Connacher Announces Q4 2016 and Year-End 2016 Results
CALGARY, April 20, 2017 /CNW/ - Connacher Oil and Gas Ltd. ("Connacher" or the "Company") announces its financial and operating results for the quarter- and year-ended December 31, 2016 (all amounts are in Canadian dollars unless otherwise noted).
Operations
As oil prices increased in the second half 2016 and 2017, the Company restored production on 16 of the 18 wells at Pod One which were previously suspended. Based on field estimates, Q1 2017 production was approximately 12,000 bbl/d.
The Company is expected to complete a turnaround at Algar by the end of Q2 2017.
Q4 2016 Highlights
Financial
- Q4 2016 revenue, net of royalties, decreased 10% to $36.8 million (Q4 2015 - $41.1 million), primarily due to lower sales volumes, partially offset by higher crude oil benchmark pricing
- Q4 2016 adjusted EBITDA deficit decreased to $3.4 million (Q4 2015 – deficit of $20.5 million), primarily due to lower input costs, partially offset by lower revenue, net of royalties
- Q4 2016 funds used decreased to $13.6 million (Q4 2015 - funds used of $27.8 million) due to an improved adjusted EBITDA, partially offset by higher interest costs associated with the Company's DIP financing
- In Q4 2016, the Company generated a net gain of $400.7 million (Q4 2015 - net loss of $56.0 million). The net gain is primarily due to the reversal of impairment of $435.0 million related to the Company's property, plant and equipment ("PP&E") and an improved adjusted EBITDA
- In Q4 2016, capital expenditures totaled $2.4 million (Q4 2015 - $9.1 million) and were focused on facility enhancements and well servicing in order to restore production
- Connacher closed Q4 2016 with a cash balance of $17.1 million (including restricted cash of $7.1 million) (Q4 2015 - $47.2 million)
Operational
- Q4 2016 production decreased 28% to 10,086 bbl/d (Q4 2015 - 13,919 bbl/d) due to the Company's strategic decision to reduce production in the low commodity price environment
- Q4 2016 blending costs decreased 28% to $10.8 million (Q4 2015 - $14.9 million), primarily due to lower total diluent volumes associated with decreased bitumen production, partially offset by higher diluent pricing
- Q4 2016 transportation and handling costs decreased 67% to $6.7 million (Q4 2015 - $20.1 million), primarily due to a reduction in sales to rail-based destinations and an increase in plant-gate sales
- In Q4 2016, production and operating expense decreased 14% to $18.6 million (Q4 2015 - $21.5 million), primarily due to the realization of operating cost reduction initiatives
YE 2016 Highlights
Financial
- YTD 2016 revenue, net of royalties decreased 54% to $103.1 million (2015 - $224.3 million), primarily due to the decline in crude oil benchmark pricing and lower sales volumes associated with the Company's strategic decision to reduce production in the low commodity price environment
- YTD 2016 adjusted EBITDA deficit decreased to $48.9 million (2015 - deficit of $50.8 million), primarily due to lower input costs, partially offset by lower revenue, net of royalties
- YTD 2016 funds used decreased to $84.4 million (2015 - funds used of $101.8 million) due to lower interest as the $350 million principal amount of 8¾% senior secured notes of Connacher due August 1, 2018 and the US$550 million principal amount of 8½% senior secured notes of Connacher due August 1, 2019 were exchanged for common shares as part of the Company's recapitalization in 2015
- In 2016, net loss totaled $46.3 million (2015 - net loss of $42.3 million). YTD 2016 included foreign exchange gains, lower finance charges, and a reversal of impairment associated with the Company's PP&E assets. YTD 2015 net loss included significant accounting gains associated with the Company's 2015 recapitalization
- YTD 2016 capital expenditures totaled $4.3 million (2015 - $21.1 million) and were focused on non-discretionary maintenance capital, facility enhancements, and well servicing
Operational
- YTD 2016 production decreased 41% to 8,597 bbl/d (2015 - 14,547 bbl/d) due to the Company's strategic decision to reduce production in the low commodity price environment
- YTD 2016 blending costs decreased 52% to $34.7 million (2015- $72.4 million), primarily due to lower total diluent volumes associated with decreased bitumen production volumes and lower diluent pricing
- YTD 2016 transportation and handling costs decreased 66% to $29.9 million (2015 - $88.2 million), primarily due to a reduction in sales to rail-based destinations and an increase in plant-gate sales, partially offset by penalties for non-delivery incurred in the first half of 2016
- YTD 2016 production and operating expenses decreased 23% to $67.3 million (2015 - $87.3 million), primarily as a result of lower natural gas costs and the realization of operating cost reduction initiatives
2016 Financial Highlights
| FINANCIAL (1) | Q4 2016 | Q4 2015 | 2016 | 2015 | |
| Revenue, net of royalties | $36,767 | $41,056 | $103,059 | $224,276 | |
| Adjusted EBITDA (2) | (3,375) | (20,478) | (48,914) | (50,778) | |
| Net earnings (loss) | 400,742 | (56,032) | (46,346) | (42,295) | |
| Basic per share | 14.15 | (1.98) | (1.64) | (2.27) | |
| Diluted per share | 14.15 | (1.98) | (1.64) | (2.27) | |
| Funds used (3) | (13,642) | (27,781) | (84,350) | (101,817) | |
| Capital expenditures | 2,369 | 9,055 | 4,319 | 21,059 | |
| Cash on hand (4) | 17,814 | 47,235 | |||
| Working capital surplus (deficiency) | (291,572) | 59,185 | |||
| Long-term debt | - | 255,228 | |||
| Shareholders' equity | 478,184 | 524,097 | |||
| (1) | ($ 000) except per share amounts |
| (2) | Adjusted EBITDA is a non-GAAP measure and is defined in the "Advisory Section" of the 2016 MD&A and is reconciled to net earnings (loss) under "Reconciliations of Net Earnings (Loss) to EBITDA, Adjusted EBITDA, and Bitumen Netback" |
| (3) | Funds used is a non-GAAP measure and is defined in the "Advisory Section" of the 2016 MD&A and is reconciled to cash flow from operating activities under "Reconciliations of Cash Flow Used in Operating Activities to Funds Used" |
| (4) | Balance includes restricted cash of $7.1 million, pursuant to the terms of the Initial Order granted in the Company's CCAA proceeding before the Court of Queen's Bench of Alberta, Judicial Centre of Calgary |
2016 Operational Highlights
| OPERATIONAL | Q4 2016 | Q4 2015 | 2016 | 2015 |
| Average benchmark prices | ||||
| WTI (US$/bbl) | $49.29 | $42.18 | $43.32 | $48.80 |
| WTI ($/bbl) | 66.16 | 56.60 | 57.32 | 62.98 |
| Heavy oil differential (US$/bbl) | (14.32) | (14.49) | (13.84) | (13.57) |
| WCS ($/bbl) | 49.93 | 37.16 | 39.00 | 45.47 |
| $/US$ exchange rate | 1.34 | 1.34 | 1.32 | 1.29 |
| Production and sales volumes (1) | ||||
| Daily bitumen production (bbl/d) | 10,086 | 13,919 | 8,597 | 14,547 |
| Daily bitumen sales (bbl/d) | 10,006 | 13,675 | 8,734 | 14,280 |
| Bitumen netback ($/bbl) (2)(3) | ||||
| Dilbit sales | $34.29 | $27.48 | $27.55 | $35.81 |
| Blending of products sold | (5.65) | (6.58) | (5.91) | (6.41) |
| Realized bitumen sales price | 28.64 | 20.90 | 21.64 | 29.40 |
| Transportation and handling costs | (7.30) | (15.98) | (9.35) | (16.92) |
| Net realized bitumen sales price | 21.34 | 4.92 | 12.29 | 12.48 |
| Royalties | (0.39) | (0.09) | (0.24) | (0.25) |
| Net bitumen revenue price | 20.95 | 4.83 | 12.05 | 12.23 |
| Production and operating expenses | (20.20) | (17.09) | (21.07) | (16.74) |
| Bitumen netback | $0.75 | $(12.26) | $(9.02) | $(4.51) |
| (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 2016 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 10 by bitumen sold volumes as presented in the "Production and Sales Volumes" table on page 9, 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 |
Companies' Creditors Arrangement Act ("CCAA") Announcement and Status
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, five Court-ordered extensions of the stay period in the Initial Order have been obtained, with the most recent extending the stay of proceedings until and including June 30, 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.
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.
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 certain of which are also significant shareholders of the Company (the "Interim Lenders") for up to US$20 million, with initial commitments of up to US$11.5 million (the "Initial Commitments").
On October 26, 2016, the Company entered into a Waiver, Approval, and Modification Agreement (the "Agreement") with the 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 provided 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.
On December 16, 2016, the Company entered into a further Approval and Modification Agreement (the "Second Amendment Agreement") with the Interim Lenders related to the DIP. The Second Amendment Agreement extended the maturity date under the DIP from May 17, 2017 to December 31, 2017 and amends certain provisions of the DIP in order to provide the Company with greater flexibility to enter into hedging agreements and other long-term contracts.
As at December 31, 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 | $209,682 | ||
| Interest payable on Amended Term Loan Facility | 21,506 | ||
| Convertible Notes | 44,000 | ||
| Interest payable on Convertible Notes | 10,770 | ||
| Trade and accrued liabilities | 17,966 | ||
| Total liabilities subject to compromise | $303,924 | ||
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.
The Company continues to investigate, evaluate, and consider possible sale and restructuring alternatives.
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 447 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, general and administrative 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 or a restructuring of the Company's debt obligations, the risk that the CCAA Stay Period will not be extended past June 30, 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.
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