Connacher Oil and Gas Ltd. Announces Q3 2016 Results
CALGARY, Nov. 23, 2016 - Connacher Oil and Gas Ltd. ("Connacher" or the "Company") announces its financial and operating results for the three and nine months ended September 30, 2016 ("Q3 2016") (all amounts are in Canadian dollars unless otherwise noted). Financial
- Q3 2016 and YTD 2016 revenue, net of royalties, decreased 45% to $31.7 million (Q3 2015 - $58.1 million) and 64% to $66.3 million (YTD 2015 - $183.2 million), respectively, due to the decline in crude oil benchmark pricing; an increase in plant-gate sales; and lower sales volumes associated with the Company's strategic decision to reduce production in the low commodity price environment
- Q3 2016 adjusted EBITDA deficit decreased to $4.1 million (Q3 2015 – deficit of $14.1 million) due to lower input costs, partially offset by lower revenue, net of royalties
- YTD 2016 adjusted EBITDA deficit increased to $45.5 million (YTD 2015 – deficit of $30.3 million) due to lower revenue, net of royalties, partially offset by lower input costs
- Q3 2016 funds used decreased to $13.1 million (Q3 2015 - funds used of $19.3 million) due to an improved adjusted EBITDA, partially offset by higher interest associated with the DIP
- YTD 2016 funds used decreased to $70.7 million (YTD 2015 - funds used of $74.0 million) due to lower interest on long-term debt as the 2018 and 2019 secured second lien notes (the "Notes") were exchanged for common shares as part of the recapitalization transaction which closed on May 8, 2015 (the "Recapitalization"), partially offset by an increased adjusted EBITDA deficit
- Q3 2016 net loss decreased to $34.3 million (Q3 2015 - net loss of $289.2 million) due to a higher adjusted EBITDA and lower depletion, depreciation, amortization, and impairment costs. Q3 2015 included an impairment charge of $242.4 million on property, plant, and equipment ("PP&E")
- YTD 2016 net loss increased to $447.1 million (YTD 2015 - net income of $13.7 million) due to a lower adjusted EBITDA and higher depletion, depreciation, amortization, and impairment costs associated with an impairment charge of $335.5 million. YTD 2015 net income included significant accounting gains associated with the Company's Recapitalization
- In Q3 2016 and YTD 2016, capital expenditures totaled $0.1 million (Q3 2015 - $1.0 million) and $2.0 million (YTD 2015 - $12.0 million), respectively, and were focused on non-discretionary maintenance capital
- Connacher closed Q3 2016 with a cash balance of $17.3 million (including restricted cash of $7.1 million) (Q4 2015 - $47.2 million)
Operational
- Q3 2016 and YTD 2016 production decreased 30% to 9,947 bbl/d (Q3 2015 - 14,258 bbl/d) and 45% to 8,095 bbl/d (YTD 2015 - 14,759 bbl/d), respectively, due to the Company's strategic decision to reduce production
- In Q3 2016 and YTD 2016, transportation and handling costs decreased 82% to $4.8 million (Q3 2015 - $26.9 million) and 66% to $23.2 million (YTD 2015 - $68.1 million), respectively, primarily due to a reduction in sales to rail-based destinations and an increase in plant-gate sales. For YTD 2016, decreased transportation and handling costs were partially offset by penalties for non-delivery incurred in the first half of 2016
- Q3 2016 and YTD 2016 blending costs decreased 44% to $9.6 million (Q3 2015 - $17.3 million) and 58% to $23.9 million (YTD 2015 - $57.5 million), respectively, primarily due to the decrease in diluent volumes required resulting from lower production volumes and reduced diluent purchase prices for both periods
- Q3 2016 and YTD 2016 production and operating expenses decreased 29% to $16.5 million (Q3 2015 - $23.4 million) and 26% to $48.7 million (YTD 2015 - $65.8 million), respectively, primarily due to lower natural gas costs and realization of operating cost reductions
Q3 2016 Financial Highlights
| FINANCIAL (1) | Q3 2016 | Q3 2015 | YTD 2016 | YTD 2015 | |
| Revenue, net of royalties | $31,711 | $58,097 | $66,292 | $183,220 | |
| Adjusted EBITDA (2) | (4,061) | (14,115) | (45,539) | (30,300) | |
| Net earnings (loss) | (34,296) | (289,175) | (447,088) | 13,737 | |
| Basic per share (3) | (1.21) | (10.21) | (15.78) | 0.89 | |
| Diluted per share (3) | (1.21) | (10.21) | (15.78) | 0.19 | |
| Funds used (4) | (13,051) | (19,346) | (70,708) | (74,036) | |
| Capital expenditures | 116 | 953 | 1,950 | 12,004 | |
| Cash on hand (5) | 17,336 | 72,898 | |||
| Working capital surplus (deficiency) | (269,969) | 94,883 | |||
| Long-term debt | - | 249,948 | |||
| Shareholders' equity | 77,442 | 580,110 | |||
| (1) | Canadian dollars in thousands except per share amounts |
| (2) | Adjusted EBITDA is a non-GAAP measure and is defined in the "Advisory Section" of the MD&A and is reconciled to net earnings (loss) under "Reconciliations of Net Earnings (Loss) to EBITDA, Adjusted EBITDA, and Bitumen Netback" |
| (3) | Basic and diluted earnings per share amounts reflect the 800:1 share consolidation associated with the Company's recapitalization transaction dated May 8, 2015 for the three and nine months ended September 30, 2016 and 2015 |
| (4) | Funds used is a non-GAAP measure and is defined in the "Advisory Section" of the MD&A and is reconciled to cash flow from operating activities under "Reconciliations of Cash Flow From (Used in) Operating Activities to Funds Used" |
| (5) | Balance includes restricted cash of $7.1 million |
Q3 2016 Operational Highlights
| OPERATIONAL | Q3 2016 | Q3 2015 | YTD 2016 | YTD 2015 |
| Average benchmark prices | ||||
| WTI (US$/bbl) | 44.94 | 46.43 | 41.33 | 51.00 |
| WTI ($/bbl) | 58.85 | 61.39 | 54.42 | 64.96 |
| Heavy oil differential (US$/bbl) | (13.50) | (13.47) | (13.68) | (13.26) |
| WCS ($/bbl) | 41.17 | 43.59 | 36.41 | 48.07 |
| $/US$ exchange rate | 1.31 | 1.32 | 1.32 | 1.27 |
| Production and sales volumes (1) | ||||
| Daily bitumen production (bbl/d) | 9,947 | 14,258 | 8,095 | 14,759 |
| Daily bitumen sales (bbl/d) | 9,904 | 14,477 | 8,306 | 14,483 |
| Bitumen netback ($/bbl) (2)(3) | ||||
| Dilbit sales | $29.98 | $36.84 | $24.83 | $38.41 |
| Blending of products sold | (5.39) | (5.86) | (6.02) | (6.31) |
| Realized bitumen sales price | 24.59 | 30.98 | 18.81 | 32.10 |
| Transportation and handling costs | (5.32) | (20.16) | (10.17) | (17.22) |
| Net realized bitumen sales price | 19.27 | 10.82 | 8.64 | 14.88 |
| Royalties | (0.31) | (0.33) | (0.18) | (0.30) |
| Net bitumen revenue price | 18.96 | 10.49 | 8.46 | 14.58 |
| Production and operating expenses | (18.17) | (17.57) | (21.42) | (16.63) |
| Bitumen netback | $0.79 | $(7.08) | $(12.96) | $(2.05) |
| (1) | The Company's bitumen sales and production volumes differ due to changes in inventory and product losses |
| (2) | A non-GAAP measure which is defined in the "Advisory Section" of the MD&A. Bitumen netback is reconciled to net loss under "Reconciliations of Net Earnings (Loss) to EBITDA, Adjusted EBITDA, and Bitumen Netback". Bitumen netbacks per barrel amounts are calculated by dividing the total amounts presented in the "Bitumen Netback" table on page 9 by bitumen sold volumes as presented in the "Production and Sales Volumes" table on page 8, with the exception of dilbit sales (presented as dilbit sales divided by dilbit sales volume) and diluent costs (presented as the cost of diluent in excess of the dilbit selling price) |
| (3) | Before risk management contract gains or losses |
Operations
Based on field estimates, October 2016 production was approximately 9,750 bbl/d.
Companies' Creditors Arrangement Act ("CCAA") Announcement and Status
On March 31, 2016, the Company entered into a forbearance agreement (the "Forbearance Agreement") with Credit Suisse AG, Cayman Islands Branch, as administrative agent, and certain lenders constituting the "Required Lenders" in respect of US$155.4 million of loans made by the lenders (the "Lenders") under the credit agreement dated as of May 23, 2014 (as amended, restated, supplemented, or otherwise modified from time to time, including as amended pursuant to the Amendment No. 1 dated May 8, 2015) (the "Amended Term Loan Facility"). Under the terms of the Forbearance Agreement, the Lenders agreed to, among other things, forbear from exercising enforcement rights and remedies arising from the Company's failure to pay the cash interest and principal payments due on March 31, 2016 until the earlier of April 30, 2016; the occurrence of an event of default under the Amended Term Loan Facility, unrelated to the failure to pay principal and interest due on March 31, 2016; or the occurrence of a default or breach of representation by the Company under the Forbearance Agreement.
On April 30, 2016, the Company entered into a second forbearance agreement (the "Second Forbearance Agreement") which extended the forbearance period until May 16, 2016.
On May 17, 2016, the Company sought and obtained creditor protection under the Companies' Creditors Arrangement Act ("CCAA") pursuant to an order (the "Initial Order") granted by the Court of Queen's Bench of Alberta, Judicial Centre of Calgary (the "Court"). The Court granted CCAA protection for an initial period expiring on June 16, 2016. Since the Initial Order, four Court-ordered extensions have been obtained, with the most recent extending the stay of proceedings until and including January 13, 2017 (the "CCAA Stay Period").
Under the Initial Order, Ernst & Young Inc. was appointed by the Court as the monitor (the "Monitor").
The CCAA is a federal insolvency statute that allows an insolvent company which owes creditors in excess of $5 million to restructure its business and financial affairs and stays creditors and others from enforcing rights against the insolvent company.
As authorized and approved by the Initial Order, the Company secured interim financing in the form of a senior secured debtor-in-possession credit facility (the "Interim Financing Credit Facility" or "DIP") from certain existing lenders (the "Interim Lenders") for up to US$20 million, with initial commitments of up to US$11.5 million (the "Initial Commitments").
The Initial Order also approved and authorized the Company and the Monitor to conduct a sale and investment solicitation process (the "SISP") as set out in Schedule "A" to the Initial Order, to identify one or more purchasers and/or investors in the Company's business and/or property. The SISP continued through Q3 2016.
Subsequent to September 30, 2016, the Company entered into a Waiver, Approval, and Modification Agreement (the "Agreement") with its Interim Lenders related to the DIP. Pursuant to the Agreement, the Interim Lenders agreed to waive certain limited defaults under the DIP related to the CCAA SISP timelines and have committed to provide the Company with access to an additional amount of approximately US$5.0 million of the US$20 million DIP initially authorized by the Court to support the Company's continuing operations.
As at September 30, 2016, in connection with the CCAA proceeding, the Company identified the following obligations subject to potential compromise:
| (Canadian dollars in thousands) | |||
| Current and long-term portions of Amended Term Loan Facility | $203,822 | ||
| Interest payable on Amended Term Loan Facility | 14,864 | ||
| Convertible Notes | 44,000 | ||
| Interest payable on Convertible Notes | 8,613 | ||
| Trade and accrued liabilities | 21,025 | ||
| Total liabilities subject to compromise | $292,324 | ||
The aforementioned obligations, subject to potential compromise, represent the amounts expected to be resolved through the CCAA proceeding and remain subject to future, potentially material, adjustments. On August 24, 2016, the Court granted a claims procedure order establishing a process for the filing of claims against the Company and its directors and officers by September 26, 2016 (the "Claims Bar Date"). The Company received 89 claims by the Claims Bar Date.
The liabilities that are not subject to the CCAA proceeding are excluded from the liabilities subject to potential compromise and include certain non-restructuring liabilities incurred subsequent to May 17, 2016.
About Connacher
Connacher is a Calgary-based in situ oil sands developer, producer, and marketer of bitumen. The Company holds a 100 per cent interest in approximately 435 million barrels of proved and probable bitumen reserves and operates two steam-assisted gravity drainage facilities located on the Company's Great Divide oil sands leases near Fort McMurray, Alberta.
Forward Looking Information
This press release contains forward looking information including but not limited to the implementation and status of the CCAA proceeding and the SISP, the Company's ability to manage its liquidity position and deploy the capital required to maintain existing reserve and production bases, fund maintenance capital, fund working capital requirements and meet contractual and other commitments; expectations regarding future commodity prices, foreign exchange rates, diluent blend ratio, transportation costs, rail costs, rail usage, and production and operating costs in future periods; expectations regarding sales and production, bitumen netback, G&A expenses, and capital expenditures in future periods; the Company's reserves; and general operational and financial performance in future periods.
Forward looking information is based on management's expectations regarding the Company's future financial position; the Company's future growth, results of operations and production, future commodity prices and foreign exchange rates; future capital and other expenditures (including the amount, nature, and sources of funding thereof), plans for and results of drilling activity; environmental matters; business prospects and opportunities; and future economic conditions. Forward looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: the risk that the SISP process may not result in a sale of the Company or its assets, the risk that the CCAA Stay Period will not be extended past January 13, 2017 and that as a result creditors will be entitled to exercise their various rights and remedies against the Company, the level of indebtedness of the Company, the implementation and impact of any reorganization or restructuring on the assets, business and financial affairs of the Company, future co-operation of the creditors of the Company, the Company's ability to generate sufficient cash flow from operations or to obtain adequate financing to fund capital expenditures and working capital needs and to maintain the Company's ongoing obligations during the CCAA process and thereafter, the ability to maintain relationships with suppliers, customers, employees, shareholders and other third parties in light of the Company's current liquidity situation and the CCAA proceeding, as well as the risks associated with the oil and gas industry (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve and resource estimates; the uncertainty of geological interpretations; the uncertainty of estimates and projections relating to production, costs and expenses; and health, safety and environmental risks), risk of commodity price and foreign exchange rate fluctuations, risks associated with the impact of general economic conditions, risks and uncertainties associated with maintaining the necessary regulatory approvals and securing the financing to continue operations and increase production to levels previously achieved.
Reported average production levels may not be reflective of sustainable production rates and future production rates may differ materially from the production rates reflected in this press release due to, among other factors, difficulties or interruptions encountered during the production of bitumen.
Additional risks and uncertainties affecting Connacher and its business and affairs are described in further detail in Connacher's AIF for the year ended December 31, 2015. Although Connacher believes that the expectations in such forward looking information are reasonable, there can be no assurance that such expectations shall prove to be correct. Any forward looking information included in this press release is expressly qualified in its entirety by this cautionary statement. Any forward looking information included herein is made as of the date of this press release and Connacher assumes no obligation to update or revise any forward looking information to reflect new events or circumstances, except as required by law.
SOURCE Connacher Oil and Gas Ltd.
Contact
Merle Johnson, Chief Executive Officer; Jeff Beeston, Vice President of Finance and Interim Chief Financial Officer; Connacher Oil and Gas Ltd., Phone: (403) 538-6201, Fax: (403) 538-6225, Suite 1040, 640 - 5th Avenue SW, Calgary, Alberta T2P 3G4, inquiries@connacheroil.com, www.connacheroil.com