | ||||
Barrels of oil equivalent per day (6:1) | 23,935 | 19,923 | 23,941 | 19,873 | ||||
Natural gas production | ||||||||
Thousand cubic feet per day | 114,772 | 97,510 | 115,365 | 97,026 | ||||
Price (Cdn$ per Mcf)(1) | 2.23 | 2.64 | 2.39 | 3.55 | ||||
Condensate production | ||||||||
Barrels per day | 2,305 | 2,081 | 2,464 | 2,140 | ||||
Price (Cdn$ per barrel)(1) | 25.92 | 71.12 | 44.41 | 66.85 | ||||
NGL production | ||||||||
Barrels per day | 2,501 | 1,591 | 2,249 | 1,563 | ||||
Price (Cdn$ per barrel)(1) | 6.23 | 4.87 | 4.92 | 17.83 | ||||
Wells drilled (net) | - | - | 1.0 | 5.0 | ||||
Wells completed (net) | - | - | 3.5 | - | ||||
Wells started production (net) | 1.0 | 1.0 | 3.0 | 3.0 |
(1) | Excludes gains and losses on risk management contracts. |
(2) | Certain financial amounts shown above are non-GAAP measurements. See discussion of Non-GAAP Measurements on page 25 of the MD&A. CROCE and ROCE are presented on a 12-month trailing basis. |
(3) | Excludes the fair value of risk management contracts, decommissioning liability and lease liability. |
PRESIDENT'S MESSAGE
2020 SECOND QUARTER HIGHLIGHTS
The considerable efforts made by Storm’s employees mitigated the many impacts of the COVID-19 pandemic on the business. Compared to last year, production grew by 20% and there was a large realized hedging gain, however, this was offset by lower natural gas and condensate prices which reduced revenue. Production costs showed a significant improvement as a result of the start-up of the Nig Creek Gas Plant in
- Production was 23,935 Boe per day, effectively unchanged from the previous quarter and an increase of 20% year over year. This was consistent with guidance for production to average 23,000 to 25,000 Boe per day. Year to date, three wells (3.0 net) have started production, all at West Umbach.
- Liquids production (condensate plus NGL) totaled 4,806 barrels per day, an increase of 4% from the previous quarter and an increase of 31% year over year. Liquids as a proportion of total production has increased as a result of higher NGL recoveries at the Nig Creek Gas Plant which started up in
February 2020 .
- The benefits of the Nig Creek Gas Plant were realized with corporate production costs declining by 31%, or
$1.39 per Boe, from last year while higher liquids recovery added approximately 500 barrels per day.The Nig Creek area represented 36% of corporate production while providing 60% of field operating income before hedging.
- Production from the
Nig Creek wells continues to meet or exceed expectations with declines from the upper/midMontney being shallower than expected while the first well in the lowerMontney has a higher field condensate rate. The four most recent wells started production inNovember 2019 with rates over the first eight months averaging approximately 1,550 Boe per day sales (100 barrels per day field condensate) for the three wells in the upper/mid and approximately 875 Boe per day sales (170 barrels per day field condensate) for the lower.
- Revenue was
$13.86 per Boe, a 33% decline from last year mainly due to lower condensate and natural gas prices. The condensate price declined 64% as a result of the collapse in the WTI price (partially offset by a hedging gain). The natural gas price declined 16% as a result of declines in theChicago and Sumas prices (66% of sales) which more than offset an increase in the AECO andBC Station 2 prices (29% of sales).
- Liquids increased to 20% of sales volumes (from 18% last year); however, the proportion of production revenue from liquids decreased to 23% from 38% last year as a result of the decline in the condensate price.
- Production, general and administrative, and interest and finance costs were
$5.90 per Boe, a year-over-year decrease of$1.38 per Boe as a result of lower production costs resulting from the start-up of the Nig Creek Gas Plant in February.
- Hedging provided a realized gain of
$6.5 million versus a realized loss of$0.4 million in the prior year. The majority of the gain,$4.9 million , was from WTI crude oil contracts.
- Funds flow was
$10.9 million , or$0.09 per share, a decrease of$1.7 million from last year as a result of lower revenue per Boe which more than offset production growth, lower production costs per Boe and the hedging gain.
- Net loss was
$11.7 million with the largest contributor to the decrease from net income of$7.9 million last year being an unrealized hedging loss (non-cash) of$13.8 million which represents the change in the value of future hedging contracts.
- Capital investment was
$2.4 million (within guidance for less than$3 million ) and included$1.5 million to complete the Nig Creek Gas Plant project.
- Total debt including working capital deficiency was
$130 million which is 3.0 times annualized quarterly funds flow. As part of the annual review, the bank line was voluntarily reduced to$190 million (from$205 million ) in order to reduce the associated fees.
- The undiscounted and inflated decommissioning liability totaled
$35.4 million . The liability for currently inactive wells and facilities is approximately$10 million with approximately 75% of this expected to be incurred by 2025.
OPERATIONS REVIEW
Umbach,
Storm's land position is prospective for liquids-rich natural gas from the
Field activity in the second quarter was minimal while activity in the second half of the year will include drilling four (4.0 net) horizontal wells at the
At the end of the quarter, there were four (2.5 net) drilled
At Umbach (average 90% working interest), produced raw natural gas contains 1.2% H2S with approximately 80% directed to the McMahon Gas Plant and 20% to the Stoddart Gas Plant. Firm processing commitments total 80 Mmcf raw gas per day (65 Mmcf per day at
At
At Fireweed (50% working interest), there was no activity in the quarter as development was deferred on
A summary of horizontal well results at
Year of Completion | Frac Stages | Completed Length | IP90 | IP180 | IP365 |
Umbach 2017 - 2018 19 hz’s | 34 | 1895 m | 4.6 Mmcf/d(1) 24 Bbls/Mmcf(2) 19 hz’s | 4.4 Mmcf/d(1) 20 Bbls/Mmcf(2) 19 hz’s | 4.0 Mmcf/d(1) 15 Bbls/Mmcf(2) 19 hz’s |
3 hz’s | 37 | 2180 m | 8.1 Mmcf/d(1) 29 Bbls/Mmcf(2) 3 hz’s | 8.2 Mmcf/d(1) 25 Bbls/Mmcf(2) 3 hz’s | 7.5 Mmcf/d(1) 21 Bbls/Mmcf(2) 3 hz’s |
3 hz’s | 42 | 2240 m | 8.1 Mmcf/d(1) 20 Bbls/Mmcf(2) 3 hz’s | 7.9 Mmcf/d(1) 15 Bbls/Mmcf(2) 3 hz’s |
Year of Completion | Frac Stages | Completed Length | IP90 | IP180 | IP365 |
1 hz | 42 | 2280 m | 5.5 Mmcf/d(1) 57 Bbls/Mmcf(2) 1 hz | 4.1 Mmcf/d(1) 49 Bbls/Mmcf(2) 1 hz | |
Umbach 2020 3 hz’s | 38 | 2420 m | 4.4 Mmcf/d(1) 15 Bbls/Mmcf(2) 3 hz’s |
(1) | Raw gas rate. |
(2) | Bbls/Mmcf is the condensate-gas ratio or barrels of field condensate per Mmcf raw. |
Based on results from the 2017 and 2018 wells, Storm management is using 8 Bcf and 14 Bcf raw gas type curves (internal estimates) to forecast production at Umbach and
HEDGING
Commodity price hedges are used to support longer-term growth by protecting pricing on up to 50% of current production for the next 18 months and up to 25% for 19 to 36 months forward (future production growth is not hedged). The current hedge position is shown below (excludes price differential contracts which are shown in the financial statements) with hedges for the remainder of 2020 protecting approximately 47% of current production (based on production in the first half of 2020).
H2/20 | 2021 | |
Natural Gas Hedges | ||
% Current Nat Gas Production(1) | 49% | 48% |
Collars | 31,800 Mcf/d(2) Floor Ceiling | 8,400 Mcf/d(2) Floor Ceiling |
Fixed Price | 24,500 Mcf/d(2) | 46,900 Mcf/d(2) |
Crude Oil Hedges | ||
% Current Liquids Production(1) | 41% | 28% |
Collars | 800 Bpd Floor WTI Ceiling WTI | 650 Bpd Floor WTI Ceiling WTI |
Fixed Price | 950 Bpd WTI 200 Conway | 625 Bpd WTI 50 Conway |
(1) | Using H1/20 actual production. |
(2) | Using corporate average heat content 1.23 GJ per Mcf and 1.17 Mmbtu per Mcf. |
(3) | Hedges in US$ are converted using an exchange rate of |
OUTLOOK
Production in the third quarter of 2020 is forecast to average 19,000 to 21,000 Boe per day which includes the effect of a 28-day planned maintenance turnaround at the McMahon Gas Plant in September plus a 6-day unplanned outage which occurred in July. Approximately 11,000 Boe per day will be affected by the planned and unplanned outages. The financial cost for the outages is estimated to be
Capital investment in the third quarter is expected to be
Updated guidance for 2020 is provided below. Forecast production includes the effect of the third quarter outages described above and reduced NGL recovery after ‘warming up’ the Nig Creek Gas Plant. The reduction in forecast annual production reflects the effect of outages in the third quarter being greater than previously anticipated. The increase in fourth quarter production comes from the completion and tie-in of four wells at
2020 Guidance | |||
| Previous | Current | |
Cdn$/US$ exchange rate | 0.72 | 0.74 | |
Sumas monthly natural gas - US$/Mmbtu | |||
AECO daily natural gas - Cdn$/GJ | |||
WTI - US$/Bbl | |||
( | ( | ||
Est revenue net of transport (excl hedges) - $/Boe | |||
Est production costs - $/Boe | |||
Est royalty rate (% revenue net transportation) | 5% - 6% | 5% - 6% | |
Est mid-point field operating netback - $/Boe(1) | |||
Est realized hedging gains or (losses) - $ million | |||
Est cash G&A - $ million | |||
Est interest expense - $ million | |||
Est capital investment (excluding A&D) - $ million | (Nig Crk GP | (Nig Crk GP | |
Forecast fourth quarter Boe/d Forecast fourth quarter liquids Bbls/d | 25,000 - 28,000 5,100 - 5,600 | 25,000 - 28,000 5,100 - 5,600 | |
Forecast annual Boe/d Forecast annual liquids Bbls/d | 23,500 - 26,000 4,500 - 5,000 | 22,500 - 24,000 4,300 - 4,800 | |
Est annual funds flow - $ million | |||
Horizontal wells drilled - gross Horizontal wells completed - gross Horizontal wells starting production - gross | 6 - 9 (5.0 - 8.0 net) 8 (7.5 net) 7 (7.0 net) | 6 - 9 (5.0 - 8.0 net) 8 (7.5 net) 7 (7.0 net) |
(1) | Based on the mid-point for each of revenue net of transportation, royalty rate and production costs. |
(2) | Based on the range for forecast annual production and using the mid-point for each of the estimated field operating netback, estimated cash G&A, estimated hedging gain or loss and estimated interest expense. |
Guidance History
Daily (US$/Mmbtu) | Daily (Cdn$/GJ) | WTI (US$/Bbl) | ($ million) | Forecast Annual Funds Flow ($ million) | Forecast Annual Production (Boe/d) | ||||
not provided | 24,000 - 26,000 | ||||||||
23,500 - 26,000 | |||||||||
23,500 - 26,000 | |||||||||
22,500 - 24,000 |
Capital investment in 2020 will be allocated as follows:
$7 million at Fireweed to drill two horizontal wells (1.0 net), complete one well (0.5 net); and start construction of the associated road and facility site;$33 million atNig Creek includes$12 million to complete the gas plant (100% working interest), drill four horizontal wells (4.0 net) and complete and pipeline connect four wells (4.0 net); and$12 -$20 million at Umbach to complete and pipeline connect three horizontal wells (3.0 net) plus drill three horizontal wells (3.0) which are contingent on commodity prices and forecast funds flow.
Firm pipeline capacity and marketing arrangements are expected to result in approximately 54% of forecast natural gas production in 2020 being sold into
Liquids production in the second quarter was reduced as much as possible after the collapse in the WTI price triggered by the COVID-19 pandemic and the subsequent effect on condensate and NGL prices. This was mainly done by curtailing wells with higher condensate-gas ratios in April and May when prices were the lowest and by ‘warming up’ the Nig Creek Gas Plant to reduce NGL recovery. Condensate production is no longer being curtailed since the price has improved significantly since the low in May; however, further improvement in propane prices is required before NGL recovery is maximized at the Nig Creek Gas Plant.
The decline in Storm’s natural gas price in the first half of 2020 is largely from having 66% of sales into US markets at
Results from the first lower
The improvement in the WTI price since May supports restarting development at Fireweed which could add approximately
Given the recent volatility in commodity prices and continuing uncertainty in the world with respect to the longer-term financial effects from COVID-19, the plan for the second half of 2020 is to remain cautious by ensuring capital investment is less than or equal to funds flow. Although activity is being limited in 2020, forecast average production is still expected to grow by approximately 15% to 20% year over year.
The efforts of everyone at Storm in successfully managing the many operational and personal challenges caused by the ongoing COVID-19 pandemic have allowed for a seamless transition to a new business environment and are greatly appreciated.
Financial results are expected to improve significantly in the fourth quarter of 2020 and into 2021 based on higher forward strip prices which are expected to provide a ‘tailwind’ (instead of the ‘headwind’ since early 2019 resulting from declining commodity prices) and with the financial benefits being realized from the Nig Creek Gas Plant.
Respectfully,
President and Chief Executive Officer
Boe Presentation - For the purpose of calculating unit revenues and costs, natural gas is converted to a barrel of oil equivalent (“Boe”) using six thousand cubic feet (“Mcf”) of natural gas equal to one barrel of oil unless otherwise stated. Boe may be misleading, particularly if used in isolation. A Boe conversion ratio of six Mcf to one barrel (“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. All Boe measurements and conversions in this report are derived by converting natural gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil. Mboe means 1,000 Boe.
Non-GAAP Measures - This document may refer to the terms “debt including working capital deficiency”, “field operating netbacks”, “field operating netbacks including hedging”, “CROCE”, “ROCE”, the terms “cash” and “non-cash”, “cash costs”, and measurements “per commodity unit” and “per Boe” which are not recognized under Generally Accepted Accounting Principles ("GAAP") and are regarded as non-GAAP measures. These non-GAAP measures may not be comparable to the calculation of similar amounts for other entities and readers are cautioned that use of such measures to compare enterprises may not be valid. Non-GAAP terms are used to benchmark operations against prior periods and peer group companies and are widely used by investors, analysts and other parties. Additional information relating to certain of these non-GAAP measures can be found in Storm’s MD&A dated
Initial Production Rates - Initial production rates (“IP”) provided refer to actual raw natural gas rates reported to the
Forward-Looking Information - This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "will", “would”, "expect", “anticipate”, “intend”, "believe", "plan", "potential", “outlook”, “forecast”, “estimate”, “budget” and similar expressions are intended to identify forward-looking statements or information. More particularly, and without limitation, this press release contains forward-looking statements and information concerning: current and future years’ guidance in respect of certain operational and financial metrics, including, but not limited to, commodity pricing, estimated average production costs, estimated average royalty rate, estimated operations capital, estimated general and administrative costs, estimated quarterly and annual production and estimated number of horizontal wells drilled, completed and connected, capital investment plans, infrastructure plans, anticipated
The forward-looking statements and information in this press release are based on certain key expectations and assumptions made by Storm, including: prevailing commodity prices and exchange rates; applicable royalty rates and tax laws; future well production rates; reserve and resource volumes; the performance of existing wells; success to be expected in drilling new wells; the adequacy of budgeted capital expenditures to carry out planned activities; the availability and cost of services; and the receipt, in a timely manner, of regulatory and other required approvals. Although the Company believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on these forward-looking statements and information because of their inherent uncertainty. In particular, there is no assurance that exploitation of the Company’s undeveloped lands and prospects will result in the emergence of profitable operations.
Since forward-looking statements and information 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 the risks associated with the oil and gas industry in general such as: general economic conditions in
Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the operations or financial results of the Company are included or are incorporated by reference in the Company’s Annual Information Form dated
The forward-looking statements and information contained in this press release are made as of the date hereof and the Company 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.
For further information please contact:
President & Chief Executive Officer
Chief Financial Officer
Manager, Corporate Affairs
(403) 817-6145
www.stormresourcesltd.com
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