OKLAHOMA CITY,
March 17, 2014 /PRNewswire/ - Equal
Energy Ltd. ("Equal", "the Company", "we" or "our") (NYSE: EQU;
TSX: EQU) today announced our operating and financial results for
the three months and year ended December 31,
2013. All dollar amounts are in U.S. dollars unless
otherwise indicated and volumes are net of royalties.
"This was another year of solid performance for
Equal Energy. Excluding 2012 asset sales, we maintained production
levels, increased our booked reserves and supported our dividend,
while at the same time conducting a comprehensive review of
strategic alternatives for the Company," said Don Klapko, President and Chief Executive
Officer. "The review culminated in an arrangement agreement with
Petroflow at a price that we believe delivers maximum value to our
shareholders. Until the arrangement agreement closes, we will
continue to operate our assets prudently and in the interests of
the Company and our shareholders, with a continued focus on
maintaining our strong balance sheet."
It is important to note that operating and
financial results for the year are provided within the context of
the strategic alternatives process. This process was officially
undertaken in March 2013 by a
committee of three independent directors (the "Special Committee")
and resulted in the Arrangement Agreement (as defined below)
announced by Equal at the end of 2013.
Arrangement Agreement
On December 9,
2013, Equal announced that it had entered into a definite
agreement ("Arrangement Agreement") with Petroflow Energy
Corporation and Petroflow Canada Acquisition Corp. (collectively
"Petroflow") for the cash purchase of all of the issued and
outstanding common shares of Equal at a price of $5.43 per share, on a fully-diluted basis. The
transaction will be completed by way of a plan of arrangement under
the Business Corporations Act (Alberta) (the "Arrangement"). Equal's Board of
Directors unanimously resolved to recommend that Equal's
shareholders vote in favor of the Arrangement.
The Arrangement Agreement is the result of a
strategic review process undertaken by the Special Committee at the
beginning of the year in response to the unsolicited expression of
interest by a third party. The Special Committee was formed to
consider a full range of strategic alternatives in order to
maximize shareholder value. Alternatives considered by Equal
included continuing as an independent public company, the
acceleration of capital deployed in developing assets, a corporate
sale, a return of capital to shareholders via dividend distribution
or share buyback, a master limited partnership, and an acquisition
by an outside party.
Solid 2013 Operating Results
- Proved reserves increased by 23%, or 4.6 million barrels of oil
equivalent ("MMboe") from the prior year to 24.3 MMboe, the result
of a combination of successful drilling and better than expected
production performance by our existing developed production
base
- Production averaged 6,448 barrels of oil equivalent per day
(boe/d)
- Fourth quarter production averaged 6,511 boe/d, down from 6,711
boe/d in the third quarter of 2013, due to the effects of severe
winter weather on our operations
- 2013 exit rate production was approximately 6,800 boe/d and,
during the first 10 days of March
2014, Equal's production averaged over 7,000 boe/d
- Average production costs per boe were $5.99/boe, representing a decrease of 23% from
2012 as a result of cost saving efforts and realized operational
efficiencies at the field level
- Oil, gas and NGL revenue per boe, excluding the impact of
commodity contracts, increased by 16% over last year due to higher
realized prices
Successful Drilling Program
- Drilled 12 (11.1 net) new wells in the liquids rich Twin Cities
Central Dolomite Hunton project area with a 100% success rate
- Expanded drilling program to 12 wells from 10 as reduced
drilling cost, improved drilling cycle times and other cost savings
enabled the additional wells to be drilled within our original
capital budget
- Completed well costs came in under our average budgeted AFE of
$2.6 million per well
- Performance to-date on average from these 12 new wells has been
within the range of Equal's type curve expectations
Looking Ahead
Equal expects to complete the Arrangement with
Petroflow. However, the completion of the Arrangement remains
subject to a number of conditions that must be met or waived,
including approval by 66 2/3 of the votes cast by Equal's
shareholders and "minority approval" (as that term is defined in
Multilateral Instrument 61-101 Protection of Minority Security
Holders in Special Transactions) at a special meeting.
In addition, among the other conditions to closing is a requirement
that Petroflow obtain financing for the transaction. As a result,
there is no guarantee that the Arrangement will be completed, or
that if completed, it will be completed on or prior to the
May 1, 2014, date contemplated in the
Arrangement Agreement. Any extension of the closing date beyond
May 1, 2014, would require the
agreement of both Equal and Petroflow.
In certain circumstances, either Equal or
Petroflow may be required to pay a termination fee of two million dollars to the other party.
Due to the terms of the Arrangement Agreement
and at the request of Petroflow, Equal has reduced our capital
expenditure plans through April 2014.
In anticipation of the acquisition, we understand that Petroflow is
developing its own integration plan and capital deployment strategy
for the assets it expects to acquire from Equal. Although Equal may
pursue selective drilling during this period, we plan to maintain
cost discipline and a strong balance sheet. We believe our sources
of cash, including cash on hand, cash flow and the full capacity of
the credit facility will be sufficient to fund our operations and
capital expenditures until the Arrangement is completed. In the
event the proposed transaction with Petroflow does not occur, Equal
will formalize a plan to continue to actively exploit our proven
play in the Hunton.
Financial and Operational Results
Equal's most recent 2013 cash flow guidance was
$31 to $34 million, based on the
assumption of 6,400 to 6,500 boe/d for the average full year
production. Management had anticipated total 2013 capital
expenditures of $38 to $41
million.
Cash flow before balance sheet changes, a
non-GAAP measure, was $30 million.
However, Equal's management believes that if Equal had experienced
a normal year for operations, cash flow would have been much
stronger due to higher than expected revenues from improved
commodity prices combined with lower than expected costs at the
field level. Equal's management believes these operational benefits
were more than offset by nonrecurring general and administration
costs of more than $3.0 million
related to the nine month strategic review process and the work of
the Special Committee (successfully leading to the Arrangement
Agreement with Petroflow), resolution of certain litigation issues,
the substantial shutdown of the Calgary operation and the relocation of the
head office to Oklahoma City.
Full year average production was 6,448 boe/d,
achieving our guidance.
Capital expenditures for 2013 were $35.6 million, coming in below guidance due to
Equal's ability to achieve lower than budgeted drilling costs
during the year. Equal successfully drilled 12 wells during the
year for the original budgeted cost of 10 wells.
The following table is a summary of selected
financial and operational information for the three months and year
ended December 31, 2013, with
comparative figures from 2012.
In thousands of dollars, except
for share amounts or if otherwise noted |
|
|
Quarter Ended
12/31/2013 |
|
|
|
Quarter Ended
12/31/2012 |
|
Year Ended
12/31/2013 |
|
|
|
Year Ended
12/31/2012 |
FINANCIAL |
|
|
|
|
|
(Revised) |
|
|
|
|
|
|
(Revised) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, NGL and natural gas revenues before |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impact of commodity contracts |
|
$ |
17,145 |
|
12% |
|
$ |
15,307 |
|
$ |
63,912 |
|
4% |
|
$ |
61,536 |
Net income (loss) from continuing operations |
|
$ |
2,599 |
|
|
|
$ |
(12,421) |
|
$ |
6,281 |
|
-80% |
|
$ |
31,195 |
Per share - basic ($) |
|
|
0.07 |
|
|
|
|
(0.35) |
|
|
0.18 |
|
-80% |
|
|
0.89 |
Per share - diluted ($) |
|
|
0.07 |
|
|
|
|
(0.35) |
|
|
0.17 |
|
-79% |
|
|
0.82 |
Cash dividends per share ($) |
|
|
0.20 |
|
|
- |
|
|
|
|
0.20 |
|
|
|
|
- |
Total assets |
|
$ |
228,385 |
|
0% |
|
$ |
227,521 |
|
$ |
228,385 |
|
0% |
|
$ |
227,521 |
Long-term debt |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
|
- |
Convertible debentures |
|
$ |
42,309 |
|
-6% |
|
$ |
45,230 |
|
$ |
42,309 |
|
-6% |
|
$ |
45,230 |
Total shareholders' equity |
|
$ |
163,961 |
|
2% |
|
$ |
160,597 |
|
$ |
163,961 |
|
2% |
|
$ |
160,597 |
SHARES/UNITS OUTSTANDING (000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding - basic |
|
|
35,806 |
|
2% |
|
|
35,152 |
|
|
35,672 |
|
2% |
|
|
35,062 |
Shares outstanding - diluted |
|
|
36,799 |
|
-11% |
|
|
41,363 |
|
|
36,540 |
|
-11% |
|
|
41,125 |
Shares outstanding at period end |
|
|
35,806 |
|
2% |
|
|
35,227 |
|
|
35,806 |
|
2% |
|
|
35,227 |
PROVED RESERVES (MMboe)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed reserves |
|
|
|
|
|
|
|
|
|
|
22.0 |
|
34% |
|
|
16.4 |
Proved undeveloped reserves |
|
|
|
|
|
|
|
|
|
|
2.4 |
|
-27% |
|
|
3.3 |
Total proved reserves |
|
|
|
|
|
|
|
|
|
|
24.3 |
|
23% |
|
|
19.7 |
COSTS INCURRED |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
|
|
|
$ |
3,737 |
|
54% |
|
$ |
2,420 |
Development |
|
|
|
|
|
|
|
|
|
|
31,910 |
|
43% |
|
|
22,311 |
Total costs incurred |
|
|
|
|
|
|
|
|
|
$ |
35,647 |
|
44% |
|
$ |
24,731 |
Revised, see Note 18 in Form 10-K for
additional information.
|
(1) SEC net revenue interest flat
pricing and costs case as reported in Form 10-K. |
Equal's audited consolidated financial
statements, accompanying notes and Management's Discussion and
Analysis are available in the Form 10-K filed with the SEC and
available on EDGAR at www.sec.gov/edgar.shtml, on SEDAR at
www.sedar.com, and on the Company's website at
www.equalenergy.ca.
Central Oklahoma Adjusted Operating
Results
During 2013, Equal's production was solely from
our Oklahoma properties. Proceeds
from the 2012 Northern Oklahoma
asset divestiture were used to pay down outstanding bank debt.
The following tables present 2013 fourth quarter
comparisons of similar operations during the fourth quarter of
2012. Full year comparisons include operations from Northern Oklahoma assets which averaged 1,176
boe/d in the first six months of 2012. The Northern Oklahoma assets were sold on
September 24, 2012, with an effective
date of July 1, 2012.
In thousands of dollars, except per
boe amounts |
|
|
|
|
|
|
|
Quarter Ended
12/31/2013 |
|
Quarter Ended
12/31/2012 |
|
Year Ended
12/31/2013 |
|
Year Ended
12/31/2012 |
OPERATIONS |
|
|
|
(Revised) |
|
|
|
(Revised) |
|
|
|
|
|
|
|
|
|
Net Production per Day: |
|
|
|
|
|
|
|
NGL (Bbl) |
3,140 |
-1% |
3,160 |
|
3,142 |
-3% |
3,237 |
Natural Gas (Mcf) |
|
19,185 |
0% |
19,097 |
|
18,821 |
-17% |
22,664 |
Oil (Bbl) |
|
174 |
4% |
167 |
|
169 |
-2% |
172 |
Total (Boe) |
|
6,511 |
0% |
6,510 |
|
6,448 |
-10% |
7,186 |
|
|
|
|
|
|
|
|
|
Oil, Gas, and NGL Revenues Before
Commodity Contracts: |
|
|
|
|
NGL |
|
$
10,527 |
14% |
$
9,258 |
|
$
37,934 |
2% |
$ 37,237 |
Natural Gas |
|
5,101 |
7% |
4,756 |
|
20,063 |
9% |
18,451 |
Oil |
|
1,517 |
15% |
1,319 |
|
5,915 |
1% |
5,848 |
Total |
|
$
17,145 |
12% |
$ 15,333 |
|
$
63,912 |
4% |
$ 61,536 |
|
|
|
|
|
|
|
|
|
Average Sales Prices Before
Commodity Contracts: |
|
|
|
|
|
|
NGL (per Bbl) |
|
$ 36.44 |
14% |
$
31.85 |
|
$ 33.08 |
5% |
$
31.41 |
Natural Gas (per Mcf) |
|
$
2.89 |
7% |
$
2.71 |
|
$
2.92 |
32% |
$
2.22 |
Oil (per Bbl) |
|
$ 94.86 |
11% |
$
85.80 |
|
$ 96.01 |
3% |
$
92.82 |
Boe |
|
$ 28.62 |
12% |
$
25.60 |
|
$ 27.16 |
16% |
$
23.37 |
|
|
|
|
|
|
|
|
|
Production Expenses |
|
|
|
|
|
|
|
|
Production Expenses |
|
$ 3,531 |
-5% |
$
3,732 |
|
$
14,091 |
-31% |
$ 20,460 |
Production Taxes |
|
861 |
-3% |
891 |
|
3,713 |
-1% |
3,761 |
|
|
|
|
|
|
|
|
|
Production Expenses per
Boe |
|
|
|
|
|
|
|
Production Expenses |
|
$
5.89 |
-5% |
$
6.23 |
|
$
5.99 |
-23% |
$
7.79 |
Production Taxes |
|
$
1.44 |
-3% |
$
1.49 |
|
$
1.58 |
10% |
$
1.43 |
|
Revised, see Note 18 in Form 10-K for
additional information.
|
Non-GAAP Financial Measures
Management uses certain industry benchmarks to
analyze financial performance. Management feels that these
benchmarks are key measures of profitability and overall
sustainability for Equal. These benchmarks as presented do not
have any standardized meanings prescribed by GAAP and therefore may
not be comparable with the calculation of similar measures
presented by other entities.
We believe the use of these non-GAAP financial
measures provides useful information to investors to gain an
overall understanding of our current financial
performance. Specifically, we believe the non-GAAP financial
measures included herein provide useful information to both
management and investors by excluding certain expenses and gains
and losses that our management believes are not indicative of our
core operating results. In addition, these non-GAAP financial
measures are used by management for budgeting and forecasting as
well as subsequently measuring our performance, and we believe that
we are providing investors with financial measures that most
closely align to our internal measurement processes. We
consider these non-GAAP measures to be useful in evaluating our
core operating results as they more closely reflect our essential
revenue generating activities and direct operating expenses
(resulting in cash expenditures) needed to perform these revenue
generating activities. Our management also believes, based on
feedback provided by the investment community, that the non-GAAP
financial measures are necessary to allow the investment community
to construct its valuation models to better compare our results
with our competitors and market sector.
The non-GAAP financial information is presented
using consistent methodology from year to year. These measures
should be considered in addition to results prepared in accordance
with GAAP. In addition, these non-GAAP financial measures are
not based on any comprehensive set of accounting rules or
principles. We believe that non-GAAP financial measures have
limitations in that they do not reflect all of the amounts
associated with our results of operations as determined in
accordance with GAAP and that these measures should only be used to
evaluate our results of operations and financial position in
conjunction with the corresponding GAAP financial measures. The
adjustment factors are described more fully in the table below.
WORKING CAPITAL
|
|
|
December 31,
2013 |
|
December 31, 2012 |
(in thousands) |
|
|
|
|
|
|
Cash |
|
$ |
15,631 |
|
$ |
23,086 |
Accounts receivable |
|
|
13,581 |
|
|
14,830 |
Prepaid expenses, deposits and other |
|
|
1,051 |
|
|
931 |
Accounts payable and accrued liabilities |
|
|
(17,134) |
|
|
(10,291) |
Assets - discontinued operations |
|
|
- |
|
|
2,179 |
Liabilities - discontinued operations |
|
|
- |
|
|
(5,870) |
Working capital |
|
$ |
13,129 |
|
$ |
24,865 |
|
|
|
|
|
|
|
CASH FLOW BEFORE BALANCE SHEET CHANGES |
|
|
|
|
|
|
|
|
Year ended December 31 |
(in thousands) |
|
2013 |
|
2012 |
Net cash provided by operating activities |
|
$ |
30,546 |
|
$ |
34,673 |
Adjustments: |
|
|
|
|
|
|
Changes in assets and liabilities |
|
|
(3,312) |
|
|
2,443 |
Net cash provided by (used in) operating
activities - discontinued operations |
|
|
2,749 |
|
|
(7,285) |
Cash flow before balance sheet changes |
|
$ |
29,983 |
|
$ |
29,831 |
Additional information
In connection with the Arrangement Agreement,
Equal filed a preliminary proxy statement with the Securities and
Exchange Commission (the "SEC") on December
31, 2013. The preliminary proxy statement has also been
filed on the Canadian SEDAR filing system at www.sedar.com, and is
available on Equal's website at www.equalenergy.ca The preliminary
proxy statement contains important information about the proposed
Arrangement and related matters. INVESTORS AND SHAREHOLDERS ARE
URGED TO CAREFULLY READ THE PRELIMINARY PROXY STATEMENT, AND WHEN
AVAILABLE, THE FINAL PROXY STATEMENT. Investors and shareholders
may obtain free copies of the preliminary proxy statement and other
documents filed with the SEC by Equal through the website
maintained by the SEC at www.sec.gov. In addition, investors and
shareholders may obtain free copies of the preliminary proxy
statement from Equal by telephone at (405) 242-6000, or by mail at:
Equal Energy Ltd., 4801 Gaillardia Pkwy, Suite 325, Oklahoma City, OK, 73142 Attn: Investor
Relations. Equal will furnish the finalized proxy statement to its
shareholders when it is available.
Equal and its directors and executive officers
may be deemed to be participants in the solicitation of proxies
from the shareholders of Equal in connection with the proposed
transaction. Information regarding the interests of these directors
and executive officers in the transaction described herein is
included in the proxy statement described above. Additional
information regarding these directors and executive officers is
also included in Equal's proxy statement for its 2013 Annual and
Special Meeting of Shareholders, which was filed with the SEC on
April 4, 2013. This document is
available free of charge at the SEC's web site at www.sec.gov, and
from Equal by telephone at (405) 242-6000, or by mail at: Equal
Energy Ltd., 4801 Gaillardia Pkwy, Suite 325, Oklahoma City, OK, 73142 Attn: Investor
Relations.
Any Equal shareholder that has questions or
requires more information with regard to the voting of Equal shares
should contact Kingsdale Shareholder Services Inc. by toll-free
telephone in North America at
1-866-581-1479 or collect call outside North America at 416-867-2272, or by e-mail at
contactus@kingsdaleshareholder.com.
About Equal Energy Ltd.
Equal Energy is an oil and gas exploration and
production company based in Oklahoma
City, Oklahoma. Our oil and gas assets are centered on the
Hunton liquids-rich natural gas property in Oklahoma. Our shares are listed on the New
York Stock Exchange and the Toronto Stock Exchange under the symbol
(EQU). Our convertible debentures are listed on the Toronto Stock
Exchange under the symbols EQU.DB.B.
Forward-Looking Statements
Certain information in this press release
constitutes forward-looking statements under applicable securities
laws including statements relating to the completion of the
Arrangement and payment of consideration pursuant to the
Arrangement, and Equal's sources of cash being sufficient to fund
its operations. 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, such as 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 and future production
estimates; environmental risks; competition; incorrect assessment
of the value of acquisitions; failure to realize the anticipated
benefits of dispositions; 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; and failure to obtain shareholder approval or
to meet other closing conditions for the Arrangement, including the
failure of Petroflow to obtain financing for the completion of the
Arrangement. 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.
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 press
release are made as of the date of this press 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.
Conversion: Natural gas volumes recorded in
thousand cubic feet ("mcf") are converted to barrels of oil
equivalent ("boe") using the ratio of six (6) mcf 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. All dollar values are in US dollars unless otherwise
stated.
SOURCE Equal Energy Ltd.