Storm has also filed its unaudited condensed interim consolidated financial statements as at
Selected financial and operating information for the three months ended
Highlights
Thousands of Cdn$, except volumetric and per-share amounts | Three Months Ended | Three Months Ended | |||
FINANCIAL | |||||
Revenue from product sales(1) | 41,923 | 55,766 | |||
Funds flow | 16,889 | 16,517 | |||
Per share - basic and diluted ($) | 0.14 | 0.14 | |||
Net income | 10,512 | 607 | |||
Per share - basic and diluted ($) | 0.09 | 0.00 | |||
Cash return on capital employed (“CROCE”)(2) | 12 | % | 20 | % | |
Return on capital employed (“ROCE”)(2) | 7 | % | 8 | % | |
Capital expenditures | 26,475 | 16,944 | |||
Debt including working capital deficiency(2)(3) | 138,632 | 91,585 | |||
Common shares (000s) | |||||
Weighted average - basic | 121,557 | 121,557 | |||
Weighted average - diluted | 121,557 | 121,853 | |||
Outstanding end of period - basic | 121,557 | 121,557 | |||
OPERATIONS | |||||
(Cdn$ per Boe) | |||||
Revenue from product sales(1) | 19.24 | 31.26 | |||
Transportation costs | (4.97 | ) | (5.72 | ) | |
Revenue net of transportation | 14.27 | 25.54 | |||
Royalties | (0.97 | ) | (2.61 | ) | |
Production costs | (5.17 | ) | (6.09 | ) | |
Field operating netback(2) | 8.13 | 16.84 | |||
Realized gain (loss) on risk management contracts | 1.26 | (5.38 | ) | ||
General and administrative | (0.86 | ) | (1.60 | ) | |
Interest and finance costs | (0.74 | ) | (0.61 | ) | |
Decommissioning expenditures | (0.04 | ) | - | ||
Funds flow per Boe | 7.75 | 9.25 | |||
Barrels of oil equivalent per day (6:1) | 23,946 | 19,823 | |||
Natural gas production | |||||
Thousand cubic feet per day | 115,957 | 96,537 | |||
Price (Cdn$ per Mcf)(1) | 2.54 | 4.49 | |||
Condensate production | |||||
Barrels per day | 2,623 | 2,199 | |||
Price (Cdn$ per barrel)(1) | 60.66 | 62.77 | |||
NGL production | |||||
Barrels per day | 1,998 | 1,534 | |||
Price (Cdn$ per barrel)(1) | 3.27 | 31.43 | |||
Wells drilled (net) | 1.0 | 5.0 | |||
Wells completed (net) | 3.5 | - |
- Excludes gains and losses on risk management contracts.
- Certain financial amounts shown above are non-GAAP measurements. See discussion of Non-GAAP Measurements on page 28 of the MD&A. CROCE and ROCE are presented on a 12-month trailing basis.
- Excludes the fair value of risk management contracts, decommissioning liability and lease liability.
PRESIDENT'S MESSAGE
2020 FIRST QUARTER HIGHLIGHTS
Funds flow was largely unchanged from the first quarter of last year with higher production and lower production costs offset by lower NGL and natural gas prices.
- Production was 23,946 Boe per day, an increase of 7% from the previous quarter and an increase of 21% year over year. This was consistent with guidance (24,000 to 25,000 Boe per day) with the increase resulting from the start-up of the Nig Gas Plant plus a full quarter of production from a four-well pad at Nig.
- Liquids production (field condensate plus gas plant NGL) totaled 4,621 barrels per day, an increase of 8% from the previous quarter and an increase of 24% year over year.
- Production from the most recent four wells in the Nig area continue to meet expectations since start-up in
November 2019 with the IP150 averaging approximately 1,500 Boe per day sales (8% field condensate) for the three upper/midMontney wells and approximately 1,000 Boe per day sales (30% field condensate) for the lowerMontney well.
- Revenue net of transportation was
$14.27 per Boe, a decline of$11.27 per Boe, or 44% from last year, mainly due to lower NGL and natural gas prices. The NGL price declined 90% as a result of lower propane prices and from larger pricing deductions during the current marketing year endingMarch 2020 . The natural gas price declined 43% as a result of lower pricing in theChicago and Sumas markets (60% of sales).
- Liquids represented 19% of sales volumes and 36% of production revenue (versus 19% and 30% respectively in the prior year period).
- Production, general and administrative, and interest and finance costs were
$6.77 per Boe, a year-over-year decline of$1.53 per Boe. Production cost decreased$0.92 per Boe with start-up of the Nig Gas Plant and the previous year was higher due to an unplanned outage at the McMahon Gas Plant.
- Hedging provided a realized gain of
$2.7 million versus a realized loss of$9.6 million in the prior year. The gain was from contracts forChicago natural gas and WTI oil while the prior year loss was mainly from contracts for Sumas natural gas that were entered into before a failure on the Enbridge T-south pipeline inOctober 2018 .
- Funds flow was
$16.9 million or$0.14 per share which was largely unchanged from last year with higher production and lower costs offsetting lower commodity prices.
- Net income was
$10.5 million compared to$0.6 million in the prior year with the improvement primarily from a non-cash hedging gain of$10.5 million on the mark-to-market value of future hedging contracts which was partially offset by the deferred income tax expense of$3.9 million .
- Capital investment was
$26.5 million (below guidance of$30 million ) and included$11 million for the Nig Gas Plant project plus$9 million to complete and tie in a three-well pad at Umbach.
- Total debt including working capital deficiency was
$139 million or 2.1 times annualized quarterly funds flow and, including letters of credit, represents 73% utilization of the$205 million bank line.
- Commodity price hedges have increased and during the remainder of 2020 protect approximately 42% of forecast production using the mid-point of guidance. Hedges provide floor prices of approximately
Cdn$2.90 per Mcf (15% higher than the first quarter average price) and WTICdn$64.00 per barrel in 2020 with approximately half of the hedges being collars which provide exposure to higher prices.
OPERATIONS REVIEW
Umbach, Nig and Fireweed Areas,
Storm's land position is prospective for liquids-rich natural gas from the
First quarter field activity was mainly focused on completing the Nig Gas Plant and associated sales gas and NGL pipelines with start-up occurring
During the quarter, two new wells started production leaving an inventory at the end of the quarter of two (2.0 net) drilled
At Umbach (100% working interest), produced raw natural gas contains 1.2% H2S with approximately 85% directed to the McMahon Gas Plant and 15% to the Stoddart Gas Plant where firm processing commitments total 80 Mmcf raw gas per day (65 Mmcf per day at
At Nig (100% working interest), produced raw natural gas contains 0.1% H2S and is directed to the recently constructed 50 Mmcf per day sour gas plant that started up
At Fireweed (50% working interest), first quarter activity included drilling two horizontal wells (1.0 net), completing one well (0.5 net), and starting site preparation for a 50 Mmcf per day field compression facility (expandable to 100 Mmcf per day). Further activity in 2020 has been deferred as a result of the rapid decline in oil prices. There are currently three standing wells (1.5 net) with two wells (1.0 net) having been completed with test results meeting expectations for the area (strong gas rates with higher condensate-gas ratios). Based on production history from offsetting horizontal wells, first year average field condensate-gas ratios are expected to be 30 to 70 barrels per Mmcf raw which is 100% to 400% higher than at Umbach. Investment in 2020 is expected to total
A summary of horizontal well results at Nig and Umbach is provided below. IP90 and IP180 rates are less reliable indicators of relative longer-term performance since wells are initially rate restricted to manage fluid rates. Note that the 2019 wells at Nig in the upper/mid
Year of Completion | Frac Stages | Completed Length | IP90 | IP180 | IP365 |
Umbach 2017 - 2018 19 hz’s | 34 | 1895 m | 4.6 Mmcf/d(1) 24 Bbls/Mmcf(2) 19 hz’s | 4.4 Mmcf/d(1) 20 Bbls/Mmcf(2) 19 hz’s | 4.0 Mmcf/d(1) 15 Bbls/Mmcf(2) 19 hz’s |
Nig 2018 upper 3 hz’s | 37 | 2180 m | 8.1 Mmcf/d(1) 29 Bbls/Mmcf(2) 3 hz’s | 8.2 Mmcf/d(1) 25 Bbls/Mmcf(2) 3 hz’s | 7.5 Mmcf/d(1) 21 Bbls/Mmcf(2) 3 hz’s |
Nig 2019 upper/mid 3 hz’s | 42 | 2240 m | 8.1 Mmcf/d(1) 20 Bbls/Mmcf(2) 3 hz’s | ||
Nig 2019 lower 1 hz | 42 | 2280 m | 5.5 Mmcf/d(1) 57 Bbls/Mmcf(2) 1 hz | (3) |
- Raw gas rate.
- Bbls/Mmcf is the condensate-gas ratio or barrels of field condensate per Mmcf raw.
- Shut in
mid-April 2020 after 140 days of production as a result of the low condensate price.
Based on results from the 2017 and 2018 wells, Storm management is using 8 Bcf and 14 Bcf raw gas type curves (internal estimates) to forecast production at Umbach and Nig respectively. More detail on well performance and management’s type curve is available in the presentation on Storm’s website at www.stormresourcesltd.com.
HEDGING
Commodity price hedges are used to support longer-term growth by protecting pricing on up to 50% of current production for the next 18 months and up to 25% for 19 to 36 months forward (future production growth is not hedged). The current hedge position is shown below (excludes price differential contracts which are shown in the financial statements) with hedges for the remainder of 2020 protecting approximately 42% of forecast annual production using the mid-point of guidance. Hedges provide floor prices of approximately
Q2 – Q4, 2020 | Crude Oil | 633 Bpd | WTI |
822 Bpd | WTI | ||
Natural Gas | 8,670 Mmbtu/d (7.5 Mmcf/d) | Chicago | |
2,200 Mmbtu/d (1.9 Mmcf/d) | Chicago | ||
15,400 Mmbtu/d (13.3 Mmcf/d) | Chicago | ||
6,300 Mmbtu/d (5.5 Mmcf/d) | NYMEX | ||
2,500 Mmbtu/d (2.2 Mmcf/d) | NYMEX | ||
2,560 Mmbtu/d (2.2 Mmcf/d) | NYMEX | ||
1,110 Mmbtu/d (1.0 Mmcf/d) | NYMEX | ||
2,000 Mmbtu/d (1.7 Mmcf/d) | Sumas | ||
10,400 GJ/d (8.5 Mmcf/d) | AECO | ||
2,000 GJ/d (1.6 Mmcf/d) | AECO | ||
9,200 GJ/d (7.5 Mmcf/d) | Station 2 | ||
1,550 GJ/d (1.2 Mmcf/d) | Station 2 | ||
2021 | Natural Gas | 17,600 Mmbtu/d (15.2 Mmcf/d) | Chicago |
3,620 Mmbtu/d (3.1 Mmcf/d) | Chicago | ||
750 Mmbtu/d (0.6 Mmcf/d) | NYMEX | ||
1,250 Mmbtu/d (1.1 Mmcf/d) | NYMEX | ||
2,080 Mmbtu/d (1.8 Mmcf/d) | NYMEX | ||
6,460 Mmbtu/d (5.6 Mmcf/d) | NYMEX | ||
7,670 GJ/d (6.3 Mmcf/d) | AECO | ||
2,250 GJ/d (1.8 Mmcf/d) | AECO | ||
21,670 GJ/d (17.8 Mmcf/d) | Station 2 | ||
1,750 GJ/d (1.4 Mmcf/d) | Station 2 |
OUTLOOK
Production in the second quarter of 2020 is forecast to average 23,000 to 25,000 Boe per day with capital investment expected to be less than
Updated guidance for 2020 is provided below. Forecast production includes the effect of a planned 25-day maintenance outage at the McMahon Gas Plant in
2020 Guidance | |||||||
| Current | ||||||
Cdn$/US$ exchange rate | 0.76 | 0.72 | |||||
Sumas monthly natural gas - US$/Mmbtu | |||||||
AECO daily natural gas - Cdn$/GJ | |||||||
Station 2 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% - 7% | 5% - 6% | |||||
Est mid-point field operating netback - $/Boe | |||||||
Est realized hedging gains or (losses) - $ million | |||||||
Est cash G&A - $ million | |||||||
2020 Guidance (continued) | |||||||
| Current | ||||||
Est interest expense - $ million | |||||||
Est capital investment (excluding A&D) - $ million | (Nig GP | (Nig GP | |||||
Forecast fourth quarter Boe/d Forecast fourth quarter liquids Bbls/d | 25,000 - 30,000 5,300 - 6,300 | 25,000 - 28,000 5,100 - 5,600 | |||||
Forecast annual Boe/d Forecast annual liquids Bbls/d | 23,500 - 26,000 4,900 - 5,500 | 23,500 - 26,000 4,500 - 5,000 | |||||
Est annual funds flow - $ million | |||||||
Horizontal wells drilled - gross Horizontal wells completed - gross Horizontal wells starting production - gross | 6 - 10 (4.0 - 8.5 net) 8 - 10 (6.5 - 8.5 net) 5 - 10 (5.0 - 8.5 net) | 6 - 9 (5.0 - 8.0 net) 8 (7.5 net) 7 (7.0 net) |
(1) Based on the range for forecast annual production and using the mid-point for each of the estimated field operating netback, estimated cash G&A, estimated hedging gain or loss and estimated interest expense.
Guidance History
Daily (US$/Mmbtu) | Station 2 Daily (Cdn$/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 |
Capital investment in 2020 will be allocated as follows:
$6 million at Fireweed in the first quarter to drill two horizontal wells (1.0 net) and complete one well (0.5 net);$36 million at Nig includes$12 million to complete the gas plant (100% working interest), drill four horizontal wells (4.0 net) and complete and pipeline connect four wells (4.0 net); and$10 -$18 million at Umbach to complete and pipeline connect three horizontal wells (3.0 net) plus drill three horizontal wells (3.0) which are contingent on commodity prices and forecast funds flow.
Firm pipeline capacity and marketing arrangements will result in approximately 60% of forecast natural gas production in 2020 being sold into US markets and the remaining 40% in Western Canadian markets (52% directed to
The recent, rapid decline in oil prices has materially reduced NGL and condensate prices. Based on the current forward strip, Storm’s revenue from condensate plus NGL is forecast to decline to approximately 15% of total revenue during the remainder of 2020 versus 36% in the first quarter. In response, liquids production has been reduced as much as possible while maximizing natural gas sales which includes reducing NGL recovery, storing condensate and reducing production from wells with higher condensate-gas ratios. Hedges will also mitigate the effect of low liquids prices during the remainder of 2020 with a floor of approximately WTI
Partially offsetting the effect of lower oil prices is stronger natural gas prices which have strengthened significantly over the last two months in anticipation of declining associated gas production from US oil producers and from liquids-rich natural gas producers in
Previously, the emphasis was on growing liquids production to increase revenue and that was largely going to come from growth at Fireweed where condensate makes up a larger proportion of the sales volume than at Nig and Umbach. With the decline in the WTI oil price reducing expected rates of return and forecast funds flow for 2020, activity at Fireweed will be deferred by up to one year with an option to accelerate depending on commodity prices. Partially offsetting this, the improvement in the Station 2 natural gas price has improved rates of return at Umbach and three horizontal wells are being planned for drilling in the second half of 2020 depending on commodity prices and forecast funds flow (completions in early 2021).
Regarding the COVID-19 pandemic, the impacts to date for Storm have been relatively minor. The health and safety of everyone working at Storm has always been and will continue to be a priority and since
The objective remains to increase asset value per share by converting resource into per-share growth of funds flow and reserves value. Commodity price volatility continues to be one of the biggest risks to manage with the recent reversal of oil and natural gas prices requiring that the near-term growth plan be changed to adapt to the ‘new normal’. Shifting the operational focus away from growing liquids revenue will take some time to execute and will be challenging given that liquids revenue was a big contributor to funding Storm’s growth over the last several years (and other producers to an even greater extent). However, Storm’s main competitive advantage has not changed and remains a large, high quality land position in the
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
Initial Production Rates - Initial production rates (“IP”) provided refer to actual raw natural gas rates reported to the
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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