Storm has also filed its unaudited condensed interim consolidated financial statements as at
Selected financial and operating information for the three and nine months ended
Thousands of Cdn$, except volumetric and per-share amounts | Three Months to | Three Months to | Nine Months to | Nine Months to | |||||
FINANCIAL | |||||||||
Revenue from product sales(1) | 30,010 | 31,417 | 102,124 | 124,751 | |||||
Funds flow | 6,681 | 11,973 | 34,474 | 41,080 | |||||
Per share – basic and diluted ($) | 0.05 | 0.10 | 0.28 | 0.34 | |||||
Net income (loss) | (16,934 | ) | (64 | ) | (18,087 | ) | 8,407 | ||
Per share – basic and diluted ($) | (0.14 | ) | (0.00 | ) | (0.15 | ) | 0.07 | ||
Cash return on capital employed (“CROCE”)(2) | 11% | 15% | 11% | 15% | |||||
Return on capital employed (“ROCE”)(2)(4) | (2% | ) | 9% | (2% | ) | 9% | |||
Capital expenditures | 14,219 | 32,841 | 43,088 | 72,930 | |||||
Debt including working capital deficiency(2)(3) | 137,983 | 123,342 | 137,983 | 123,342 | |||||
Common shares (000s) | |||||||||
Weighted average - basic | 121,557 | 121,557 | 121,557 | 121,557 | |||||
Weighted average - diluted | 121,557 | 121,557 | 121,557 | 121,557 | |||||
Outstanding end of period – basic | 121,557 | 121,557 | 121,557 | 121,557 | |||||
OPERATIONS | |||||||||
(Cdn$ per Boe) | |||||||||
Revenue from product sales(1) | 17.14 | 18.36 | 16.72 | 23.50 | |||||
Transportation costs | (6.43 | ) | (5.83 | ) | (5.58 | ) | (5.84 | ) | |
Revenue net of transportation | 10.71 | 12.53 | 11.14 | 17.66 | |||||
Royalties | (0.77 | ) | 0.19 | (0.72 | ) | (0.92 | ) | ||
Production costs | (4.84 | ) | (5.88 | ) | (4.83 | ) | (5.96 | ) | |
Field operating netback(2) | 5.10 | 6.84 | 5.59 | 10.78 | |||||
Realized gain (loss) on risk management contracts | 0.51 | 1.64 | 1.66 | (1.35 | ) | ||||
General and administrative | (0.72 | ) | (0.79 | ) | (0.77 | ) | (1.02 | ) | |
Interest and finance costs | (1.08 | ) | (0.69 | ) | (0.81 | ) | (0.67 | ) | |
Decommissioning expenditures | - | - | (0.02 | ) | - | ||||
Funds flow per Boe | 3.81 | 7.00 | 5.65 | 7.74 | |||||
Barrels of oil equivalent per day (6:1) | 19,027 | 18,596 | 22,291 | 19,443 | |||||
Natural gas production | |||||||||
Thousand cubic feet per day | 91,526 | 91,053 | 107,361 | 95,013 | |||||
Price (Cdn$ per Mcf)(1) | 2.47 | 2.42 | 2.41 | 3.19 | |||||
Condensate production | |||||||||
Barrels per day | 1,637 | 1,856 | 2,186 | 2,044 | |||||
Price (Cdn$ per barrel)(1) | 46.79 | 63.45 | 45.01 | 65.81 | |||||
NGL production | |||||||||
Barrels per day | 2,136 | 1,564 | 2,211 | 1,563 | |||||
Price (Cdn$ per barrel)(1) | 10.95 | 2.29 | 6.87 | 12.59 | |||||
Wells drilled (net) | 4.0 | 1.0 | 5.0 | 6.0 | |||||
Wells completed (net) | - | 5.0 | 3.5 | 5.0 | |||||
Wells started production (net) | - | - | 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 24 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.
(4) Includes a non-cash unrealized loss on risk management contracts of
PRESIDENT’S MESSAGE
2020 THIRD QUARTER HIGHLIGHTS
Production, pricing and funds flow for the quarter were reduced by planned turnarounds at two third-party gas plants and a pipeline outage which reduced natural gas sales into higher priced Canadian markets. Cost structure continues to improve with lower production costs being realized following start-up of the Nig Creek Gas Plant in
- Production was 19,027 Boe per day, a decrease of 20% from the previous quarter and an increase of 2% year over year. This was consistent with guidance of 19,000 to 21,000 Boe per day. Approximately 40% of corporate production was shut in during September for planned turnarounds at third-party gas plants.
- Liquids production (condensate plus NGL) totaled 3,773 barrels per day and represented 20% of total production and 31% of total revenue. NGL production increased 37% from last year as a result of higher recoveries that are realized at the Nig Creek Gas Plant.
- Capacity of the 100% working interest
Nig Creek Gas Plant is now estimated to be 60 to 70 Mmcf raw per day based on throughput in September when several wells were redirected from Umbach during the third-party gas plant turnarounds. Design capacity was 50 Mmcf raw per day.
Nig Creek area sales averaged 7,845 Boe per day (41% of corporate production) at a production cost of$1.21 per Boe. Well productivity continues to meet or exceed expectations and results from the first well in the lowerMontney (840 Boe per day sales with 33% liquids over the first 9 months) indicate that there is a second layer to develop. Four new wells (4.0 net) were recently drilled and completed and started producing in late October.
- Drilling and completion costs for the four most recent wells at
Nig Creek averaged$4.1 million based on field estimates which is a reduction of approximately 25% from last year’s average cost.
- Revenue net of transportation was
$10.71 per Boe, a 15% decline from last year mainly due to a lower condensate price and an increase in the transportation cost per Boe due to the third-party gas plant turnarounds which resulted in approximately$1.0 million of unused firm transportation. The realized natural gas price did not reflect the recent improvement in AECO andBC Station 2 prices given that 67% of sales were into the lower pricedChicago market, an increase from previous quarters as a result of an outage in September on Spectra’sT-north Fort St. John lateral toBC Station 2 (coincided with the third-party gas plant turnarounds).
- Production, general and administrative, and interest and finance costs totaled
$6.64 per Boe, a reduction of 10% year over year. Production costs per Boe declined 18% as a result of reduced third-party processing fees following start-up of the Nig Creek Gas Plant in February. The reduction would have been larger if not for the third-party gas plant turnarounds which reduced production resulting in approximately$1.2 million of unused firm processing.
- Funds flow was
$6.7 million , or$0.05 per share, a reduction from$12.0 million last year. With production largely unchanged, the reduction in production costs per Boe was more than offset by lower revenue net of transportation, an increase in royalties related to the timing of infrastructure royalty credits, and a reduced hedging gain.
- Net loss was
$16.9 million with the largest contributor to the loss being an unrealized (non-cash) hedging loss of$18.0 million which represents the change in the value of future hedging contracts from the previous quarter.
- Capital investment was
$14.2 million (within guidance of$10 to$15 million ) with the majority, or$10.1 million , directed to drilling and starting the completions of four wells atNig Creek .
- Total debt including working capital deficiency was
$138 million . With capital investment in 2020 being approximately equal to funds flow, debt is forecast to be approximately$130 million at year end which will represent 2.2 times forecast annual funds flow.
- Hedges protect revenue on approximately 47% of forecast production for the fourth quarter of 2020 and 40% for 2021. The financial liability for future hedging contracts was
$23.2 million , an$18.0 million increase from the previous quarter as a result of the recent improvement in the forward strip for commodity prices.
OPERATIONS REVIEW
Umbach,
Storm's land position is prospective for liquids-rich natural gas from the
Field activity in the third quarter included drilling and starting the completions of four horizontal wells (4.0 net) in the
Fourth quarter activity will include finishing the completions and pipeline connections of the four wells at
At the end of the third quarter, there were eight
At Umbach (average 90% working interest), produced raw natural gas contains 1.2% H2S with approximately 80% directed to the McMahon Gas Plant and 20% to the Stoddart Gas Plant. Field compression capacity totals 150 Mmcf raw per day while firm processing commitments total 80 Mmcf raw gas per day (65 Mmcf per day at
At
At Fireweed (50% working interest), activity was previously deferred by up to one year following the collapse in the WTI crude oil price in
HEDGING
The objective of the commodity price hedging program is to support longer-term growth by protecting revenue on up to 50% of current production for the next 18 months and up to 25% for 19 to 36 months forward. The current hedge position is shown below (excludes price differential contracts which are shown in the financial statements) with hedges for 2021 protecting approximately 40% of forecast production. Future production growth is not hedged and will receive actual pricing.
Q4/20 | 2021 | |
Natural Gas Hedges | ||
% Forecast Nat Gas Production | 50% | 45% |
Collars | 33,000 Mcf/d(1) Floor Ceiling | 9,000 Mcf/d(1) Floor Ceiling |
Fixed Price | 28,000 Mcf/d(1) | 48,700 Mcf/d(1) |
Liquids Hedges | ||
% Forecast Liquids Production | 37% | 25% |
Collars | 800 Bpd Floor WTI Ceiling WTI | 650 Bpd Floor WTI Ceiling WTI |
Fixed Price | 950 Bpd WTI | 750 Bpd WTI |
200 Conway | 50 Conway |
(1) Using corporate average heat content 1.23 GJ per Mcf and 1.17 Mmbtu per Mcf.
(2) Hedges in US$ are converted using an exchange rate of
OUTLOOK
Production in the fourth quarter of 2020 is forecast to average 25,000 to 27,000 Boe per day with capital investment of approximately
Updated guidance for 2020 is provided below. Capital investment is expected to be approximately equal to or less than forecast funds flow. Forecast pricing reflects actual prices to date plus the approximate forward strip for the remainder of the year.
2020 Guidance | |||
Current | Current | ||
Cdn$/US$ exchange rate | 0.74 | 0.75 | |
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% | 7% | |
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 - 27,000 5,100 - 5,500 | |
Forecast annual Boe/d Forecast annual liquids Bbls/d | 22,500 - 24,000 4,300 - 4,800 | 23,000 - 23,500 4,600 - 4,700 | |
Est annual funds flow - $ million(2) | |||
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) | 8 (7.0 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-points for the estimated field operating netback, estimated cash G&A, estimated hedging gain or loss and estimated interest expense.
2020 Guidance History | ||||||||||
Daily (US$/Mmbtu) | Daily (Cdn$/GJ) | WTI (US$/Bbl) | Capital Investment ($ 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 | ||||||||||
23,000 - 23,500 |
Initial guidance for 2021 is provided below. Capital investment is intended to be less than forecast funds flow. Comparing to the current forward strip, Storm’s forecast pricing is approximately 5% lower for the WTI oil price and for natural gas pricing.
2021 Guidance | |||
Initial | |||
Cdn$/US$ exchange rate | 0.76 | ||
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) | 7% - 8% | ||
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 | |||
Forecast fourth quarter Boe/d(2) Forecast fourth quarter liquids Bbls/d | 30,000 - 32,000 6,800 - 7,300 | ||
Forecast annual Boe/d Forecast annual liquids Bbls/d | 26,000 - 28,000 5,600 - 6,000 | ||
Est annual funds flow - $ million(3) | |||
Horizontal well drilled - gross Horizontal wells completed - gross Horizontal wells starting production - gross | 11 (9.0 net) 11 (10.0 net) 13 (11.0 net) |
(1) Based on the mid-point for each of revenue net of transportation, royalty rate and production costs.
(2) Assuming first production from the Fireweed area in
(3) Based on the range for forecast annual production and using the mid-points for the estimated field operating netback, estimated cash G&A, estimated hedging gain or loss and estimated interest expense.
Capital investment for 2021 is expected to be allocated as follows:
- up to
$35 million at Fireweed to drill four horizontal wells (2.0 net), complete two wells (1.0 net), and to construct a 50 Mmcf raw per day field compression facility with associated pipelines (50% working interest); $28 million atNig Creek which includes$7 million to add a low pressure inlet with compression at the gas plant (100% working interest) and to drill, complete and pipeline connect three horizontal wells (3.0 net); and$27 million at Umbach to drill, complete and pipeline connect six horizontal wells (6.0 net).
Development at Fireweed was previously paused for up to one year, however, the recent improvement in the WTI oil price and
Based on forecast production, natural gas sales in 2021 are expected to be 46% at
At
Financial results are expected to improve significantly in the fourth quarter of 2020 and into 2021 with higher forward strip commodity prices, increased natural gas sales into Canadian markets, and with production growth from the
As always, capital investment will remain flexible and may be adjusted up or down depending on commodity prices. In 2020, capital investment is expected to be equal to or less than funds flow with forecast annual production increasing by 15% from last year. For 2021, the intent is to improve financial flexibility with capital investment expected to be less than funds flow while forecast annual production increases by a further 18%.
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
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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