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CALGARY, Alberta, Aug. 10, 2018 (GLOBE NEWSWIRE) -- GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO)(OTCQX:GXOCF) is pleased to provide an operational update and report its financial and operational results and for the three months and six months ended June 30, 2018.
Executive Appointment and Director Retirement
The Company is pleased to announce that Mr. Devon Griffiths has been promoted to Chief Operating Officer. Mr. Griffiths joined Granite (formerly DeeThree Exploration Ltd.) in early 2014. Mr. Griffiths is a Professional Geologist and has a broad operational background including drilling, completions, production and reserves. Mr. Griffiths holds a Bachelor of Science degree in Geology and is a member of the Association of Professional Engineers and Geoscientists of Alberta. Granite’s CEO, Michael Kabanuk, added: “We would like to congratulate Devon on this well-deserved promotion and we are proud to recognize his continued efforts towards the Company’s success and our goal of adding value for shareholders.”
Mr. Henry Hamm has retired as a director of the Company effective August 9th, 2018. The Company would like to thank Mr. Hamm for his significant contributions and wish him every success in his future endeavors. The Company’s Board of Director is now comprised of Brendan Carrigy (Chair), Michael Kabanuk (Chief Executive Officer), Kevin Andrus, Martin Cheyne, Brad Porter and Kathy Turgeon.
Granite drilled and completed two wells in the second quarter. The first well was drilled in April on 400 m offset spacing and brought on-stream in May and was located on the Company’s crown lands on the western side of its core Bakken producing pool (in EOR Pod 4). This marks the first well to be completed in this area since commencing EOR-focused development in 2015. The second well was drilled on 200 m offset spacing and was brought on stream in late June. Granite tested increased propent loading and tighter frac spacing in both wells and has observed positive results in production performance.
To date, the 2018 wells, including the Company’s first well of 2018 brought onstream in January, have compared favorably to wells completed in 2015 and 2016. This marks a positive return in production performance since the Company observed pressure interference and decreased performance associated with the 100 m spacing wells tested during the first half of 2017. Granite has taken a number of steps to optimize pool performance and EOR efficiency associated with these 2017 wells to mitigate pressure interference and continues to repressurize affected portions of the pool. These steps included abandoning one well and shutting in production from a number of others, with estimated reduced total volumes of 80 bbls/d.
Granite’s continued focus is on operational and cost efficiencies. Steps taken to reduce operating expenses include the recent shut-in of the Company’s gas plant in conjunction with a shallow gas well abandonment program to reduce associated property taxes and further increase the Company’s industry leading liability management rating (“LMR”) of 8.62.
Second Quarter, 2018
Production during the second quarter averaged 2,217 boe/d (99% oil) resulting in funds from operations of $4.1 million. Capital expenditures for the quarter were $5.8 million which included the drilling and completion of two wells, the first of which was drilled in unfavourable breakup conditions, and the second of which was originally planned for the third quarter. Granite made the decision to accelerate the timing of this well due to better availability of services and associated capital efficiencies.
The Company’s net debt at the end of the second quarter was higher than forecast primarily due to the acceleration of Granite’s third-quarter well into the second quarter, hedging losses, and the deferred disposition of a minor property referred to in the Granite’s news release dated December 18, 2017. Net debt at the end of the quarter was $47.1 million, consisting of bank debt of $44.9 million and negative working capital of $2.2 million.
Granite’s cash flow and corporate netbacks continue to be negatively impacted by the combination of widening Western Canada Select (“WCS”) differentials and the Company’s hedging losses. Hedging losses in the quarter were $2.0 million dollars, totaling $3.4 million for the six months ended June 30, 2018. The Company continues to aggressively pursue various differential mitigation opportunities to protect its go-forward pricing and the balance sheet.
The Company began delivering a portion of its oil production directly to a US refinery in June and has received an average net price increase of approximately $1.25 CAD/bbl for these volumes. The Company is delivering increased volumes to the refinery, with commitments through September, and is working towards a long-term strategic contract with a view towards an improved net pricing increase. Granite continues to pursue other differential mitigation opportunities to protect its go-forward pricing and the balance sheet.
For the second half of 2018, Granite has 1,200 bbl/d hedged, including 800 bbl/d hedged at an average price of $55.09 USD and 400 bbl/d hedged at an average price of $74.94 CAD.
Currently, Granite has 800 bbls per day hedged for the first quarter of 2019 (100 bbl per day at $65.72 USD and 700 bbl per day at an average price of $85.86 CAD) and 400 bbls per day hedged for the second quarter at an average price of $85.04 CAD.
With the current WCS differential outlook, the Company is setting forth a calculated, more moderated pace of development of its 100%-owned, early life-cycle Bakken oil pool, with the focus on: (1) sustainable production for the long-term; (2) minimizing costs and reducing debt levels; and (3) minimizing exposure to Canadian pricing risks through the implementation of WCS differential mitigation strategies.
With the continued uncertainty surrounding differentials, Granite is forecasting a budget ranging from 1,900 to 2,100 bbls/d of oil production for the second half of 2018, with capital spending of approximately $1.5 to $3.5 million. The Company will determine whether or not to proceed with drilling and completing a well in the fourth quarter based on prevailing price differentials and/or the success of its differential mitigation strategies. Moving forward, Granite has an inventory of 85 potential well locations with a plan to drill approximately five wells per year, in conjunction with the expansion of the EOR scheme, to ensure the most efficient, long-term recovery from the pool. At this pace, Granite has many years of future drilling, with forecast annual capital spending averaging between $10 and $12 million, and average annual production of 2,000 - 2,300 bbl/d.
FINANCIAL AND OPERATING HIGHLIGHTS
|Three Months Ended |
|Six Months Ended |
|(000s, except per share amounts)||($)||($)||($)||($)|
|Oil and natural gas revenues||14,094||13,788||24,769||28,239|
|Funds from operations (1)||4,089||6,743||6,800||13,303|
|Per share – basic||0.12||0.2||0.2||0.39|
|Per share – diluted (2)||0.12||0.2||0.19||0.39|
|Net income (loss)||-361||-116||-3,714||2,384|
|Per share – basic||-0.01||0||-0.11||0.07|
|Per share – diluted (2)||-0.01||0||-0.11||0.07|
|Capital expenditures (3)||5,841||5,846||9,302||10,637|
|Net debt (4)||47,072||35,985||47,072||35,985|
|Weighted average – basic||34,191||33,804||34,191||33,749|
|Weighted average – diluted||34,921||34,046||34,897||34,019|
|Natural gas (mcf/d)||121||448||204||588|
|Crude oil (bbls/d)||2,197||2,784||2,177||2,835|
|Average wellhead prices|
|Natural gas ($/mcf)||0.88||3.24||1.8||2.75|
|Crude oil and NGLs ($/bbl)||70.45||53.91||62.69||54.46|
|Combined average ($/boe)||69.87||53.01||61.9||53.19|
|Operating netback ($/boe) (7)||28.83||30.37||24.51||29.05|
|Gross (net) wells drilled|
|Oil (#)||2 (2.0)||3 (3.0)||3 (3.0)||6 (6.0)|
|Total (#)||2 (2.0)||3 (3.0)||3 (3.0)||6 (6.0)|
|Average working interest (%)||100||100||100||100|
|(1) Funds from operations and funds from operations per share are not recognized measures under International Financial Reporting Standards (IFRS). Refer to the commentary in the Management’s Discussion and Analysis under “Non-GAAP Measurements” for further discussion.|
|(2) The Company uses the weighted average common shares (basic) when there is a net loss for the period and the weighted average common shares (diluted) when there is net income in the period to calculate net income (loss) per share diluted. The Company uses the weighted average common shares (diluted) to calculate the funds from operations diluted.|
|(3) Total capital expenditures, excluding acquisitions and excluding non-cash transactions. Refer to commentary in the Management’s Discussion and Analysis under “Capital Expenditures and Acquisitions” for further information.|
|(4) Net debt, which is calculated as current liabilities (excluding derivative financial instruments) and bank debt less current assets (excluding derivative financial instruments), is not a recognized measure under IFRS. Please refer to the commentary under “Non-GAAP Measurements” for further discussion.|
|(5) For a description of the boe conversion ratio, refer to the commentary in the Management’s Discussion and Analysis under “Other Measurements”.|
|(6) Combined average realized prices includes all oil, gas and NGL sales revenue, excluding other income.|
|(7) Operating netback, which is calculated by deducting royalties, operating expenses and transportation expenses from oil and gas revenue and adjusting for any realized hedging on financial instruments, is not a recognized measure under IFRS. Please refer to the commentary under “Non-GAAP Measurements” for further discussion.|
Strategic Alternatives Update
On March 20, 2018, Granite announced the initiation of a process to review potential strategic alternatives available to it and the engagement of Cormark Securities Inc. and National Bank Financial Inc. as financial advisors in respect of this process. Granite has not set a definitive schedule for the process and does not intend to provide updates or otherwise disclose developments with respect to the process until the Board has approved a definitive transaction or strategic alternative, or otherwise determines that disclosure is necessary or appropriate.
For further information, please contact Michael Kabanuk, President & CEO, by telephone at (587) 349-9123, Devon Griffiths, COO, by telephone at (587) 349-9120, or Tyler Klatt, V.P. Exploration, by telephone at (587) 349-9125.
Forward-Looking Statements. Certain statements contained in this news release may constitute forward-looking statements or information (collectively, “forward-looking statements” or “statements”). These statements relate to future events or Granite’s future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. Statements relating to "reserves" are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, this news release contains forward-looking statements, pertaining to the following: forecasted capital expenditures and plans, drilling and development plans, Granite’s financial strength, anticipated production rates, projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, oil and natural gas production levels, the success of the enhanced oil recovery scheme, expectations regarding Granite’s credit facility, treatment under governmental regulatory and taxation regimes and expectations regarding Granite’s ability to raise capital and to continually add to reserves through acquisitions and development.
Granite believes the expectations reflected in such forward-looking statements and the assumptions upon which such forward-looking statements are based, to be reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon by investors. These statements speak only as of the date of this news release and are expressly qualified, in their entirety, by this cautionary statement. Granite’s actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; general economic conditions, stock market volatility and ability to access sufficient capital from internal and external sources, uncertainties associated with estimating reserves; uncertainties associated with Granite’s ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel. Readers are cautioned that the foregoing list of factors is not exhaustive. Management has included the above summary of assumptions and risks related to forward-looking information provided in this news release in order to provide security holders with a more complete perspective on Granite’s future operations and such information may not be appropriate for other purposes. Additional information on these and other factors that could affect Granite's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
With respect to forward-looking statements contained in this news release, Granite has made assumptions regarding, among other things: prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; the legislative and regulatory environments of the jurisdictions where Granite carries on business or has operations; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to market oil and natural gas successfully and Granite’s ability to obtain additional financing on satisfactory terms.
The forward-looking statements represent Granite’s views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. Granite has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking statements will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.
Non-GAAP Measurements. This news release contains the terms "funds from operations" and "funds from operations per share", which should not be considered an alternative to or more meaningful than cash flow from (used in) operating activities as determined in accordance with IFRS. These terms do not have any standardized meaning under IFRS. Granite's determination of funds from operations and funds from operations per share may not be comparable to that reported by other companies. Management uses funds from operations to analyze operating performance and leverage, and considers funds from operations to be a key measure as it demonstrates the Company's ability to generate cash necessary to fund future capital investments and to repay debt, if applicable. Funds from operations is calculated using cash flow from operating activities as presented in the statement of cash flows, before changes in non-cash working capital. Granite presents funds from operations per share whereby per share amounts are calculated using weighted-average shares outstanding, consistent with the calculation of earnings per share.
The Company considers corporate netbacks to be a key measure as they demonstrate Granite's profitability relative to current commodity prices. Corporate netbacks are comprised of operating and funds flow netbacks. Operating netback is calculated as the average sales price of the Company's commodities, less royalties, operating costs and transportation expenses. Funds flow netback starts with the operating netback and further deducts general and administrative costs, finance expense and unrealized gains on financial instruments, and then adds any finance income and realized gains on financial instruments, if applicable. No IFRS measure is reasonably comparable to netbacks. See "Netbacks (per unit)" in the Company's management's discussion and analysis for the year ended December 31, 2017 filed on www.sedar.com for the netback calculations.
Net debt, which represent current assets less current liabilities, excluding current derivative financial instruments, is used to assess efficiency, liquidity and the Company's general financial strength. No IFRS measure is reasonably comparable to working capital deficit.
BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
Test Rates. Test rates are not necessarily indicative of long-term performance or of ultimate recovery. Neither a pressure transient analysis nor a well-test interpretation has been carried out and the data should be considered to be preliminary until such analysis or interpretation has been done.