Equal Energy Announces Its Results for the Second Quarter Ended June 30, 2012
August 08 2012 - 1:44AM
PR Newswire (Canada)
CALGARY, Alberta, Aug. 9, 2012 /CNW/ - Equal Energy Ltd. ("Equal",
"the Company", "We" or "Our") is pleased to announce its financial
and operating results for the second quarter ended June 30, 2012.
Don Klapko, President and Chief Executive Officer commented, "I am
pleased to report on a strong operational second quarter and first
half 2012 for Equal. So far in 2012 we have delivered some
key results." -- Increased production -- Lower debt -- Lower unit
cost structure -- 100% successful drilling programs -- A complete
re-direction of our portfolio to oil-focused drilling in June 2012
-- Initiation of our exciting Mississippian co-venture drilling Our
accomplishments have been achieved in an environment of
deteriorating commodity prices that has persisted for the better
part of an entire year. As always, we have applied our fiscal
discipline to our activities - working diligently to deploy our
spending wisely and adjust our programs to maintain or improve debt
levels. Further details on these themes are provided below.
Strong Operational Results Production was up 9% year on year,
averaging well over 10,000 boe per day. Operating and
interest expenses were lower on a unit basis as a result of a
continued focus on our cost management. Capital spending has
approximated cash flow for the first six months of the year as we
continue to be disciplined on matching spending with cash flow.
Improved Balance Sheet and Renewed Credit Facility We've executed
on an ongoing balance sheet re-structuring and a strategy of
improving our financial flexibility since early 2011. Overall
debt including working capital levels are down 13 percent from
December 31, 2011 with proceeds from the asset sales in the first
quarter and the sale of Mississippian acreage in the second quarter
both reducing debt. Our banking syndicate re-confirmed our
$200 million credit facility in May. Equal has only drawn
US$110 million leaving us significant financial flexibility.
Mississippian Oil Venture In the second quarter we partially
monetized our Mississippian asset base in Oklahoma for proceeds of
US$18.1 million. This had been part of our plan for some time
and we are especially pleased to have achieved this with a solid
joint venture partner in Atlas Energy. We retained a 50%
interest and are now focused on oil development in this play. Our
first Mississippian well in the joint venture with Atlas was spud
on June 17, 2012. The well has been cased and completion is
underway. A second well is currently being drilled. The
venture intends to drill a minimum of six horizontal wells in 2012
and is on track to meet this objective. We expect this oil
resource play to deliver strong future value growth for Equal.
Successful Drilling Programs In the first half of 2012, Equal
drilled eight wells with a 100 percent success rate. Four
vertical wells were put down in our northern Oklahoma Hunton play
in the first quarter. Three horizontal wells were drilled in
our core Twin Cities Central Dolomite (TCCD) play also in
Oklahoma. All of the Oklahoma wells were on production by the
end of the second quarter and in aggregate are performing above
expectations. In Canada, one Cardium horizontal oil well was
drilled in the second quarter. It was completed subsequent to
the end of the quarter and tested 890 barrels of oil per day over
an initial 9 day period and is currently shut-in for a pressure
build up and testing. This appears to be one of our strongest
Cardium wells to date and will be placed on production by the
middle of August. A second Cardium well has been drilled with
the completion expected by the middle of August with first
production by the end of August. Commodity Prices and Cash Flow
There is no doubt that a strong pull back in commodity prices is
having a profound and growing impact on our industry. While
oil prices continue to be fairly strong, natural gas and natural
gas liquids have experienced severe declines. Equal is
especially affected by the drop in mid-continent NGL prices which
is driven primarily by an unusually warm winter last year resulting
in high storage levels. We anticipate a gradual recovery over
the next 6 to 12 months as demand increases, industry
infrastructure is built out, and drilling activity is curtailed. In
the first half of 2012, we have seen a 26% drop in funds from
operations from the same period last year. This is driven by
a combination of falling commodity prices and non-core asset
dispositions to reduce debt which resulted in Equal's production
portfolio shifting away from high operating cost oil assets towards
low cost liquids-rich natural gas assets. As I mentioned
before, Equal's focus for the second half of 2012 will be in the
light oil resource plays in Cardium (Alberta) and the Mississippian
(Oklahoma). You can be confident that Equal's management is
monitoring cash flow continuously and adjusting the capital
programs to maintain a prudent balance between spending and debt.
Net Income In Q2 2012, the Company had net income of $2.3 million
compared to net income of $6.5 million in Q2 2011. The
decrease in net income in Q2 2012 compared to Q2 2011 is mainly due
to the decrease in revenues from oil, NGLs and natural gas and
impairment in PP&E which were partially offset by lower
royalties, production expenses and gain on sale of assets.
Strategic Review On May 3(rd), Equal's Board of Directors announced
the initiation of a strategic review process to be managed by a
special committee of independent board members with the assistance
of Scotiabank as strategic advisors. The board and management
are responding to a perceived significant gap between the value of
the Company's underlying assets, and the value being recognized in
the Company's stock price. As of the date of this report, the
strategic review has resulted in a number of proposals being
delivered to the Company. The Company will not disclose
developments with respect to the strategic review process until the
Board of Directors has approved a specific transaction, action plan
or otherwise determines that disclosure is necessary or
appropriate. The following table is a summary of selected financial
and operational information for the three and six months ended June
30, 2012 with comparative 2011 figures. Financial and Three months
ended Six months ended Operations June 30 June 30 Summary (in
thousands except for volumes, percentages and per share and boe
amounts) 2012 2011 Change 2012 2011 Change FINANCIAL Oil, NGL and
natural gas revenues including realized hedging 26,142 41,824 (37%)
59,204 76,902 (23%) Funds from operations 7,994 16,602 (52%) 20,967
28,182 (26%) Per share - (38%) basic ($) 0.23 0.54 (57%) 0.60 0.96
Per share - (38%) diluted ($) 0.22 0.47 (53%) 0.58 0.94 Net income
2,340 6,492 (64%) 4,177 3,110 34% Per share - 9% basic($) 0.07 0.21
(67%) 0.12 0.11 Per share - 10% diluted ($) 0.06 0.19 (68%) 0.11
0.10 Total assets 444,120 483,765 444,120 483,765 Working capital
(deficit) including long-term debt (107,729) (124,296) (107,729)
(124,296) Convertible debentures 41,743 80,495 41,743 80,495
Shareholders' equity 227,535 219,319 227,535 219,319 SHARES
OUTSTANDING Shares outstanding - basic (000s) 35,046 30,981 35,007
29,323 Shares outstanding - diluted (000s) 36,578 36,796 36,324
29,956 Shares outstanding at period end(000s) 35,069 34,659 35,069
34,659 OPERATIONS Average daily production Oil (bbls per (52%) day)
1,093 2,547 (57%) 1,223 2,557 NGL (bbls per 60% day) 4,114 2,689
53% 4,011 2,508 Gas (mcf per 28% day) 30,852 25,385 22% 30,791
23,971 Total (boe per 14% day) 10,349 9,467 9% 10,366 9,060 Average
sales price Oil ($ per bbl) 84.83 87.48 (3%) 87.01 81.46 7% NGL ($
per bbl) 28.22 51.20 (45%) 33.49 49.50 (32%) Gas ($ per mcf) 2.54
3.90 (35%) 2.75 3.86 (29%) Cash flow netback ($ per boe) Revenue
27.76 48.55 (43%) 31.38 46.90 (33%) Royalties 5.30 9.45 (44%) 5.92
9.40 (37%) Production (24%) expenses 8.48 12.49 (32%) 9.11 11.96
Transportation (55%) expenses 0.18 0.57 (68%) 0.25 0.56 Operating
(36%) netback 13.80 26.04 (47%) 16.10 24.98 General and (31%)
administrative 3.27 3.11 5% 2.93 4.23 Cash interest (39%) expense
1.95 3.04 (36%) 2.10 3.42 Other cash (129%) costs 0.09 0.62 (85%)
(0.04) 0.14 Cash flow (35%) netback 8.49 19.27 (56%) 11.11 17.19
Equal Energy Ltd.'s complete unaudited, consolidated financial
statements, accompanying notes and Management's Discussion and
Analysis for the quarter ended June 30, 2012 will be available on
Equal's website at www.equalenergy.ca, on SEDAR at www.sedar.com
and on EDGAR at www.sec.gov/edgar.shtml. About Equal Energy Ltd.
Equal is an exploration and production oil and gas company based in
Calgary, Alberta, Canada with its United States operations office
located in Oklahoma City, Oklahoma. Equal's shares and debentures
are listed on the Toronto Stock Exchange under the symbols (EQU,
EQU.DB.B) and Equal's shares are listed on the New York Stock
Exchange under the symbol (EQU). The portfolio of oil and gas
properties is geographically diversified with producing properties
located in Alberta and Oklahoma. Current production is comprised of
approximately 11% crude oil, 39% NGLs and 50% natural gas. Equal
has compiled a multi-year drilling inventory for its properties
including its new oil play opportunities in the Cardium and Viking
in central Alberta in addition to its extensive inventory of
drilling locations in the Hunton liquids-rich natural gas play and
the Mississippian light oil play in Oklahoma. Forward-Looking
Statements Certain information in this press release constitutes
forward-looking statements under applicable securities law
including ongoing drilling plans and cost of capital. Any
statements that are contained in this press release that are not
statements of historical fact may be deemed to be forward-looking
statements. Forward-looking statements are often identified by
terms such as "may," "should," "anticipate," "expects," "seeks" and
similar expressions. Forward-looking statements necessarily involve
known and unknown risks, including the commencement and
continuation of joint venture operations on the Mississippian play
with Atlas, the repayment of debt, the availability of funds under
Equal's credit facility and the use of Equal; risks associated with
oil and gas production; marketing and transportation; loss of
markets; volatility of commodity prices; currency and interest rate
fluctuations; imprecision of reserve estimates; environmental
risks; competition; incorrect assessment of the value of
acquisitions; failure to realize the anticipated benefits of
acquisitions, dispositions or the strategic review process;
inability to access sufficient capital from internal and external
sources; changes in legislation, including but not limited to
income tax, environmental laws and regulatory matters. Readers are
cautioned that the foregoing list of factors is not exhaustive.
Readers are cautioned not to place undue reliance on
forward-looking statements as there can be no assurance that the
plans, intentions or expectations upon which they are placed will
occur. Such information, although considered reasonable by
management at the time of preparation, may prove to be incorrect
and actual results may differ materially from those anticipated
forward-looking statements contained in this press release are
expressly qualified by this cautionary statement. Natural gas
volumes recorded in thousand cubic feet ("mcf") are converted to
barrels of oil equivalent ("boe") using the ratio of six (6)
thousand cubic feet to one (1) barrel of oil ("bbl"). Boe's
may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 mcf: 1 bbl is based on an energy equivalent
conversion method primarily applicable at the burner tip and does
not represent a value equivalent at the wellhead. Additional
information on these and other factors that could affect Equal's
operations or financial results are included in Equal's reports on
file with Canadian and U.S. securities regulatory authorities and
may be accessed through the SEDAR website (www.sedar.com), the
SEC's website (www.sec.gov), Equal's website (www.equalenergy.ca)
or by contacting Equal. Furthermore, the forward looking statements
contained in this news release are made as of the date of this news
release, and Equal does not undertake any obligation to update
publicly or to revise any of the included forward-looking
statements, whether as a result of new information, future events
or otherwise, except as expressly required by securities law.
Equal Energy Ltd. CONTACT: Dell ChapmanChief Financial Officer(403)
538-3580 or (877) 263-0262Don KlapkoPresident & CEO(403)
536-8373 or (877) 263-0262
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