Storm Resources Ltd. (TSX VENTURE:SRX)
Storm has also filed its unaudited condensed interim consolidated financial
statements as at March 31, 2014 and for the three months then ended along with
Management's Discussion and Analysis ("MD&A") for the same period. This
information appears on SEDAR at www.sedar.com and on Storm's website at
www.stormresourcesltd.com.
Selected financial and operating information for the three months ended March
31, 2014, appears below and should be read in conjunction with the related
financial statements and MD&A.
Highlights
Three Months Three Months
Thousands of Cdn$, except volumetric Ended Ended
and per-share amounts March 31, 2014 March 31, 2013
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FINANCIAL
Gas sales 12,017 3,047
NGL sales 5,511 1,579
Oil sales 3,279 4,422
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Revenue from product sales(1) 20,807 9,048
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Funds from operations(2) 8,660 3,227
Per share - basic ($) 0.09 0.05
Per share - diluted ($) 0.08 0.05
Net income (loss) 206 (261)
Per share - basic ($) 0.00 0.00
Per share - diluted ($) 0.00 0.00
Operations capital expenditures 22,343 20,133
Acquisitions and dispositions 88,051 (19,496)
Debt including working capital deficiency 22,176 42,106
Weighted average common shares outstanding
(000s)
Basic 100,668 61,824
Diluted 102,413 61,824
Common shares outstanding (000s)
Basic 109,612 61,824
Fully diluted 115,251 65,791
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OPERATIONS
Oil equivalent (6:1)
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Barrels of oil equivalent (000s) 456 224
Barrels of oil equivalent per day 5,068 2,488
Average selling price (Cdn$ per Boe)(1) 45.62 40.37
Gas Production
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Thousand cubic feet (000s) 2,134 880
Thousand cubic feet per day 23,711 9,780
Average selling price (Cdn$ per Mcf) 5.63 3.46
NGL production
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Barrels (000s) 65 24
Barrels per day 725 261
Average selling price (Cdn$ per barrel) 84.49 67.08
Oil Production
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Barrels (000s) 35 54
Barrels per day 391 597
Average selling price (Cdn$ per barrel)(1) 93.08 82.21
Wells drilled
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Gross 5.0 3.0
Net 5.0 2.6
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(1) Excludes hedging gains and losses.
(2) Funds from operations and funds from operations per share are non-GAAP
measurements. See discussion of Non-GAAP Measurements on page 9 of the
MD&A and the reconciliation of funds from operations to the most
directly comparable measurement under GAAP, "Cash Flows from Operating
Activities", on page 19 of the MD&A.
President's Message
FIRST QUARTER 2014 HIGHLIGHTS
-- Production in the first quarter was 5,068 Boe per day (22% oil plus
NGL), an increase of 104% from the same period last year and 6% from the
prior quarter. On a per-share outstanding at quarter end basis, the
year-over-year increase was 15%. The increase resulted from growth at
Umbach where first quarter production was 3,559 Boe per day which
represents growth of 565% from the first quarter of 2013.
-- NGL production was 725 barrels per day in the first quarter, a year-
over-year increase of 178%. NGL production increased as a result of
production growth from the liquids-rich Montney formation at Umbach. The
first quarter NGL price of $84.49 per barrel was 84% of the average
Edmonton Par light oil price.
-- Activity in the first quarter of 2014 was focused on Storm's 100%
working interest lands at Umbach South where four Montney horizontal
wells (4.0 net) plus one Montney vertical delineation well (1.0 net)
were drilled and two horizontal wells (2.0 net) were completed and
pipeline connected. As the existing facility is at capacity, only one of
the completed Montney horizontal wells started producing in late
February with the average rate in March and April being restricted to
4.3 Mmcf per day gross raw gas. The remaining Montney horizontal wells
will start producing in September when Storm's new facility at Umbach is
operational.
-- Funds from operations for the quarter totaled $8.7 million or $0.09 per
basic share, a year-over-year increase of 80% on a per-share basis. The
increase in funds from operations was the result of growth at Umbach
where the field operating netback was $27.03 per Boe which is higher
than the corporate average.
-- The funds from operations netback was $18.99 per Boe in the quarter, an
increase of $4.58 per Boe or 32% from the prior year. The year-over-year
improvement was primarily the result of lower operating costs and the
first quarter natural gas price increasing to $5.63 per Mcf from $3.46
per Mcf in the prior year period. These gains were partially offset by a
hedging loss of $3.10 per Boe.
-- The field operating netback, excluding hedging gains or losses, was
$25.47 per Boe for the quarter, an increase of 26% from $20.14 per Boe
in the previous year. The first quarter operating cost was $10.88 per
Boe, a decrease of 20% from the prior year. Operating costs are
improving due to growth at Umbach where the first quarter operating cost
was $7.78 per Boe.
-- Controllable cash costs (operating, transportation, cash G&A, interest
expense) were $15.97 per Boe in the quarter which is a decrease of $4.84
per Boe, or 23%, from $20.81 per Boe in the prior year.
-- Capital investment was $110.4 million in the first quarter which
included $88.0 million for an asset acquisition at Umbach. Operations
capital expenditures totaled $22.3 million and included $3.4 million for
facilities and pipelines plus $17.8 million for drilling and
completions.
-- Debt plus working capital deficiency, net of investments, at the quarter
end totaled $22.2 million which is 0.6 times annualized first quarter
cash flow. In May 2014, Storm's banker, ATB Financial, increased the
revolving bank facility to $90.0 million.
-- On January 31, Storm closed the acquisition of a 100% working interest
in 29 sections of land in the Umbach-Nig area, prospective for liquids-
rich natural gas from the Montney formation. The acquisition included
two horizontal wells producing 359 Boe net per day (19% NGL) from the
Montney formation. The total cost of approximately $88.0 million
consisted of $30.0 million in cash and 13.6 million common shares of
Storm with a deemed value of $4.25 per common share (closing price on
the TSX Venture Exchange January 30, 2014).
-- On February 14, a bought deal financing and non-brokered private
placement of common shares were completed with 8.5 million common shares
being issued at a price of $4.10 per common share. Aggregate gross
proceeds of $34.9 million were used to fund the cash portion of the
acquisition of land and production in the Umbach-Nig area that closed
January 31, 2014.
OPERATIONS REVIEW
Storm has a focused asset base with large land positions in resource plays at
Umbach and in the Horn River Basin ("HRB") which have multi-year drilling
inventories while the Grande Prairie area, with its shallow decline, provides
cash flow available for investment.
Umbach, Northeast British Columbia
Storm's land position at Umbach is prospective for liquids-rich natural gas from
the Montney formation and currently totals 140 net sections (168 gross
sections), or 98,000 net acres. Including the lands acquired in January 2014,
Storm has invested $108.0 million to acquire this land position ($2,750 per
hectare or $1,100 per acre) since entering the area in 2010. There are three
project areas at Umbach:
-- Umbach South with 87 net sections at a 100% working interest (includes
the 29 sections recently acquired) where first quarter production
averaged 2,676 Boe per day;
-- Umbach North with 33 net sections of jointly owned lands (61 gross
sections with Storm's working interest being 60% on most of the lands)
where first quarter production averaged 883 Boe per day;
-- Nig with 20 net sections at a 100% working interest.
To date, Storm has been focused on exploiting the upper Montney, although the
middle and lower Montney may also be productive.
First quarter production at Umbach was 3,559 net Boe per day (18% NGL), a
year-over-year increase of 565%. NGL recovery was 38 barrels per Mmcf sales or
656 barrels per day with approximately 60% being higher priced condensate plus
pentanes. The operating netback was $27.03 per Boe with revenue, after deducting
transportation costs, of $42.32 per Boe ($5.56 per Mcf sales and $81.65 per
barrel of NGL), a royalty rate of 18%, and operating costs of $7.78 per Boe.
Operating costs at Umbach have improved significantly from $11.48 per Boe in the
first quarter of 2013. Notably, on the 100% working interest lands at Umbach
South where Storm owns field compression, the operating cost was $6.55 per Boe.
Activity in the first quarter included drilling four Montney horizontal wells
(4.0 net) at Umbach South, drilling one Montney vertical delineation well (1.0
net) at Nig and completing two Montney horizontal wells (2.0 net). One Montney
horizontal well commenced production in late February with the rate being
restricted to 4.3 Mmcf per day gross raw gas in March and April as the existing
facility is full. This horizontal well has averaged 6.0 Mmcf per day gross raw
gas to date in May as a result of facility upgrades completed in early May. The
vertical delineation well at Nig was cored in the upper, middle, and lower
Montney and, after the core data has been analyzed, the wellbore will be
re-entered and a horizontal well will be drilled into one of the three Montney
intervals (likely in 2015). To date in the second quarter, an additional three
Montney horizontal wells (3.0 net) have been drilled and two Montney horizontal
wells (2.0 net) have been completed.
The existing Umbach South field compression facility has been full since
December 2013 with throughput of approximately 17 Mmcf per day gross raw gas. As
a result, a second field compression facility is being constructed with initial
capacity of 24 Mmcf per day which is expected to be operational in September
2014. Cost of the new field compression facility is $14.0 million and it is
designed to be expandable to 48 Mmcf per day for an additional investment of
$9.0 million, with this expected to occur in mid-2015. Investment in
infrastructure at Umbach in 2014 will also include installing 12 kilometers of
larger diameter gathering pipelines at a cost of $5.0 million.
Currently, there are 16 horizontal wells producing from the Montney formation at
Umbach. Production performance of the most recent horizontal wells (Umbach South
hz's 10 - 15) is significantly improved from earlier wells and is exceeding
management's forecasts. Following is a comparison of calendar day rates for all
of the producing Montney horizontal wells.
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30 Cal 90 Cal 1st Year
Day Day Cal Day
Gross Gross Gross
Working Start of Frac Raw Mmcf Raw Mmcf Raw Mmcf
Interest Production Stages Per Day Per Day Per Day
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Hz's 1 - 5 60% Umbach Mar/11 - 7 - 11 2.8 1.8 1.3
North Oct/12 Mmcf/d Mmcf/d Mmcf/d
5 hz's 5 hz's 5 hz's
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Hz's 6 - 8 60% Umbach Nov/12 - 14 - 16 3.3 2.3 1.5
North Aug/13 Mmcf/d Mmcf/d Mmcf/d
3 hz's 3 hz's 2 hz's
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Hz's 10 - 15 100% Umbach Apr/13 - 17 - 18 4.2 3.6 2.8
South Nov/13 Mmcf/d Mmcf/d Mmcf/d
6 hz's 5 hz's 1 hz
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Horn River Basin, Northeast British Columbia
Storm has a 100% working interest in 123 sections in the HRB (81,000 net acres)
which is prospective for natural gas from the Muskwa, Otter Park and Evie/Klua
shales. First quarter production averaged 380 Boe per day at an operating
netback of $17.03 per Boe. Production is from one horizontal well with 12
fracture stimulations which currently produces 2.5 Mmcf per day gross raw gas
with cumulative production of 4.0 Bcf gross raw gas since start-up in March
2011.
A resource evaluation completed by InSite Petroleum Consultants Ltd. effective
December 31, 2011 estimates that the best estimate of DPIIP in the core
producing area is 3.1 Tcf gross raw gas with the best estimate of contingent
resources being 616 Bcf. The evaluated area includes 30 sections at a 100%
working interest and represents 24% of Storm's total land holdings in the HRB.
Commerciality has been proven across the core producing area with a horizontal
well that has been producing for 38 months plus two vertical wells that were
completed and tested with final test rates of 900 Mcf per day over the final 24
hours of each flow test.
Grande Prairie Area, Northwest Alberta and Northeast British Columbia
Production in the first quarter averaged 1,129 Boe per day (41% oil plus NGL) at
an operating netback of $23.43 per Boe. Production was reduced by approximately
115 Boe per day as a result of equipment failures on seven wells. The cost of
repairing the wells increased the first quarter operating cost to $21.10 per Boe
(2013 average operating cost was $14.72 per Boe). Production in April recovered
to 1,260 Boe per day based on field estimates. Cash flow from this area
continues to be re-invested to grow production at Umbach.
HEDGING UPDATE
Current commodity price hedges, which comprise both swaps and collars, for the
remainder of 2014 include 11,800 Mcf per day (14,200 GJ per day) of natural gas
with an average floor price of approximately $4.16 per Mcf and an average
ceiling price of $4.38 per Mcf (AECO monthly index $3.38 per GJ for the floor
and $3.56 per GJ for the ceiling). In addition, an oil price of WTI Cdn$102.43
per barrel (WTI price in $US per barrel converted to $Cdn per barrel) has been
fixed on 450 barrels per day.
In the first quarter of 2015, the price of 5,800 Mcf per day (7,000 GJ per day)
of natural gas has been hedged with an average floor price of approximately
$4.92 per Mcf and an average ceiling price of $6.25 per Mcf (AECO monthly index
$4.00 per GJ for floor and $5.08 per GJ for ceiling).
The purpose of Storm's commodity price hedges is to ensure that a decrease in
commodity prices does not have a significant impact on capital investment and
growth over the next 12 to 18 months.
OUTLOOK
Production in April averaged 5,350 Boe per day based on field estimates, and
second quarter production is forecast to be 5,200 to 5,500 Boe per day.
Corporate production will increase when the new field compression facility is
operational at Umbach in September 2014.
As a result of a higher forecast natural gas price and the recent changes to
British Columbia's Deep Well Royalty Credit Program, Storm is increasing 2014
capital investment from $78.0 million to $97.0 million. The incremental capital
will be invested at Umbach to drill an additional four Montney horizontal wells
(4.0 net) and complete four Montney horizontal wells (3.6 net). Forecast
production for the fourth quarter of 2014 increases to 8,900 to 9,200 Boe per
day which represents 90% growth on a year-over-year basis (55% growth on a
per-share basis). Revised guidance is set forth below.
January 23, 2014 May 14, 2014
Original Guidance Revised Guidance
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AECO natural gas price $3.35 per GJ $4.25 per GJ
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Edmonton Par light oil price Cdn $89 per bbl Cdn $94 per bbl
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Estimated year-end debt plus
working capital deficiency(1) $50.0 million $57.0 million
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Estimated average operating
costs $8.00 - $9.00 per Boe $8.00 - $9.00 per Boe
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Estimated average royalty rate
(on production revenue before
hedging) 14% - 15% 15% - 16%
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Estimated operations capital,
excluding acquisitions &
dispositions $78.0 million $97.0 million
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Estimated acquisitions $88.0 million $88.0 million
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Estimated cash G&A net of
recoveries $4.0 million $4.0 million
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Forecast fourth quarter average
production 7,500 - 7,900 Boe/d 8,900 - 9,200 Boe/d
(20% oil + NGL) (20% oil + NGL)
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Forecast average annual
production 5,500 - 6,500 Boe/d 6,000 - 6,700 Boe/d
(21% oil + NGL) (21% oil + NGL)
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Umbach horizontal wells drilled 10 gross (10.0 net) 14 gross (14.0 net)
Umbach horizontal wells
completed & tied in 9 gross (9.0 net) 13 gross (12.6 net)
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(1) Includes value of publicly listed securities.
Adjusted net debt at the end of 2014 is forecast to be $57.0 million (including
public company investments), which would be approximately 0.9 times annualized
funds from operations in the fourth quarter of 2014 (assumes fourth quarter AECO
$3.75 per GJ and Edmonton Par Cdn$87.00 per barrel).
The recently announced changes to British Columbia's Deep Well Royalty Credit
Program provides a royalty credit of approximately $0.6 million for a Montney
horizontal well with a 1,200 metre lateral drilled at Umbach after April 1,
2014. The royalty credit reduces the royalty rate to 6% until the credit is used
up which is forecast to be approximately 14 months at an AECO natural gas price
of $3.75 per GJ. Eight of Storm's Montney horizontal wells being drilled at
Umbach in 2014 will benefit from the royalty credit which will be re-invested to
drill and complete additional horizontal wells at Umbach.
At Umbach, one drilling rig has been working since early December 2013 and has
drilled eight Montney horizontal wells (8.0 net) with seven horizontal wells
drilled as part of the 2014 program. Drilling operations have continued through
spring break-up and the remaining seven Montney horizontal wells (7.0 net) in
the 2014 program are expected to be drilled by the end of August. Four Montney
horizontal wells (4.0 net) have been completed so far in 2014 with one well
commencing production in late February. Horizontal well performance is exceeding
management's forecast which has moderated declines. As a result, the existing
facility is full and most of the newly drilled Montney horizontal wells will
commence production once construction of the new 24 Mmcf per day field
compression facility is completed in September 2014. The decision to expand the
new facility to 48 Mmcf per day
will likely be made in the fourth quarter of 2014 with approximately six to
eight months being required to order equipment and for construction of the
expansion. With a growing inventory of horizontal wells to be turned on when the
second field compression facility is completed, significant growth is expected
at Umbach in the second half of 2014.
Storm's land position in the HRB continues to be a core, long-term asset with
significant leverage to improving natural gas prices.
Respectfully,
Brian Lavergne, President and Chief Executive Officer
May 14, 2014
Discovered-Petroleum-Initially-in-Place ("DPIIP") - is defined in the Canadian
Oil and Gas Evaluation Handbook ("COGEH") as the quantity of hydrocarbons that
are estimated to be in place within a known accumulation. DPIIP is divided into
recoverable and unrecoverable portions, with the estimated future recoverable
portion classified as reserves and contingent resources. There is no certainty
that it will be economically viable or technically feasible to produce any
portion of this DPIIP except for those portions identified as proved or probable
reserves.
Contingent Resources - are those quantities of petroleum estimated, as of a
given date, to be potentially recoverable from known accumulations using
established technology or technology under development, but which are not
currently considered to be commercially recoverable due to one or more
contingencies. Contingencies may include factors such as economic, legal,
environmental, political and regulatory matters, or a lack of markets. It is
also appropriate to classify as contingent resources the estimated discovered
recoverable quantities associated with a project at an early stage of
development. Estimates of contingent resources are estimates only; the actual
resources may be higher or lower than those calculated in the independent
evaluation. There is no certainty that the resources described in the evaluation
will be commercially produced.
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.
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", "expect", "anticipate",
"intend", "believe", "plan", "potential", "outlook", "forecast", "estimate" 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: production;
drilling plans; reserve volumes; capital expenditures; royalties; financing;
commodity prices; and production, operating and general and administrative
costs.
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 carrying 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: operational risks
in development, exploration and production; delays or changes in plans with
respect to exploration or development projects or capital expenditures; the
uncertainty of reserve estimates; the uncertainty of estimates and projections
relating to reserves, production, costs and expenses; health, safety and
environmental risks; commodity price and exchange rate fluctuations; marketing
and transportation of petroleum and natural gas and loss of markets;
environmental risks; competition; ability to access sufficient capital from
internal and external sources; stock market volatility; and changes in
legislation, including but not limited to tax laws, royalty rates and
environmental regulations.
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 MD&A for the three months ended March 31, 2014.
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.
NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT
TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS
RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS PRESS RELEASE.
FOR FURTHER INFORMATION PLEASE CONTACT:
Storm Resources Ltd.
Brian Lavergne
President & CEO
(403) 817-6145
Storm Resources Ltd.
Donald McLean
Chief Financial Officer
(403) 817-6145
Storm Resources Ltd.
Carol Knudsen
Manager, Corporate Affairs
(403) 817-6145
www.stormresourcesltd.com
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