Manitok Energy Inc. (the “Corporation” or “Manitok“) (TSX VENTURE:MEI) announces its financial and operating results for the second quarter of 2016 and provides an operational update.
The full text of Manitok’s second quarter results are contained in its unaudited condensed interim financial statements as at and for the three and six months ended June 30, 2016 and the related management’s discussion and analysis, copies of which are available electronically on Manitok’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR“) at www.sedar.com and also on Manitok’s website at www.manitokenergy.com.
Second Quarter 2016 Results:
- Production averaged 3,587 boe/d (49% light oil and liquids) as compared to 4,407 boe/d (46% light oil and liquids) in the first quarter of 2016. The reduction relates primarily to scheduled facilities’ maintenance and upgrades (gas plant and battery turnarounds) of about 2 weeks in southeast Alberta and about 3 weeks at Stolberg which decreased average production in the quarter by 640 boe/d(46% oil). Subsequent to the plant turnaround at Stolberg, all of its natural gas wells in the area remained shut- in for the remainder of June and most of July, due to low natural gas prices, which decreased average production in the second quarter by an additional 316 boe/d (90% natural gas). Production down time in the second quarter, due to both scheduled maintenance and natural gas shut-ins resulted in less production of about 950 boe/d (34% oil).
- Operating netback was $8.19/boe (with $5.74/boe of realized gains on financial instruments) as compared to an adjusted amount of $9.79/boe (with $9.05/boe of realized gains on financial instruments) in the first quarter of 2016, which excludes the one time realized gain of $12.3 million or $30.67/boe on the monetized crude oil derivative financial instruments.
- Recorded funds from operations of negative $0.2 million as compared to $0.7 million in the first quarter of 2016, excluding the monetized crude oil derivative financial instruments for a cash receipt of $12.3 million.
- As at June 30, 2016, Manitok’s net bank debt was $45.5 million as compared to $44.7 million as at March 31, 2016 and $68.4 million as at June 30, 2015. Manitok has been able to reduce its net bank debt by about 33% year over year.
- Capital expenditures before acquisition and divestitures were $3.2 million as compared to $1.6 million in the first quarter of 2016.
- In May 2016, Manitok closed an equity financing for the issuance of 8,435,945 common shares of Manitok (“Manitok Shares“) at a price of $0.18 per Manitok Share and 7,994,980 Manitok Shares on a “flow-through” basis under the Income Tax Act (Canada) in respect of Canadian exploration expense (“Manitok CEE Flow-through Shares“) at a price of $0.21 per Manitok CEE Flow-through Share for net proceeds of $2.9 million. The net cash proceeds from the equity financing of the Manitok Shares were received in July 2016 and used to reduce the Corporation’s bank indebtedness subsequent to the second quarter.
OPERATIONAL AND FINANCIAL SUMMARY
| Three months ended June 30, | Six months ended June 30, | ||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||
| OPERATING | |||||||||
| Average daily production | |||||||||
| Light oil (bbls/d) | 1,519 | 1,864 | 1,665 | 2,065 | |||||
| Natural gas (mcf/d) | 11,004 | 15,435 | 12,654 | 14,249 | |||||
| NGLs (bbls/d) | 235 | 84 | 223 | 73 | |||||
| Total (boe/d) | 3,587 | 4,521 | 3,997 | 4,513 | |||||
| Average realized sales price | |||||||||
| Light oil ($/bbl) | 49.42 | 63.71 | 42.38 | 55.55 | |||||
| Natural gas ($/mcf) | 1.49 | 2.89 | 1.79 | 2.89 | |||||
| NGLs ($/bbl) | 24.86 | 55.98 | 23.31 | 54.68 | |||||
| Total ($/boe) | 27.11 | 37.18 | 24.64 | 35.43 | |||||
| Undeveloped land (end of period) | |||||||||
| Gross (acres) | 442,127 | 467,751 | 442,127 | 467,751 | |||||
| Net (acres) | 402,282 | 442,905 | 402,282 | 442,905 | |||||
| NETBACK AND COST ($ per boe) | |||||||||
| Petroleum and natural gas sales | 27.11 | 37.18 | 24.64 | 35.43 | |||||
| Realized gain on financial instruments | 5.74 | 10.86 | 24.47 | 12.19 | |||||
| Royalty expenses | (8.57 | ) | (8.78 | ) | (7.28 | ) | (8.63 | ) | |
| Operating expenses, net of recoveries | (14.70 | ) | (11.28 | ) | (14.38 | ) | (10.83 | ) | |
| Transportation and marketing expenses | (1.39 | ) | (2.35 | ) | (1.47 | ) | (2.61 | ) | |
| Operating netback(1) | 8.19 | 25.63 | 25.98 | 25.55 | |||||
| General and administrative expenses, net of recoveries | (5.03 | ) | (4.57 | ) | (4.38 | ) | (4.46 | ) | |
| Interest and financing expenses | (3.90 | ) | (3.21 | ) | (4.02 | ) | (2.42 | ) | |
| Funds from operations netback(1) | (0.74 | ) | 17.85 | 17.58 | 18.67 | ||||
| FINANCIAL | |||||||||
| Petroleum and natural gas revenue ($000) | 8,849 | 15,297 | 17,923 | 28,942 | |||||
| Funds from operations ($000)(1) | (244 | ) | 7,341 | 12,791 | 15,259 | ||||
| Per share – basic and diluted ($)(1) | – | 0.11 | 0.08 | 0.23 | |||||
| Net loss ($000) | (7,354 | ) | (26,852 | ) | (3,752 | ) | (30,253 | ) | |
| Per share – basic and diluted ($)(2) | (0.04 | ) | (0.39 | ) | (0.02 | ) | (0.45 | ) | |
| Common shares outstanding | |||||||||
| End of period – basic | 177,510,671 | 85,089,784 | 177,510,671 | 85,089,784 | |||||
| End of period – diluted | 193,888,631 | 91,564,557 | 193,888,631 | 91,564,557 | |||||
| Weighted average for the period – basic | 168,663,250 | 68,749,889 | 162,364,715 | 67,024,334 | |||||
| Weighted average for the period – diluted | 169,036,922 | 68,750,556 | 162,678,786 | 67,024,534 | |||||
| Capital expenditures, net of divestitures ($000) | 3,260 | 28,959 | 9,426 | 33,860 | |||||
| Adjusted working capital deficit (surplus) ($000)(1) | 1,853 | (1,575 | ) | 1,853 | (1,575 | ) | |||
| Drawn on credit facilities ($000) | 43,693 | 69,949 | 43,693 | 69,949 | |||||
| Net bank debt ($000) (1) | 45,546 | 68,374 | 45,546 | 68,374 | |||||
| Long-term financial obligations ($000) | 14,902 | 14,984 | 14,902 | 14,984 | |||||
| Net debt ($000) (1) | 60,448 | 83,358 | 60,448 | 83,358 | |||||
| (1) | Funds from operations, funds from operations per share, funds from operations netback, operating netback, adjusted working capital deficit (surplus), net bank debt and net debt do not have standardized meanings prescribed by generally accepted accounting principles and therefore should not be considered in isolation. These reported amounts and their underlying calculations are not necessarily comparable or calculated in an identical manner to a similarly titled measure of other companies where similar terminology is used. Where these measures are used they should be given careful consideration by the reader. Refer to the Non-GAAP Measures section of this press release. |
| (2) | The basic and diluted weighted average shares outstanding are the same for periods in which the Corporation records a net loss and when all the outstanding stock options and warrants are anti-dilutive. |
Financial Update – Acquisition and Equity Financing Closed and Debt Reduced
In August 2016, Manitok and Raimount Energy Inc. (“Raimount“) completed the previously announced plan of arrangement under the Business Corporations Act (Alberta) (the “Arrangement“) involving Manitok, Raimount, the holders of common shares of Raimount (the “Raimount Shareholders“) and 1977746 Alberta Inc. (“Acquireco“), a wholly owned subsidiary of Manitok. The Arrangement was approved at the special meeting of the Raimount Shareholders on August 17, 2016 and by the Court of Queen’s Bench of Alberta on August 19, 2016. Pursuant to the Arrangement, Manitok acquired, indirectly through Acquireco, all of the issued and outstanding common shares of Raimount (the “Raimount Arrangement“). Each Raimount Shareholder received six (6) Manitok Shares and one and one-half (1.5) Manitok Share purchase warrants (the “Manitok Warrants“) in exchange for each Raimount common share held. Manitok issued an aggregate of 41,207,196 Manitok Shares and 10,301,799 Manitok Warrants, which have an exercise price of $0.30 per Manitok Share and a term of two years from the date of issuance.
In July 2016, the Corporation closed a non-brokered private placement offering of 8,333,334 subscription receipts (“Subscription Receipts“) at a price of $0.18 per Subscription Receipt for gross proceeds of $1.5 million (“Subscription Receipts Offering“). In August 2016, having all of the escrow release conditions having been met, the Subscription Receipts were exchanged for Manitok Shares on a 1 to 1 basis for no additional consideration.
As at August 31, 2016, Manitok anticipates its net bank debt will be approximately $38.5 million which is 44% less than the $68.4 million as at June 30, 2015. The Corporation’s credit facility is currently $44.5 million and is in place to June 2017, with the customary mid-year review in December 2016. Details of the credit facility are in the 2016 second quarter report, a copy of which is available under Manitok’s SEDAR profile at www.sedar.com and also on Manitok’s website at www.manitokenergy.com.
Manitok continued to reduce its total general and administrative expenses (“G&A“) in the second quarter of 2016 by reducing salaries and consulting fees by 5% across the Corporation, which matches the 5% reduction made in January 2016, and now totals to a 10% salary reduction from 2015 levels. Manitok will continue to reduce G&A costs through the remainder of the year with reduced employee and consultant work hours, paying Directors’ fees with stock options instead of cash, further salary cost reductions and working with vendors to further reduce office costs. Manitok has sub-leased a portion of its office space beginning in the 4th quarter 2016 and running to the end of the lease term in November 2017 for about $0.2 million. Manitok is also working on future office space leasing that may lead to further leasing cost reductions in 2017 and a significant reduction starting in December 2017. The additional production volumes from a planned drilling program in the second half of 2016 will also help to reduce the G&A cost per boe. Manitok is targeting a G&A cost of less than $3.00/boe in 2017.
The Corporation’s Liability Management Rating (“LMR“) with the Alberta Energy Regulator (“AER“) was 6.6 at August 8, 2016. The LMR reflects the results of a comparison of the Corporation’s deemed assets to its deemed liabilities and is updated monthly. An LMR rating less than 2.0 results in potential restrictions relating to asset transfers and other operational issues and a rating less than 1.0 would also require the Corporation to pay a deposit to AER.
Manitok’s anticipated 2016 oil production, net of royalties, is approximately 90% to 95% hedged with a swap of 500 bbls/d of crude oil at $80.15 CAD WTI and collar transactions for 1,000 bbls/d of crude oil from an average price of $68.68 to $86.18 CAD WTI net of the deferred premium.
Operational Update – Monobore Drilling Planned in SE Alberta and Production Back Up in August
Manitok will commence a drilling program in mid-September 2016, with a minimum of approximately $10.6 million of drilling and completion spending funded by its funds from operations, credit facility and the funds received from the Raimount Arrangement and Subscription Receipts Offering. The drilling program will consist of horizontal Lithic Glauc (“LG“) wells in Carseland, Rockyford and Wayne in southeast Alberta, drilled using a monobore plan.
By using the monobore drilling plan, Manitok expects to reduce drilling and completion costs per well, from about $2.7 million in 2014, to between $1.3 and $1.5 million depending on the length of the horizontal well bore and the number of stages used in the multi-staged fracture stimulation completion. The positive impact on the Corporation’s half cycle LG
well economics is extremely significant. Capital efficiency, rate of return and recycle ratio are all supportive of drilling wells at the current level of commodity prices.
The first two LG wells drilled by Manitok, starting in mid-September, will be in Carseland on existing pads which will require less time and capital to tie-in. The third well of the program will be in Wayne, where Manitok will test the LG trend from a pad near an existing gas pipeline, which will also allow for a quick, low cost tie-in. The remaining 4 LG wells are anticipated to be drilled in Carseland, Wayne and Rockyford, depending on the results of the first group of wells drilled.
The combination of Manitok’s drilling program and the drilling activity and capital commitments pursuant to farm-out agreements with two private companies, that have either spent to date or committed to total drilling and completion spending of about $21.4 million in 2016, is anticipated to satisfy Manitok’s 2016 drilling commitments. The 2016 drilling commitments include a Lease Issuance and Drilling Commitment Agreement with PrairieSky Royalty Ltd., Manitok CEE Flow-through Shares issued in 2015 and a production volume royalty agreement with a third party royalty corporation. Details of the capital commitments are in the 2016 second quarter report, a copy of which is available under Manitok’s SEDAR profile at www.sedar.com and also on Manitok’s website at www.manitokenergy.com.
Manitok’s anticipated average production in August 2016 is about 4,000 boe/d (44% oil), with continued TransCanada pipeline constraints reducing average production by about 200 to 250 boe/d in the month. Average July 2016 production was about 3,500 boe/d (54% oil), with about 700 to 750 boe/d (90% natural gas) of natural gas production intentionally shut-in. The shut-in natural gas wells were placed back on production in late July 2016. Manitok’s current production capability is about 4,250 to 4,300 boe/d (45% oil), with an additional estimated 500 boe/d from two wells yet to be tied-in at Carseland. Given the current low commodity pricing and the planned capital expenditures in Carseland for the remainder of 2016, the tie-in of those 2 wells is anticipated in the first quarter of 2017.
Management Update
Manitok is pleased to announce that Mr. Greg Vavra was appointed as Executive Vice President, Business Development of Manitok following the completion of the Arrangement and that Mr. Rodger Perry has been appointed as Vice President, Land. Mr. Perry previously served as Land Manager for Manitok.
About Manitok
Manitok is a public oil and gas exploration and development company focusing on conventional oil and gas reservoirs in southeast Alberta and the Canadian foothills. The Corporation will utilize its experience to develop the untapped conventional oil and liquids-rich natural gas pools in both the southeast Alberta and foothills areas of the Western Canadian Sedimentary Basin.
