Chinook Energy Inc.- Announces First Quarter 2012 Financial and Operating Results, Revisions to 2012 Guidance and Management Changes

Share Email this page  |  Print page  |  Share Share this page
 

CALGARY, ALBERTA--(Marketwire - May 10, 2012) - Chinook Energy Inc. ("Chinook" or the "Company") (TSX:CKE) announced today its first quarter 2012 financial and operating results, revisions to 2012 guidance and management changes. A complete copy of the Company's financial statements along with management's discussion and analysis will be filed on SEDAR and will also be available on the Company's website at www.chinookenergyinc.com.

During the first quarter of 2012 ("Q1") Chinook continued the strategy of accelerated development of the Bir Ben Tartar production concession ("BBT") in Tunisia where we receive exceptional netbacks for our Brent-priced crude oil production and in response to continued soft North American natural gas prices, we have focused our Canadian operations solely on oil and liquids-rich drilling opportunities in the West Central and Peace River Arch areas of Alberta along with continued non-strategic property dispositions.

FIRST QUARTER 2012 FINANCIAL AND OPERATING RESULTS

Q1 production averaged 13,596 barrels of oil equivalent per day down approximately ten percent from fourth quarter 2011 production of 15,119 barrels of oil equivalent per day and down approximately seven percent year over year from 14,646 barrels of oil equivalent per day in the first quarter of 2011. Production volumes were weighted 63 percent towards natural gas where our average price received was $2.27 per thousand cubic feet, down over 40 percent year over year from an average price of $3.85 per thousand cubic feet in the first quarter of 2011. On a positive note, 28 percent of production volumes were oil weighted and received an average price of $101.06 per barrel supported by strong Brent oil priced production that averaged $118.49 per barrel in Q1. Production declines in Q1 are attributed to the prior year and ongoing property dispositions along with our voluntary shut-in of approximately 450 barrels of oil equivalent per day of natural gas production in northeastern Alberta. Tunisia production represented 12 percent of our volumes in Q1 up from four percent of our volumes in the first quarter of 2011 and up slightly from 11 percent in the fourth quarter of 2011.

The year over year production increase from Tunisia has begun to show its significance with the 12 percent production volumes contributing 63 percent of our $19.2 million cash flow in Q1. Q1 cash flow was down 20 percent from the fourth quarter of 2011 and nine percent from the first quarter of 2011 due to lower natural gas prices along with lower production due mainly to our disposition program and voluntary production shut-ins. In this soft natural gas price environment we have benefited and will continue to benefit from having this premium Brent-priced production in our asset base. The cash flow contribution from Tunisia is expected to continue to grow throughout 2012 as we proceed with our continuous development drilling operations at the BBT Concession.

Capital expenditures for the quarter totaled $23.4 million of which $9.3 million was spent in Tunisia and $14.1 million in Canada. Capital expenditures were down 46 percent from the first quarter of 2011. Our net debt at March 31, 2012 was $89.2 million, down approximately 34 percent from year end 2011 net debt of $134.9 million and over 49 percent year over year from first quarter 2011 net debt of $176.5 million. Net debt to annualized Q1 cash flow was approximately 1.2 times and is expected to continue to improve throughout 2012 as our debt is reduced through our disposition of non-core assets along with increased cash flow from our ongoing exploration and development activities.

The disposition of non-core assets continued in Q1 as we completed dispositions for gross proceeds of $56.6 million, before closing adjustments, with associated production of approximately 850 barrels of oil equivalent per day or approximately $66,000 per flowing barrel of oil equivalent, a sales metric which exceeds our enterprise value of $31,000 per flowing barrel of oil equivalent as at March 31, 2012. The disposition of non-core assets to support a strong balance sheet and improve operational efficiencies will be a continued theme throughout 2012 and, as of April 30, 2012 we have disposed of assets representing an additional 202 barrels of oil equivalent per day for proceeds of $19.0 million or $94,000 per flowing barrel of oil equivalent.

Notwithstanding lower natural gas prices, we increased our Q1 corporate netback by two percent to $18.45 per barrel of oil equivalent from $18.04 per barrel of oil equivalent in the first quarter of 2011. We continue to seek ways to improve our operating cost structure by disposing of higher cost properties and replacing them with new lower cost production and continuing to review operating efficiencies on a property by property basis. The improvement in our corporate netback was obtained despite the costs associated with appropriately suspending the shut-in natural gas wells and the fixed costs incurred while they are shut-in.

Financial Summary
Financial and Operating Highlights
Three months ended
March 31
2012 2011
OPERATIONS
Production
Oil (bbl/d) 3,819 3,634
Natural gas Liquids (bbl/d) 1,202 1,692
Natural gas (mcf/d) 51,445 55,922
Average daily production (boe/d) 13,596 14,648
Sales Prices
Average oil price ($/bbl) $101.06 $82.38
Average natural gas liquids price ($/bbl) $70.66 $59.13
Average natural gas price ($/mcf) $2.27 $3.85
Corporate Netbacks
Average commodity pricing ($/boe) $43.35 $41.86
Royalties ($/boe) $(4.22 ) $(8.12 )
Net production expenses ($/boe) $(17.65 ) $(13.48 )
Cash G&A ($/boe) $(3.03 ) $(2.22 )
Corporate Netbacks ($/boe) $18.45 $18.04
FINANCIAL ($thousands, except per share amounts)
Petroleum and natural gas revenue, net of royalties $48,509 $44,365
Cash flow $19,173 $21,140
Per share - basic and diluted $0.09 $0.10
Net loss $(17,091 ) $(241 )
Per share - basic and diluted $(0.08 ) $-
Capital expenditures $23,446 $43,696
Net debt $89,182 $176,542
Total assets $692,023 $888,500
Common Shares (thousands)
Weighted average during period
- basic and diluted 214,188 214,188
Outstanding at period end 214,188 214,188

Q1 ACTIVITY AND OPERATIONAL UPDATE

Tunisia

Our 2012 development program on the BBT Concession commenced on February 11 with the drilling of the TT9 vertical development well, which was successfully completed as an Ordovician oil well and brought on production at an initial rate of 300 barrels per day (162 net to Chinook). The Foradex 14 rig was subsequently moved to an exploration location approximately 25 kilometers north of the BBT Concession to drill the BJA-2 well. The well was rig released in April and the target formation was plugged and abandoned. Lease construction is currently underway for our first horizontal well on the BBT Concession which will spud at our TT16 location in May and is expected to be completed by the end of June. We intend to land the horizontal section in the Lower Jeffara (Ordovician) formation and drill a 1,000 meter lateral section completed with up to an eight stage completion. Following TT16 we plan to move immediately to a second horizontal location at TT13. Our program will be the first multi-stage fractured horizontal wells in Tunisia and falls directly within our strategy to bring North American drilling and completion technology to our BBT Concession. We are excited about the potential of the application to unlock substantial value through increased rate and recovery of the large oil in place on the BBT Concession.

Our original plans for 2012 on the BBT Concession were to complete on average one well per month with the support of a second rig for the second half of the year. Program approval delays for the TT16 location put us behind schedule by one well by the end of the second quarter. Subject to the success of the initial horizontal program and the subsequent improvement in the processing of further approvals, we anticipate accelerating the drilling program with the addition of a second rig in the third quarter. Capital expenditures budgeted for facility construction late in 2012 will now be incurred in 2013.

In the offshore projects in the Gulf of Hammamet our partners, the Tunisian national oil company Enterprise Tunisienne d'Activitiés Pétrolières ("ETAP") and a wholly-owned subsidiary of New Zealand Oil and Gas Ltd., are fully engaged as we near completion of the pre-front-end engineering and design ("FEED") evaluation phase of the Cosmos offshore development. As part of this development project we plan to deploy a normally unmanned well jacket platform with process and storage located on an adjacent floating production storage and offtake vessel ("FPSO") for the life of the main Cosmos Field and adjacent satellite fields. We intend to initiate the FEED engineering by mid year and sanction the project before the end of 2012.

The political situation in Tunisia continues to be unsettled with semi-regular, yet generally peaceful, demonstrations of civil and labor unrest along with a high turnover of appointed officials. Given the transition experienced by the country in 2011 this was not unexpected and there have been noticeable areas of improvement, particularly in our local community relations as evidenced by our ability to conduct drilling and production operations while seeing no material delays for any security based reasons.

Canada

In Canada, we continue to focus our efforts on the exploitation of oil reserves and the monetization of higher cost producing properties. In Q1 our operations were primarily focused on horizontal drilling activity on our Dunvegan oil and liquids plays at Karr and Wapiti in our Grande Prairie district. We participated in drilling three (1.13 net) Dunvegan wells and tied in one (0.5 net) Dunvegan well in Q1 which had a 45 day production rate of 270 barrels of oil equivalent per day (77% oil). The remaining two (0.75 net) Dunvegan wells are awaiting completion post spring break up and one (0.375 net) well drilled in the fourth quarter of 2011 was completed with a final test rate of 252 barrels of oil equivalent per day (20% oil). We have identified several follow up Dunvegan locations in the oilier part of the fairway which are to be drilled post break up and continue to be encouraged with the results of our Dunvegan program. We also participated in drilling a Montney discovery in Kaybob (0.375 net) with plans to tie the well in later in 2012.

REVISIONS TO 2012 GUIDANCE

Based on first quarter 2012 cash flow, revised natural gas pricing assumptions, and operational delays in Tunisia we are adjusting our capital expenditures downward from $165 million to $110-120 million and are forecasting to generate cash flow of approximately $95-100 million. Ninety-five percent of the remaining Canadian capital expenditure budget will be directed toward oil activities while 100 percent of the remaining Tunisian capital expenditures will be directed toward oil activities. On this basis, we anticipate to exit the year with net debt of approximately $70 million. Average production for the year will be reduced to 12,750-13,250 barrels of oil equivalent per day.

We expect to complete the annual renewal of our borrowing base with our lenders by the end of May and based largely on the lower commodity pricing assumptions used by our banking syndicate and continued asset sales, we expect a material reduction in our facility. At the end of Q1 we were only drawn at 54 percent of the available credit facility and we expect that we will be able to absorb the anticipated reduction. Debt management has and will continue to be a top priority as evidenced by our continuous reduction in quarter-over-quarter and year-over-year debt levels. It is with a strong balance sheet and cash flow based capital expenditure philosophy that we will be able to advance our development program in Tunisia, where we receive an exceptionally high netback, and move our Canadian operations into more highly profitable, resource focused, oil and liquids opportunities. In challenged business environments change may not appear to happen fast enough, however, we are pleased with our performance to date in 2012 and are encouraged by our prospects for growth through the balance of 2012 and beyond.

MANAGEMENT CHANGES

We are pleased to recognize the contribution of key personnel and announce two changes to the executive management of Chinook with the appointments of Walter Vrataric to President and Tim Halpen to Chief Operating Officer of Chinook's Canadian operation. Walter has served as Vice President, Business Development and Land since March 2010 and has been assuming increased levels of responsibility for the repositioning of our Canadian business for future growth and expanding our capital market support capabilities. Tim has served as the Vice President, Exploitation since January 2010 and has been a key contributor to establishing and building our Canadian business. Chinook's current Chief Operating Officer for Canadian Operations, Grant Wierzba, will continue to provide valued input in the senior management decisions for our Canadian and Tunisian activities as Vice President, Operations and will remain on the Board of Directors of Chinook. Matt Brister will continue to serve as Chief Executive Officer and Chairman of the Board of Directors of Chinook.

ANNUAL MEETING OF SHAREHOLDERS

The Annual Meeting of the holders of common shares of Chinook will be held in the Palmer Boardroom of Burnet, Duckworth & Palmer LLP, Suite 2400, 525 - 8th Avenue S.W., Calgary, Alberta, on Wednesday, May 16, 2012, at 3:00 p.m., Calgary time.

About Chinook Energy Inc.

Chinook is a Calgary-based public oil and gas exploration and development company that combines high quality natural gas-weighted assets in Western Canada with an exciting high growth oil business onshore and offshore Tunisia in North Africa.

Reader Advisory

Forward-Looking Statements

In the interest of providing shareholders and potential investors with information regarding Chinook, including management's assessment of the future plans and operations of Chinook, certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. In particular, this news release contains, without limitation, forward-looking statements pertaining to: the volumes and estimated value of Chinook's oil and natural gas reserves; the volume and product mix of Chinook's oil and natural gas production; future expectations of oil and natural gas prices; future results from operations and operating metrics; and future exploration, development, exploration, and disposition activities (including drilling plans) and related production expectations as well as management's expectations with respect to revised 2012 capital expenditures, cash flow, year end net debt, average production and the ability to absorb the anticipated material reduction in Chinook's credit facility set out under the heading "Revisions to 2012 Guidance".

With respect to the forward-looking statements contained in this news release, Chinook has made assumptions regarding, among other things: the ability of Chinook to continue to operate in Tunisia with limited logistical security and operational issues, future capital expenditure levels, future oil and natural gas prices, future oil and natural gas production levels, Chinook's ability to obtain equipment in a timely manner to carry out exploration and development activities, the impact of increasing competition, the ability of Chinook to add production and reserves through development and exploitation activities, certain commodity price and other cost assumptions, the continued availability of adequate debt and equity financing and cash flow to fund its planned expenditures. Although Chinook believes that the expectations reflected in the forward-looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Chinook's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, without limitation, political and security risks associated with Chinook's Tunisian operations, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve and resource estimates, the continued impact of shut-in production, environmental risks, competition from other producers, inability to retain drilling rigs and other services, capital expenditure costs, including drilling, completion and facilities costs, unexpected decline rates in wells, delays in projects and/or operations resulting from surface conditions, wells not performing as expected, delays resulting from or inability to obtain the required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Readers are cautioned that the forgoing list of factors is not exhaustive.

Additional information on these and other factors that could effect Chinook's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) and at Chinook's website (www.chinookenergyinc.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Chinook does not undertake any obligation to update publicly or to revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Barrels of Oil Equivalent

Barrels of oil equivalent (boe) is calculated using the conversion factor of 6 mcf (thousand cubic feet) of natural gas being equivalent to one barrel of oil. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Corporate Netback

The reader is also cautioned that this news release contains the term corporate netback, which is not a recognized measure under GAAP and is calculated as a period's sales of petroleum and natural gas, net of royalties less net production and operating expenses and cash G&A as divided by the period's sales volumes. Management uses this measure to assist them in understanding Chinook's profitability relative to current commodity prices and it provides an analytical tool to benchmark changes in operational performance against prior periods and . Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance. Chinook's method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

Cash flow from operations

The reader is also cautioned that this news release contains the term cash flow from operations, which is not a recognized measure under GAAP and is calculated as cash flow from continuing operations adjusted for changes in non-cash working capital. Management believes that cash flow is a key measure to assess the ability of Chinook to finance capital expenditures and debt repayments. Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as cash flow from operating activities, net income or other measures of financial performance calculated in accordance with GAAP. Chinook's method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.



Chinook Energy Inc.
Matthew Brister
Chief Executive Officer
(403) 261-6883

Chinook Energy Inc.
L. Geoff Barlow
Vice-President, Finance and Chief Financial Officer
(403) 261-6883
www.chinookenergyinc.com