Crew Energy Inc. Announces Second Quarter 2015 Financial and Operating Results
Crew Energy Inc. (TSX:CR) of Calgary, Alberta (“Crew” or the “Company”) is pleased to announce our operating and financial results for the three and six month period ended June 30, 2015. Our Financial Statements and Notes, as well as Management’s Discussion and Analysis (“MD&A”) for the three and six month period ended June 30, 2015 are available on Crew’s website and filed on SEDAR.
Q2 HIGHLIGHTS
Production of 17,656 boe per day for the quarter exceeded Crew’s budgeted volumes and reflects outperformance of new West Septimus wells that were production tested during the quarter in our Northeast British Columbia (“NE BC”) Montney area, and partially offset the approximately 2,500 boe per day that was off-line for 25 days in June due to a planned third party facility turnaround;
Funds from operations totaled $24.8 million or $0.18 per share, an increase of 20% and 13%, respectively, over the previous quarter as a result of higher revenues and lower costs which drove a 27% increase in funds from operations netback;
Cash costs per boe in the quarter were 33% lower than the same period in 2014, highlighted by a 74% decrease in royalties and an 18% reduction in operating costs. Crew’s second quarter operating costs were $8.81 per boe, 5% lower than the first quarter 2015;
In July, Crew completed an innovative petroleum and natural gas rights exchange with the Province of BC, adding 53 net sections of new Montney land contiguous to our Groundbirch property (the “New Acreage”), in exchange for surrendering 66 net sections of undeveloped land that had been subject to restricted development since 2004. Pro-forma this transaction, Crew’s NE BC Montney Economic Contingent Resource estimate increased by approximately 12% from 7.4 Tcfe to 8.3 Tcfe given the proximity of the new lands to existing proven development;
Drilling results at West Septimus continue to improve. In aggregate, production from all six wells on the last completed pad flowed at a total raw gas rate of 45.5 mmcf per day (per well average of 7.6 mmcf per day) with 2,932 bbls per day of wellhead condensate (64 bbls per mmcf). The wells maintained this rate at an average flowing casing pressure in excess of 1,600 psi after recovering over 0.5 bcf of raw gas and over 28,700 bbls of raw wellhead condensate during an 11.5 day flow period. Based on the individual well production test data, the aggregate flow rate from all 15 wells that have been drilled and completed at West Septimus is 76 mmcf per day of raw gas and 4,920 bbls per day of raw wellhead condensate (65 bbls per mmcf) after an average 10 day flow period;
At West Septimus and Septimus, six (5.7 net) natural gas wells were drilled and eight (8.0 net) natural gas wells were completed. Within our inventory of 31 NE BC Montney wells, 22 are currently in varying stages of completion and tie-in which will contribute to continued production growth through 2015 as new volumes are processed through the West Septimus facility and the existing Septimus facility is maintained at or near capacity;
With improved efficiencies and industry cost adjustments, drilling costs have continued to decline at Septimus and West Septimus. Per well costs are now averaging between $4.0 and $4.5 million, driven by a 22% reduction in drill times compared to 2014; and
Net debt at the end of the second quarter improved over the first quarter to $227.3 million and was 10% lower than year end 2014 with current debt capacity of $410 million. In the second quarter, Crew recorded the pending recovery from our facility partner of approximately $34 million representing one half of the current construction costs of the West Septimus facility.
FINANCIAL & OPERATING HIGHLIGHTS:
FINANCIAL
($ thousands, except per share amounts)
Three months
ended
June 30, 2015
Three months
ended
June 30, 2014
Six months
ended
June 30, 2015
Six months
ended
June 30, 2014
Petroleum and natural gas sales
44,678
125,882
84,618
256,250
Funds from operations(1)
24,769
47,724
45,489
99,534
Per share
– basic
0.18
0.39
0.34
0.82
– diluted
0.18
0.38
0.34
0.81
Net income (loss)
(13,239
)
3,792
(29,009
)
(125,901
)
Per share
– basic
(0.09
)
0.03
(0.22
)
(1.03
)
– diluted
(0.09
)
0.03
(0.22
)
(1.03
)
Exploration and Development expenditures
54,694
52,783
145,786
118,923
Property acquisitions (net of dispositions)
1,226
(215,115
)
1,484
(112,583
)
Net capital expenditures
55,920
(162,332
)
147,270
6,340
Capital Structure
($ thousands)
As at
June 30, 2015
As at
Dec 31, 2014
Working capital deficiency(2)
41,108
57,722
Net assets held for sale(3)
(34,100
)
–
Bank loan
73,871
49,904
80,879
107,626
Senior Unsecured Notes
146,448
146,110
Total Net Debt
227,327
253,736
Current Debt Capacity(4)
410,000
430,000
Common Shares Outstanding (thousands)
141,029
123,429
Notes:
(1)
Funds from operations is calculated as cash provided by operating activities, adding the change in operating non-cash working capital, decommissioning obligations settled and accretion of deferred financing costs. Funds from operations is used to analyze the Company’s operating performance and leverage. Funds from operations does not have a standardized measure prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculations of similar measures for other companies.
(2)
Working capital deficiency includes accounts receivable less accounts payable and accrued liabilities.
(3)
Net assets held for sale reflects the amounts reclassified from property, plant and equipment and decommissioning obligations for the assets less liabilities associated with the West Septimus facility disposition.
(4)
Current Debt Capacity reflects the bank facility of $260 million plus $150 million in senior unsecured notes outstanding.
Operations
Three months
ended
June 30, 2015
Three months
ended
June 30, 2014
Six months
ended
June 30, 2015
Six months
ended
June 30, 2014
Daily production
Light oil (bbl/d)
435
117
545
99
Heavy oil (bbl/d)
4,035
5,957
4,383
6,042
Natural gas liquids (bbl/d)
2,342
1,566
2,202
1,610
Natural gas (mcf/d)
65,062
67,202
67,268
60,496
Subtotal (boe/d @ 6:1)
17,656
18,840
18,341
17,833
Properties sold (boe/d)(1)
–
8,360
–
9,775
Total (boe/d)
17,656
27,200
18,341
27,608
Average prices(2)
Light oil ($/bbl)
63.64
97.20
55.04
94.76
Heavy oil ($/bbl)
52.60
80.10
44.02
74.75
Natural gas liquids ($/bbl)
36.21
64.82
32.00
64.29
Natural gas ($/mcf)
2.56
5.16
2.59
5.67
Oil equivalent ($/boe)
27.81
50.86
25.49
51.28
Notes:
(1)
Second quarter 2014 amounts are net of 8,360 boe/d of production volumes sold during Q2 and Q3 2014, including 3,265 bbl/d of oil, 1,042 bbl/d of natural gas liquids and 24,318 mcf/d of natural gas. Amounts for the six months ended June 30, 2014 are net of 9,775 boe/d of production including 3,241 bbl/d of oil, 109 bbl/d of natural gas liquids and 30,745 mcf/d of natural gas.
(2)
Average prices are before deduction of transportation costs and do not include gains and losses on financial instruments. Average prices for light oil, natural gas liquids and natural gas have been adjusted to reflect the impact of the production volumes sold as shown in Note 1.
Three months
ended
June 30, 2015
Three months
ended
June 30, 2014
Six months
ended
June 30, 2015
Six months
ended
June 30, 2014
Netback ($/boe)(1)
Revenue
27.81
50.86
25.49
51.28
Realized commodity hedging gain / (loss)
5.60
(4.86
)
6.12
(4.16
)
Royalties
(2.65
)
(10.15
)
(2.31
)
(10.39
)
Operating costs
(8.81
)
(10.72
)
(9.05
)
(11.04
)
Transportation costs
(1.78
)
(1.51
)
(1.87
)
(1.37
)
Operating netback (2)
20.17
23.62
18.38
24.32
G&A
(2.22
)
(1.94
)
(2.20
)
(2.03
)
Interest on long-term debt
(2.54
)
(2.40
)
(2.47
)
(2.38
)
Funds from operations
15.41
19.28
13.71
19.91
Drilling Activity
Gross wells
6
9
12
30
Working interest wells
5.7
8.3
11.7
27.3
Success rate, net wells (%)
100
%
100
%
100
%
100
%
Notes:
(1)
Netback figures for the three and six months ended June 30, 2014 are as previously reported and have not been adjusted for properties sold.
(2)
Operating netback equals petroleum and natural gas sales including realized hedging gains and losses on commodity contracts less royalties, operating costs and transportation costs calculated on a boe basis. Operating netback and funds from operations netback do not have a standardized measure prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculations of similar measures for other companies.
OVERVIEW
Crew continued to execute our strategy through the second quarter and we were very pleased with our achievements and results. Despite the challenges and uncertainty facing the oil and natural gas industry, Crew reported positive results as our production exceeded budget and funds from operations and netbacks were higher than the previous quarter, while our cash costs fell by more than 33% compared to the same period in 2014.
We exceeded our budgeted production volumes in the second quarter generating 17,656 boe per day stemming from better than projected results from new wells that were production tested at West Septimus. This outperformance helped to partially offset the impact of a third party plant turnaround which impacted Crew’s volumes by approximately 2,500 boe per day for 25 days in June. Despite this, our funds from operations were higher than the previous quarter on an absolute and per share basis, supported by stronger netbacks from higher prices and lower cash costs.
Crew is particularly pleased with the results from our recently completed West Septimus wells, the results from which have exceeded expectations with higher initial production, condensate rates and pressures. With the higher gas rates and liquids content from these newer wells, the economics in West Septimus continue to be very attractive, even at current prices.
We finalized construction of our new 60 mmcf per day West Septimus processing facility which is planned to be commissioned in early August providing the processing capacity to double production from our Montney assets. Upon initial commissioning, the West Septimus facility is expected to be operating at approximately half of its capacity. As a result, Crew is well positioned for a second phase of significant production growth once the facility reaches full capacity and the Company elects to double the facility to 120 mmcf per day.
Subsequent to the end of the quarter, we completed an innovative petroleum and natural gas rights exchange with the Province of BC, which was a mutually beneficial land swap that further focuses Crew’s asset base (the “Montney Exchange”). The New Acreage is contiguous to our Groundbirch assets, well situated with access to infrastructure, and due to its proximity to existing industry development, has estimated Economic Contingent Resource assigned. The New Acreage features prospective Upper and Lower Montney zones, and is not subject to near term land expiries, with the earliest occurring in 2021. Four horizontal wells are required to be drilled and completed any time prior to the middle of 2021 to validate this land.
With the completion of Crew’s Montney Exchange, Sproule Associates Ltd. (“Sproule”) prepared an updated independent Montney resource evaluation specifically on the New Acreage, effective December 31, 2014. As a result of this transaction, Crew’s overall aggregate Economic Contingent Resource estimate assigned to all of our lands in the NE BC Montney region increased from 7.4 Tcfe to 8.3 Tcfe, a gain of approximately 12%. With additional expansions to our Economic Contingent Resource, Crew is afforded significant short and longer-term opportunities to continue adding reserves with further drilling.
FINANCIAL
Crew’s second quarter funds from operations totaled $24.8 million, an increase of 20% over that earned in the first quarter of 2015, as increased netbacks offset production that was 7% lower than the first quarter due to a third party facility turnaround. Funds from operations were $0.18 per share, an increase of 13% quarter over quarter, with improved second quarter netbacks helping to offset the dilution impact of the Company’s first quarter equity issue. Funds from operations were less than the second quarter of 2014 and were impacted by the substantial commodity price decline experienced in the second half of 2014 and the sale of 30% of Crew’s 2014 second quarter production through the Deep Basin and Princess dispositions.
The second quarter improvement in netbacks was fueled by a 19% increase in Crew’s realized commodity prices as compared to the first quarter. North American oil prices stabilized in the second quarter with the benchmark Canadian dollar denominated West Texas Intermediate (‘WTI”) price averaging $71.23 per barrel, an increase of 18% over the first quarter. This provided the foundation for the Company’s realized price on our liquids production to increase by 36% as compared to the first quarter. The disproportionate increase in the Company’s realized liquids price, as compared to the WTI benchmark, was the result of strong pricing received for Crew’s heavy oil production which makes up approximately 60% of our total liquids production. Forest fires in northern Alberta impacted the supply of Canadian heavy oil to U.S. markets which resulted in the heavy oil benchmark, Western Canadian Select (“WCS”), averaging $56.93 per barrel, an increase of 35% over the first quarter. The strength of Canadian heavy oil prices combined with lower condensate blending costs and the Company’s successful marketing strategy allowed Crew to outperform the heavy oil benchmark for the quarter. Our realized natural gas price saw little change in the second quarter as compared to the first quarter of 2015. Natural gas pricing at the Company’s two sales points in NE BC, Alliance CREC and Spectra Station 2, continue to be volatile as described in the ‘Transportation and Marketing’ section below. However, the Company’s fixed differential term sales on Alliance and our ability to actively move gas between the two markets has allowed Crew to mitigate a significant portion of the price weakness.
In the context of the current commodity price environment, Crew continues to work with service providers to achieve cost reductions across many areas of our business and we have been pleased with the reductions in field costs secured to date. Compared to first quarter 2015, our operating costs and transportation costs per boe dropped by 5% and 9%, respectively, while royalties per boe increased by approximately 33% due to pricing that was higher in the second quarter than the previous quarter and the impact of a prior period adjustment that reduced first quarter royalties. In the second quarter we realized a gain on hedging of $9.0 million ($5.60 per boe), which compared to a loss of $4.86 per boe in the second quarter of 2014 and a gain of $6.61 per boe in the prior quarter. Crew has protected a portion of our funds from operations for the balance of 2015 and supported our ongoing financial stability with additional hedging contracts which are outlined below under ‘Transportation and Marketing’.
Capital spending during the quarter was focused at Septimus / West Septimus where we continued to move towards the start-up of the new facility, build gathering lines and to drill and complete new wells in anticipation of the facility’s third quarter commissioning. Capital spending for the quarter totaled $55.9 million including $29.5 million on drilling and completions and $22.5 million on facilities, equipment and pipelines. Our debt levels remained stable, with quarter end net debt of $227 million comprised of $150 million ($146 million net of deferred costs) of senior notes that mature in 2020 and $81 million of bank debt and working capital deficiency against a $260 million bank facility. The bank debt and working capital deficiency includes the pending recovery from our facility partner of approximately $34 million representing one half of the current construction costs of the West Septimus facility.
TRANSPORTATION AND MARKETING
During the latter part of 2014 and year to date in 2015, natural gas pricing in NE BC and Northwest Alberta has been significantly impacted as a result of increased supply coupled with multiple, overlapping pipeline service outages and transportation bottlenecks which have negatively affected realized pricing in the region. However, Crew is able to partially mitigate the impact of such market conditions due to the dual connectivity of the Septimus gas plant which can simultaneously access both the Spectra and Alliance pipeline systems. This allows the Company to actively manage delivery points in order to capture the best available pricing option for our NE BC gas. In addition, in late 2014 Crew entered into forward physical contracts on 62% of our Septimus natural gas sales at fixed monthly CREC differentials that have provided more favorable pricing when compared to the actual settled monthly average differential. As such, over the last three quarters, Crew has realized a net benefit of over $2.0 million due to our ability to divert gas to multiple pipelines as well as a net benefit of approximately $6.8 million from term fixed differential sales over the same period. These contracts will remain in place through the end of November, 2015 when our new sales contracts on Alliance become effective on December 1, 2015.
Going forward, Crew has taken steps to enhance our market and operational diversification for our natural gas production. Effective December 1, 2015, Crew committed to 100 mmcf per day of firm receipt transportation service on the Alliance system. In conjunction with this, the Company entered into natural gas sales contracts on 45 mmcf per day priced off of Chicago citygate indices, affording improved market diversity and downstream takeaway capacity for a three year term. In addition, we have sold 28 mmcf per day priced directly off of the AECO index for a one year term. Longer term, Crew has committed to expansions of takeaway capacity on both the Spectra and TCPL systems. These efforts are critical in positioning Crew for future growth and to manage market price diversification.
As part of our marketing and transportation strategies, we also utilize financial risk management contracts to protect against price volatility. For the balance of 2015, we have currently hedged 33,800 gj per day of natural gas volumes at an average price of $3.71 per gj ($3.92 per mcf), 2,060 bbl per day of liquids volumes hedged at an average price of CDN$102.80 per bbl, and 2,063 bbl per day of WCS differentials locked in at CDN$21.51 per bbl. For 2016, we currently have hedged 5,014 gj per day hedged at $2.98 per gj ($3.15 per mcf), 251 bbl per day of liquids volumes hedged at an average price of CDN$78.25 per bbl, and on 249 bbl/d of WCS we have locked in differentials at US$14.95 per bbl.
Lastly, a critical component in the development plan for our Montney assets is managing infrastructure planning and implementation. During the first quarter we began designing the necessary surface equipment and pipeline tie-in to eliminate the trucking of condensate from our Septimus facility through the installation of a Lease Automatic Custody Transfer (“LACT”) unit, which will reduce condensate transportation costs by up to $4.00 per barrel in the area. This LACT unit is on schedule to be completed concurrently with the commissioning of our new West Septimus facility in the first part of August.
OPERATIONS UPDATE
Septimus / West Septimus – Montney, NE BC
Through the second quarter, Crew’s operational focus was largely centered at Septimus / West Septimus, including finalizing construction of our new 60 mmcf per day West Septimus processing facility, and drilling and completing an inventory of wells to supply both our new West Septimus facility as well as our existing Septimus facility. In the second quarter, Crew drilled five (5.0 net) wells at West Septimus as part of our ongoing development of this exciting new core area and one (0.7 net) well of a five well pad at Septimus. With improved efficiencies and industry cost adjustments, our drilling costs have continued to decline at Septimus and West Septimus. Per well costs are now averaging between $4.0 and $4.5 million, driven lower by a 22% reduction in drill times compared to 2014.
At the end of the second quarter, a total of 19 wells have been drilled in West Septimus with 15 of them completed, tested and ready for the new facility start-up. The wells on the most recently drilled and completed six well pad were production tested through our existing Septimus facility and were flowing at a total raw gas rate of 45.5 mmcf per day with 2,932 bbls per day of wellhead condensate (64 bbls per mmcf). The wells maintained this rate with average flowing casing pressure in excess of 1,600 psi after recovering over 0.5 bcf of raw gas and over 28,700 bbls of raw wellhead condensate over an 11.5 day flow period. Based on the individual well production test data, the aggregate flow rate from the 15 West Septimus wells was 76 mmcf/day of raw gas and 4,920 bbls/day of raw wellhead condensate (65 bbls/mmcf) after an average 10 day flow period. With the new 60 mmcf/day West Septimus facility expected to be fully operational by the middle of August, it is Crew’s intent to restrict flow from these wells during the start-up and initial production period to approximately 50% of capacity to both attempt to maximize liquids rates over time and to manage capital expenditures and production levels during this period of weak commodity prices.
Given that Crew’s 2014 year-end reserve assignment at West Septimus is based on a proved plus probable type curve comprising 2.8 bcf per well and 49 mbbls of condensate (59% of total booked liquids), the performance of our most recent West Septimus wells is anticipated to materially exceed the assumptions upon which our year-end West Septimus reserves assignment was based. With higher gas and condensate rates combined with lower per well costs, Crew’s estimated internal rate of return (“IRR”) at current commodity prices on the most recent West Septimus wells is over 110%(1). This return is three times greater than earlier wells with lower gas and liquids rates. With our highly successful drilling program at West Septimus, Crew is evaluating the merits of expanding the new facility in 2016 to 120 mmcf per day.
(1)
IRR Assumptions: $2.50 per gj AECO gas, US$50 per bbl WTI, 0.77 $C/$US, 4.9 mmcf per day raw gas initial production rate and NGL’s of 80 bbl per mmcf with 75% condensate.
Tower Oil – Montney, NE BC
Crew’s enthusiasm for our Tower land position continues to be supported by ongoing improvements in cost structure, completion technology and corresponding well results. At Tower we have four wells drilled and cased and are working on infrastructure initiatives to maximize the return from our investment in the area, particularly at lower commodity prices. Of particular focus is the implementation of more cost effective water handling solutions targeting reduced capital and operating costs in the area. Testing of one of these options was undertaken in the second quarter as we were able to flow water directly from Tower to the Septimus facility and eliminate water trucking costs of approximately $2.50 per boe. When the cost reductions can be permanently implemented, coupled with the continued evolution of drilling and completions practices at Tower, we are very well positioned to increase our exposure to light oil and condensate going forward.
Groundbirch / Attachie – Montney, NE BC
At Groundbirch, we are pleased to have expanded our land position following the completion of the Montney Exchange and resulting addition of the New Acreage which is not subject to any land expiries until 2021 at the earliest. In the third quarter 2015, we anticipate tying in two wells that were drilled and completed at Groundbirch during 2014. We are excited by the significant future growth potential at Groundbirch, particularly with the recent approval by the National Energy Board of the TransCanada North Montney mainline pipeline which is proposed to pass through our enhanced Groundbirch land position and will be proximal to the location of Crew’s planned future Groundbirch gas plant currently expected to be built in 2017 to 2018.
At Attachie, our plans for the balance of 2015 include tying-in one well. Given the excellent test rates from exploration wells drilled to date, Attachie represents an exciting Montney growth area for Crew longer term.
Lloydminster Oil – Alberta/Saskatchewan
With the narrowing of differentials and improvement in heavy oil prices through the second quarter, we elected to restart a number of heavy oil wells at Lloydminster and undertake our most economic recompletion opportunities. Crew has also made significant improvements in the cost structure of our Lloydminster operations as operating costs for the first half of 2015 have declined 14% when compared to the same period in 2014, despite reduced volumes in the area.
OUTLOOK
Crew remains focused on executing our strategy to prudently develop our world-class NE BC Montney assets while protecting our balance sheet against the backdrop of severely weakened commodity prices. We have taken steps to position the Company to weather volatility during challenging periods as well as to generate attractive returns during periods with stronger prices. We continue to delineate and develop our suite of existing Montney assets while making the necessary investments in processing infrastructure to provide optionality for access and take away capacity. With 31 wells drilled and 22 wells in various stages of completion and tie-in, Crew is strongly positioned to continue to meet our production targets and pursue economic growth. Further, we have utilized hedging and other fixed term contracts to protect our downside. Our successful petroleum and natural gas rights exchange with the Province of BC bolsters our acreage at Groundbirch and increased our existing estimates of Economic Contingent Resource by 12%.
In the near term, we will commission our new West Septimus facility which is expected to be processing approximately half of its full 60 mmcf per day capacity by the end of August. When the plant is processing to capacity the Company can elect to double the facility to 120 mmcf per day, adding an incremental 12,000 boe per day of productive capacity. Given the ongoing weakness in commodity prices, Crew will continue to seek options to enhance our pricing to underpin our funds from operations and protect our balance sheet. The dual connectivity at our Septimus gas plant enables Crew to simultaneously access both the Spectra and Alliance pipeline systems to capture the best available pricing option for our NE BC gas. This will likely continue to be a significant benefit as constrained natural gas take-away capacity impacts prices and curtails producer volumes in northeast BC and northwest Alberta in the third quarter.
We plan to continue drilling at West Septimus and Septimus with two rigs running generating an inventory of drilled wells to be completed, while also testing new zones in both the Upper and Lower Montney. Into 2017 and 2018, we plan to increase focus on development at Groundbirch including the New Acreage, as well as plan for construction of a 60 mmcf per day plant to service growth in that area. In light of the current weak commodity price environment, we will continue to make strategic capital investment decisions and prudently allocate capital depending on market factors and project economics. This will allow Crew to retain flexibility and more effectively balance our objectives of growth with preservation of balance sheet strength into 2016 and beyond.
We are maintaining annual production guidance of 20,000 to 22,000 boe per day, and our year-end exit forecast of 24,000 to 25,000 boe per day. With the continued development of our Montney growth plan in NE BC, we anticipate our exit Montney production volumes in 2015 will almost double those realized at year end 2014. Crew has $410 million of total credit capacity, including $150 million of senior notes that term out in 2020, and we are under 30% drawn on a $260 million credit facility. This strong financial position affords Crew significant flexibility during periods of volatility and supports our ongoing growth strategy. With the cost savings realized to date in 2015, our forecast funds from operations using forward strip pricing combined with our budgeted net capital program of $185 million is currently expected to result in a year end net debt level of approximately $250 million.
We would like to thank our employees and Board of Directors for their commitment to Crew, and our shareholders for their ongoing support through a challenging market environment.
Cautionary Statements and Advisories
Forward-Looking Information and Statements
This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends” “forecast” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: the volume and product mix of Crew’s oil and gas production; production estimates including 2015 forecast average and exit productions; estimates of 2015 year end net debt; the recognition of significant resource potential in our NE BC Montney area; future oil and natural gas prices and Crew’s commodity risk management programs; future liquidity and financial capacity; future results from operations and operating metrics including estimates of IRR at West Septimus; anticipated reductions in operating costs and G&A expenditures and potential to improve ultimate recoveries and initial production rates; future costs, expenses and royalty rates; future interest costs; the exchange rate between the $US and $Cdn; future development, exploration, acquisition and development activities and related capital expenditures and the timing thereof; the number of wells to be drilled, completed and tied-in and the timing thereof; the amount and timing of capital projects including anticipated timing of the commissioning of the West Septimus facility and the recovery of $34 million of costs upon completion; the total future capital associated with development of reserves and resources; and methods of funding our capital program, including possible non-core asset divestitures and asset swaps.
Forward-looking statements or information are based on a number of material factors, expectations or assumptions of Crew which have been used to develop such statements and information but which may prove to be incorrect. Although Crew believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Crew can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which Crew operates; the timely receipt of any required regulatory approvals; the ability of Crew to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which Crew has an interest in to operate the field in a safe, efficient and effective manner; the ability of Crew to obtain financing on acceptable terms and the adequacy of cash flow to fund its planned expenditures; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and cost of pipeline, storage and facility construction and expansion and the ability of Crew to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Crew operates; the ability of Crew to successfully market its oil and natural gas products. There are a number of assumptions associated with the potential of resource volumes and development of Crew’s lands including the quality of the Montney reservoir, future drilling programs and the funding thereof, continued performance from existing wells and performance of new wells, the growth of infrastructure, well density per section, and recovery factors and development necessarily involves known and unknown risks and uncertainties, including those identified in this press release.
The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to defer materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; the potential for variation in the quality of the Montney formation; changes in the demand for or supply of Crew’s products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Crew or by third party operators of Crew’s properties, increased debt levels or debt service requirements; inaccurate estimation of Crew’s oil and gas reserve and resource volumes; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time-to-time in Crew’s public disclosure documents (including, without limitation, those risks identified in this news release and Crew’s Annual Information Form).
The forward-looking information and statements contained in this news release speak only as of the date of this news release, and Crew does not assume any obligation to publicly update or revise any of the included forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Resource Estimates
This news release contains references to estimates of oil and gas classified as Economic Contingent Resource (“ECR”) in the Montney region in Northeastern British Columbia which are not, and should not be confused with, oil and gas reserves. Such estimates are based upon an independent resource evaluation effective as at December 31, 2014, prepared in accordance with the Canadian Oil and Gas Evaluation Handbook (the “2014 Resource Evaluation”). Complete details of the 2014 Resource Evaluation were set forth in Crew’s previously disseminated press release dated May 7, 2015. In conjunction with the recent completion of Crew’s Montney Exchange transaction with the Province of British Columbia, Sproule has updated the 2014 Resource Evaluation to reflect the impact of this transaction and, in particular, the resulting increase in Crew’s ECR estimate as disclosed herein (the “Updated 2014 Resource Evaluation”). Such estimates are subject to a number of cautionary statements, assumptions, risks, positive and negative factors relevant to the estimates and contingencies, the details of which were set forth in Crew’s May 7, 2015 press release. Accordingly, readers are referred to and encouraged to review the sections entitled “Northeast British Columbia Montney Resource Evaluation”, “Definitions of Oil and Gas Resources and Reserves” and “Information Regarding Disclosure on Oil and Gas Reserves, Resources and Operational Information” in the May 7, 2015 press release for applicable definitions, cautionary language, explanations and discussion of resource estimates, all of which is incorporated by reference herein. Complete details of the Updated 2014 Resource Evaluation are also available within Crew’s updated corporate presentation available on our website atwww.crewenergy.com.
Test Results and Initial Production Rates
A pressure transient analysis or well-test interpretation has not been carried out and thus certain of the test results provided herein should be considered to be preliminary until such analysis or interpretation has been completed. Test results and initial production rates disclosed herein may not necessarily be indicative of long term performance or of ultimate recovery.
BOE equivalent
Barrel of oil equivalents or BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 mcf: 1 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of 6:1, utilizing a 6:1 conversion basis may be misleading as an indication of value.
Crew Energy Inc. is a dynamic, growth-oriented exploration and production company, focused on increasing long-term production, reserves and cash flow per share through the development of our world-class Montney resource. Crew is based in Calgary, Alberta and our shares are traded on The Toronto Stock Exchange under the trading symbol “CR”.
Financial statements and Management’s Discussion and Analysis for the three and six month period ended June 30, 2015 and 2014 will be filed on SEDAR at www.sedar.com and are available on the Company’s website at www.crewenergy.com.
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