Granite Oil Corp. Reports Year End 2018 Financial Results
03/21/2019 | 08:30pm EDT
CALGARY, Alberta, March 21, 2019 (GLOBE NEWSWIRE) -- GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO)(OTCQX:GXOCF) is pleased to release its financial results for the year ended December 31, 2018. Granite has filed its audited financial statements for the year ended December 31, 2018, and related Management Discussion & Analysis with the applicable Canadian securities regulatory authorities. Granite's annual financial materials may be viewed in their entirety on www.sedar.com and on the Company's website at www.graniteoil.ca.
Financial and Operating Highlights
Year Ended December 31,
(000s, except per share amounts)
Oil and natural gas revenues
Funds from operations(1)
Per share – basic
Per share – diluted(2)
Net income (loss)
Per share – basic
Per share – diluted(2)
Weighted average – basic
Weighted average – diluted
Natural gas (mcf/d)
Crude oil (bbls/d)
Average wellhead prices
Natural gas ($/mcf)
Crude oil and NGLs ($/bbl)
Combined average ($/boe)(6)
Operating netback prior to realized hedging gains (losses) ($/boe)(7)
Operating netback ($/boe)(8)
Proved plus probable
Total net present value – proved plus probable (10% discount before taxes)
Gross (net) wells drilled
Dry and abandoned (#)
Average working interest (%)
Funds from operations and funds from operations per share are not recognized measures under International Financial Reporting Standards (IFRS). Please refer to the commentary in the “Reader Advisories” under “Non-GAAP Measurements” for further discussion.
The Company uses the weighted average common shares (basic) when there is a net loss for the period to calculate net income (loss) per share diluted. The Company uses the weighted average common shares (diluted) to calculate the funds from operations diluted.
Total capital expenditures, excluding acquisitions and excluding non-cash transactions. Refer to commentary in the Management Discussion and Analysis under “Capital Expenditures” for further information.
Net debt, which is calculated as current liabilities (excluding derivative financial instruments) and bank debt less current assets (excluding derivative financial instruments), is not a recognized measure under IFRS. Please refer to the commentary in the “Reader Advisories” under “Non-GAAP Measurements” for further discussion.
For a description of the boe conversion ratio, refer to the commentary in the ”Reader Advisories” under “BOE Presentation”.
Combined average realized prices includes all oil, gas and NGL sales revenue, excluding other income.
Operating netback prior to adjusting for any realized hedging on financial instruments, which is calculated by deducting royalties, operating expenses and transportation expenses from oil and gas revenue, is not a recognized measure under IFRS. Please refer to the commentary in “Reader Advisories” under “Non-GAAP Measurements” for further discussion.
Operating netback, which is calculated by deducting royalties, operating expenses and transportation expenses from oil and gas revenue and adjusting for any realized hedging on financial instruments, is not a recognized measure under IFRS. Please refer to the commentary in “Reader Advisories” under “Non-GAAP Measurements” for further discussion.
2018 Oil Reserves Highlights (1)(2)
During 2018, the Company shut-in its shallow gas production resulting in a reserves category shift from Proved Developed Producing (‘PDP’) oil reserves to proved developed non-producing (‘PDNP’) reserves in the independent report in respect of the Company’s reserves (the “Sproule Report”) prepared by Sproule Associates Limited (“Sproule”) with an effective date of December 31, 2018. Accordingly, to provide a more accurate representation of relevant reserves metrics, all finding and development costs and recycle ratios set out in this news release have been calculated for Company Gross Reserves for oil and NGL volumes using an adjusted operating netback (prior to hedging) of $30.01 per barrel, versus the Company’s all-in operating netback (prior to hedging) of $29.75 per barrel of oil equivalent.
Proved Developed Producing (PDP) reserves
F&D costs were $13.26 per barrel, resulting in a PDP recycle ratio of 2.3 times
Increased 0.7% to 7,013 mbbls 2018, from 6,966 mbbls in 2017
Reserves replacement of 106%
Total Proved (TP) reserves
F&D costs including change in future development capital (‘FDC’) were $12.39 per barrel, resulting in a TP recycle ratio of 2.4 times
Increased 1.0% to 12,314 mbbls in 2018, from 12,188 mbbls in 2017
Reserves replacement of 118%
Proved Plus Probable (P+P) reserves
F&D costs including change in FDC were $20.40 per barrel, resulting in a 2P recycle ratio of 1.5 times
Decreased 1.3% to 16,364 mbbls in 2018, from 16,571 mbbls
Reserves replacement of 71%
“Oil” reserves include all Light, Medium, and Heavy Crude Oil volumes and Natural Gas Liquids (‘NGL’).
Recycle ratio is calculated as operating netback divided by F&D costs. The F&D cost includes changes in FDC, where applicable. Calculation is based on estimated 2018 operating netback for oil of $30.01 per barrel, which is calculated as revenue (prior to hedging) less royalties and production costs. See “Readers Advisories” for the method of calculating operating netback.
The fourth quarter of 2018 was exceptionally challenging for the Canadian energy sector as producers faced unprecedented discounts for Canadian oil products. This had a significant impact on the earnings of the Company through the latter half of 2018. However, following the Alberta Government’s decision to mandate province-wide oil production curtailments, the Canadian oil price outlook for 2019 has significantly improved.
Granite has been diligent in its efforts to capitalize on this improved outlook and protect its earnings potential through 2019 by aggressively adding to its hedging portfolio. With the Company’s cost structure, the current portfolio provides Granite competitive pricing and correspondingly strong netbacks on hedged volumes through the year. Currently, the Company has 600 barrels per day of West Texas Intermediate (‘WTI’) hedges matched with Western Canada Select (‘WCS’) differential hedges for the second and third quarters of 2019, along with 600 barrels per day of WTI hedges matched with 400 barrels per day of WCS differential hedges for the fourth quarter, all at favourable all-in prices.
Granite is also managing price volatility and market uncertainty in the Canadian energy sector through conservative capital spending and by actively optimizing its EOR scheme and field operations. The Company has not drilled a well since early May 2018 and incurred limited capital expenditures of approximately $1.0 million in the second half of 2018 as it navigated extraordinarily high price discounts for its oil.
In 2019, Granite will prioritize debt repayment with its significant free cash flow to rapidly deleverage and remains flexible in its capital spending plans for the year. The Company has a significant advantage in its ability to create value with its highly efficient, effective and flexible EOR scheme with minimal capital. This is highlighted by the capital efficiency at which Granite replaced its production and developed producing reserves in the past number of years, including in 2018. See the Company’s March 12, 2019 news release for additional information regarding its reserves as at December 31, 2018.
As the success of its 2018 wells has demonstrated, the Company has the ability to add significant production volumes quickly through drilling. Granite is drill-ready and will continue to be prudent in its capital spending to manage prevailing market conditions.
For further information, please contact Michael Kabanuk, President & CEO, by telephone at (587) 349-9123, Devon Griffiths, COO, by telephone at (587) 349-9120, or Tyler Klatt, V.P. Exploration, by telephone at (587) 349-9125.
This news release contains forward‐looking statements and forward‐looking information (collectively “forward‐looking information”) within the meaning of applicable securities laws relating to Granite’s plans, strategy, objectives and other aspects of Granite’s anticipated future operations and financial, operating and drilling plans and results. In addition, without limited the generality of the foregoing, this news release contains forward-looking information pertaining to the following: projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, oil and natural gas production levels, the success of the enhanced oil recovery scheme, capital expenditure programs, treatment under governmental regulatory and taxation regimes, expectations regarding Granite’s ability to raise capital and to continually add to reserves through acquisitions and development, projections of market prices and costs, and other matters ancillary or incidental to the foregoing.
All statements, other than statements of historical fact, may be forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. The forward‐looking information is based on certain key expectations and assumptions made by Granite’s management, including: expectations concerning prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; capital efficiencies; legislative and regulatory environments of the jurisdictions where Granite carries on business or has operations; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to market oil and natural gas successfully and Granite’s ability to access capital on satisfactory terms.
Statements relating to “reserves” are also deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.
Although Granite believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because no assurance can be given that they will prove to be correct. Since forward‐looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties, including, but not limited to, volatility in the market prices for oil and natural gas; uncertainties associated with estimating reserves; uncertainties associated with Granite’s ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel. Management has included the above summary of assumptions and risks related to forward-looking information provided in this news release in order to provide security holders with a more complete perspective on Granite’s future operations and such information may not be appropriate for other purposes. Granite’s actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward‐looking information will transpire or occur, or if any of them do so, what benefits that Granite will derive there from.
Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect Granite’s operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
The forward-looking information contained in this new release represents Granite’s views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. Granite has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. Except as required by applicable securities laws, Granite undertakes no obligation to publicly update or revise any forward-looking information.
This news release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Granite’s prospective results of operations, funds from operations, netbacks, net debt, operating costs and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this news release was made as of the date of this news release and was provided for the purpose of providing further information about Granite's anticipated future business operations. Granite disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this news release should not be used for purposes other than for which it is disclosed herein.
This news release contains the terms “net debt” and “operating netback” which are defined in the Company’s Management’s Discussion and Analysis (the “MD&A”) for the year ended December 31, 2018. Management uses these financial measures to analyze operating performance and leverage. These measures do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and therefore may not be comparable with the calculation of similar measures for other companies. Granite feels these benchmarks are key measures of overall sustainability.
Information Regarding Disclosure on Oil and Gas Reserves
The reserves data set forth above is based upon an independent reserves assessment and evaluation prepared by Sproule with an effective date of December 31, 2018 (the “Sproule Report”). The information contained in this news release summarizes the Company’s crude oil, natural gas liquids and natural gas reserves and the net present values before income tax of future net revenue for the Company’s reserves using forecast prices and costs based on the Sproule Report. Additional disclosure required by NI 51-101 is provided in the Company's Annual Information Form, filed on SEDAR at www.sedar.com on March 21, 2019.
All reserve references in this news release are “Company share reserves”. “Company share reserves” are the Company’s total working interest reserves before the deduction of any royalties and including any royalty interests of the Company.
The Sproule Report has been prepared in accordance with the standards contained in the COGE handbook and the reserve definitions contained in NI 51-101. All evaluations and reviews of future net cash flows are stated prior to any provisions for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures for wells to which reserves have been assigned. It should not be assumed that the estimates of future net revenues presented in the tables above represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of the Company’s crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein. All future net revenues are estimated using forecast prices, arising from the anticipated development and production of the Company’s reserves, net of the associated royalties, operating costs, development costs, and abandonment and reclamation costs and are stated prior to provision for interest and general and administrative expenses. Future net revenues have been presented on a before tax basis. Estimated values of future net revenue disclosed herein do not represent fair market value.
Oil and Gas Metrics
This news release contains metrics commonly used in the oil and natural gas industry, such as “recycle ratio”, “operating netback”, “finding and development (“F&D”) costs” and “development capital”. These terms do not have a standardized meaning and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons. Management uses oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare Granite’s operations over time. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this news release, should not be relied upon for investment or other purposes. “Finding and development costs” are calculated as the sum of development capital plus the change in FDC for the period divided by the change in reserves that are characterized as development for the period. Finding and development costs take into account reserves revisions during the year on a per boe basis. The aggregate of the exploration and development costs incurred in the financial year and changes during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year. “Development capital” means the aggregate exploration and development costs incurred in the financial year on reserves that are categorized as development. Development capital presented herein excludes land, acquisition and capitalized administration costs. “Recycle ratio” is measured by dividing the operating netback by F&D cost per boe for the year. “Operating netback” is calculated using production revenues minus royalties and production expenses calculated on a per boe basis.
References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, 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.