NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES OF AMERICA
Arcan Resources Ltd. (TSX VENTURE:ARN) ("Arcan" or the "Corporation") is pleased
to announce its financial and operating results for the three month period ended
March 31, 2013. Results on key metrics are improved from the fourth quarter of
2012 as efforts continue to ensure long-term value creation for investors. Arcan
has also extended its credit facility by one year from 2014 to 2015 and has
opted to reduce its credit facility by $10 million to $190 million, in light of
recent asset divestitures totalling $33 million.
"Our focus on improving operational efficiency across the board is showing
results," said Arcan Chief Executive Officer Terry McCoy. "As we emphasize
long-term sustainability over near-term production growth, we have succeeded in
lowering per barrel operating costs while stabilizing production from the
previous quarter. Although production and funds from operations have declined
compared to the first quarter of 2012, due to our reduction in capital spending,
they have inclined from the last quarter as we begin to reap the benefits of our
front end capital investment in roads, pipelines, oil batteries and waterflood
infrastructure. We anticipate moderate increases in production in 2013 as we are
now seeing the results of both ongoing waterflood investment as well as the
changes we have made to our drilling and fracturing processes in our core
operating area. The technical changes that we have made to our program are part
of a process of continuous improvement in all areas of our operations."
Three Months Ended
March 31, March 31, Dec 31,
2013 2012 2012
---------------------------------
Financials ($000s except per share amounts)
Petroleum and natural gas revenue 31,200 37,932 28,874
Pumping and stimulation services revenue 987 2,802 1,896
Cash flow from operating activities 11,008 17,026 5,952
Funds from operations(1) 9,700 18,445 7,793
Per share basic and diluted(1)(3) 0.10 0.19 0.08
Loss (2,966) (2,586) (27,187)
Per share basic and diluted(3) (0.03) (0.03) (0.28)
Capital expenditures, net - cash 17,088 106,076 5,579
Total assets 616,411 632,209 613,389
Total liabilities 370,741 343,579 365,402
Debenture face value 171,250 171,250 171,250
Shareholders' equity 245,670 288,630 247,987
Bank loan 149,898 79,675 159,422
Net debt and working capital(4) 317,788 268,769 305,270
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Operating
Production:
Crude oil and NGLs (barrels ("bbls") per
day) 4,080 4,783 3,944
Natural gas (thousand cubic feet ("Mcf")
per day) 110 553 201
---------- ---------- ----------
Barrel of oil equivalent ("BOE") per
day(2) 4,098 4,875 3,978
Average realized price:
Crude oil and NGLs ($ per bbl) 84.93 86.79 79.39
Natural gas ($ per Mcf) 1.91 3.12 3.52
---------- ---------- ----------
Combined price per BOE ($ per BOE) 84.60 85.51 78.90
Three Months Ended
March 31, March 31, Dec 31,
2013 2012 2012
---------------------------------
Netback ($ per BOE)(1)
Petroleum and natural gas sales 84.60 85.51 78.90
Pumping and stimulation services revenue 2.68 6.32 5.18
Royalties (13.65) (13.63) (13.07)
Production and operating expenses (17.52) (15.95) (19.24)
Cost of sales for pumping and stimulation
services (5.25) (5.54) (10.27)
---------- ---------- ----------
Consolidated operating netback ($ per
BOE)(1) 50.86 56.71 41.50
Realized economic hedging gains (losses) -
cash 1.51 (2.37) (2.86)
Cash G&A (5.69) (5.40) (10.84)
Other - (0.01) -
Finance expenses - cash (11.72) (6.86) (11.82)
---------- ---------- ----------
Corporate netback(1) 34.96 42.07 21.70
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Common Shares (000's)
Shares outstanding 97,860 97,785 97,860
Weighted average - basic and diluted(3) 97,860 97,773 97,860
Notes:
(1) The reader is referred to the section "Non-IFRS Measurements".
(2) The reader is referred to the section "Legal Advisories".
(3) Basic and diluted weighted average shares are the same as the
Corporation incurred a loss in these periods.
(4) Net debt and working capital is calculated by subtracting the current
liabilities (excluding bank debt), bank debt, and convertible debentures
from its current assets.
FINANCIAL HIGHLIGHTS
-- Funds from operations increased 24 percent to $9.7 million during the
first quarter of 2013 over the fourth quarter of 2012. In year-over-year
results, funds from operations decreased from $18.4 million in the first
quarter of 2012, as capital spending decreased by 84 percent from a year
earlier (after dispositions).
-- Arcan decreased its bank line to $190 million from $200 million,
reducing bank fees and extending the term of the facility by one year,
and reflecting its efforts to pay down debt. Arcan currently has
approximately $171.1 million drawn on its credit facilities based on its
active winter capital program and expects its restricted summer capital
program will reduce debt accordingly.
-- Arcan received $4.2 million in net proceeds from the disposal of non-
core assets in the Swan Hills area, and used these proceeds to reduce
debt levels.
-- Invested $17.1 million of capital (net), after dispositions during the
first quarter of 2013 as part of a successful winter drilling program.
The amount of capital expenditures in the first quarter of 2013 was down
substantially from $106.1 million for the same quarter a year earlier.
As budgeted, capital spending was higher than cash flow of $11 million,
as Arcan weighted its capital program to the winter months and expects
capital spending to fall below cash flow in the summer months.
-- Decrease in general and administrative ("G&A") expenses of 48 percent
from the fourth quarter of 2012, to $5.69 per barrel, due largely to
cost-cutting measures taken by the Corporation.
-- Arcan added to its hedging program to secure approximately 50 percent of
its expected cash flow for the next three years.
OPERATIONAL HIGHLIGHTS
-- Production averaged 4,098 BOE per day during the first quarter of 2013,
up three percent from the previous quarter. Production was down from
4,875 in the first quarter of 2012, due to much higher capital spending
and high flush production a year ago. Arcan expects waterflood response
to enable the Corporation to gradually increase production for the
balance of the year.
-- Waterflood investment and changes to drilling and completion processes
strengthened per well production, including higher drilling rate
efficiency, optimizing the amount of acid placed per fracture
stimulation stage, incorporating cross-linked gels and adding proppant
into fracturing operations. Continuous analysis of operating practices
and critical review of each well is building a growing knowledge base
within Arcan of how to maximize long-term production from this
formation.
-- Reduced per barrel operating costs by nine percent, to $17.52 per BOE in
the first quarter in 2013 compared to $19.24 per BOE in the fourth
quarter of 2012. Combined with the increased utilization of the pipeline
and oil battery infrastructure that has been built, Arcan has made a
number of changes to its initial production operating procedures to
increase the efficiency of getting wells on production that has led to
this reduction in operating costs. Operating costs were up from $15.95
per barrel in the first quarter of 2012 due to several preventative
workovers completed during the first quarter of 2013 to reduce the
possibility of lost production or having to conduct a remedial workover
during spring break-up when it would be more expensive to gain access to
the well. Arcan continues to show improvement in our operating costs per
barrel in the second quarter of 2013.
-- Arcan deployed capital into three joint venture farm-out arrangements
with Lightstream Resources Ltd. (formerly PetroBakken Energy Ltd.),
involving a total of 21 sections of land. Five wells have been drilled,
with two more option wells and a development program still possible.
Arcan is responsible for 20 percent of the costs of the wells associated
with the joint venture farm-out arrangement while retaining operatorship
and an average working interest of 48 percent.
-- Advances in the Ethel pipeline corridor with three pipelines (being a
natural gas, oil and an effluent line) in the ground with the natural
gas sales pipeline projected to be fully operational in June, 2013.
OUTLOOK
Arcan remains focused on efficient development of its long-life conventional
light oil play in the Swan Hills area of Alberta. In an environment of limited
access to capital, Arcan is making excellent progress on its core objective of
delivering sustainable and profitable production with capital programs that are
based on operating cash flow.
Arcan's management team has taken a careful and disciplined review of every
aspect of drilling and completions operations and has made substantial changes
in several areas, ranging from how lease pads are constructed, how specific
sections of the wells are drilled, changes in the fracture stimulation design
and execution and what pumps are used as a well transitions to production. These
changes have brought total well costs down from approximately $6 - $7 million
per well to approximately $4.5 - $5 million per well, and Arcan believes that
costs can come down further to average below $4.5 million per well. The average
time to drill and complete a well has also dropped by approximately five days.
Arcan is working to deliver further reductions in operating costs and is seeking
to maintain costs at $15 to $18 per BOE for the remainder of 2013.
Capital expenditure will be reduced during the second and third quarter, when
site access is more challenging, and will increase again in the later part of
the third quarter and throughout the fourth quarter of 2013. For the remainder
of 2013 Arcan has 7 gross (4.9 net) drilling locations currently identified and
ready to be drilled. Into the first quarter of 2014, Arcan has 12 gross (9.4
net) drilling locations identified. Of these locations several are follow ups on
existing lease locations and others are well advanced in the planning process
but the pace of this drilling will depend on capital availability.
Factors impacting 2013 production include the level of waterflood response in
the reservoir, and the prevalence of outages or restrictions on third-party
infrastructure. Arcan is working on a new reservoir model to improve its ability
to accurately forecast the impact of the waterflood in different parts of the
reservoir. Since changing its fracturing techniques beginning in late 2012,
initial production from each new well has exceeded the previous type curves,
which may be a positive signal for future well productivity.
Production in the first quarter of 2013 was negatively impacted by a third-party
pipeline outage that impacted about 400 BOE per day, but this is expected to be
alleviated in the second half of 2013 with the completion of the Ethel natural
gas sales pipeline. Arcan currently anticipates that second quarter production
will be approximately 4,000 to 4,200 BOE per day, and expects full-year
production to fall into the lower end of its earlier guidance range of 4,300 to
4,700 BOE per day in 2013.
"With the improvement in operating costs, G&A expenses and capital efficiencies
in the first quarter of 2013, we feel like we have turned a corner at Arcan as
we mature as an organization," said President Doug Penner. "Our management team
has come together around clear shared objectives and we are now executing more
effectively on a well-defined plan."
FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS:
Arcan has filed its unaudited condensed interim consolidated financial
statements and the accompanying management's discussion and analysis for the
three month period ended March 31, 2013, with the Canadian securities regulatory
authorities. These filings are available for review at www.sedar.com or
www.arcanres.com.
ANNUAL AND SPECIAL GENERAL MEETING
Arcan's annual and special meeting is scheduled for June 6, 2013, at 3:00 PM in
the McMurray Room of the Petroleum Club, located at 319 - 5th Avenue SW,
Calgary, Alberta.
About Arcan Resources Ltd.
Arcan Resources Ltd. is an Alberta, Canada corporation that is principally
engaged in the exploration, development and acquisition of petroleum and natural
gas located in Canada's Western Sedimentary Basin.
Legal Advisories
Additional information about the Corporation, including the Corporation's annual
information form for the year ended December 31, 2012, is available under
Arcan's profile on SEDAR at www.sedar.com.
BOEs may be misleading, particularly if used in isolation. The calculation of
BOEs is based on a conversion ratio of six Mcf of natural gas to one bbl of oil
based on an energy equivalency conversion 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 oil as compared to natural
gas is significantly different from the energy equivalent of six to one,
utilizing a BOE conversion ratio of 6 Mcf: 1 bbl would be misleading as an
indication of value.
Non-IFRS Measurements
Arcan's financial statements have been prepared in accordance with IFRS.
Readers are cautioned that this press release contains the term "funds from
operations", which should not be considered an alternative to, or more
meaningful than, "cash provided by operating activities" or "net earnings" as
determined in accordance with IFRS as an indicator of Arcan's performance. Arcan
also presents "funds from operations per share", whereby funds from operations
are divided by the basic and diluted weighted average number of common shares of
Arcan outstanding to determine per share amounts. Operating and corporate
netbacks are also presented. Operating netbacks represent Arcan's revenue, less
royalties and operating expenses, and corporate netbacks represent Arcan's
operating netback, less realized economic hedging losses, G&A and interest
expense, in order to determine the amount of funds generated by production.
Operating and corporate netbacks have been presented on a per BOE basis, as
well.
The measures referenced above do not have any standardized meaning prescribed by
IFRS and therefore are unlikely to be comparable to similar measures presented
by other companies. Management believes that funds from operations and operating
and corporate netbacks are useful supplemental measures as they provide an
indication of the ability of Arcan to fund future growth through capital
investment and/or repay debt. These measures have been described and presented
in this press release in order to provide shareholders and potential investors
with additional information regarding Arcan's liquidity and its ability to
generate funds to finance its operations. Arcan's method of calculating funds
from operations may differ from other companies, and as such, may not be
comparable.
Arcan determines funds from operations as cash flow from operating activities
before changes in non-cash working capital as follows:
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Three Months Ended
----------------------------------------------------------------------------
March 31, March 31,
($000's) 2013 2012
----------------------------------------------------------------------------
Cash flow from operating activities (per IFRS) 11,008 17,026
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Change in non-cash working capital (1,308) 1,419
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Funds from operations 9,700 18,445
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Forward-Looking Information and Statements
This press 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", "guidance", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans", "intends",
"possible" and similar expressions are intended to identify forward-looking
information or statements. In particular, but without limiting the foregoing,
this press release contains forward-looking information and statements
pertaining to, among other things, the following: current and year-to-date
anticipated production and production to be brought on stream; annual and
quarterly production; the application and modification of horizontal,
multi-stage fracture technologies; Arcan's expectations respecting its growth
and activities throughout the remainder of 2013, including its continued
transition into a sustainable producer of oil reserves; current and future
operating costs per barrel; Arcan's ability to execute on its business plans,
including plans to take a prudent approach to future development activities and
continued focus on the Swan Hills Beaverhill Lake light oil reef; future growth
including development, exploration, acquisition, construction and operational
activities and related expenditures; Arcan's liquidity position and the ability
of Arcan to execute its business plan therefrom; the timing, method, cost and
results of drilling and waterflood operations; the focus of the 2013 waterflood
expansion activities; waterflood recoveries; future liquidity and financial
capacity and resources; the expected benefits of Arcan's hedging program; the
resolution of the third-party pipeline outage and the timing thereof; the impact
of Arcan's newly implemented reservoir model; the timing and location of the
upcoming shareholder meeting; estimates of all-in well cost reductions;
estimated additional drilling locations; the completion of the Ethel pipeline
and the timing of the effects thereof; expectations relating to increased
shareholder value and growth per share; results from operations and financial
ratios; the volume and product mix of Arcan's oil and gas production; cost and
expense estimates and expectations; oil and natural gas prices; and capital
expenditures.
The forward-looking information and statements contained in this press release
reflect several material factors and expectations and assumptions of Arcan
including, without limitation: that Arcan will continue to conduct its
operations in a manner consistent with past operations; the accuracy of current
horizontal production data, historical well production and waterflood recovery
results; the general continuance of current or, where applicable, assumed
industry conditions; continuity of reservoir conditions across Arcan's Swan
Hills land base; availability of debt and/or equity sources to fund Arcan's
capital and operating requirements as needed; the continuance of existing and,
in certain circumstances, proposed tax and royalty regimes; the accuracy of the
estimates of Arcan's reserve volumes; and certain commodity price and other cost
assumptions.
Arcan believes the material factors, expectations and assumptions reflected in
the forward-looking information and statements are reasonable at this time but
no assurance can be given that these factors, expectations and assumptions will
prove to be correct. The forward-looking information and statements included in
this press release are not guarantees of future performance and should not be
unduly relied upon. Such information and 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 information
or statements including, without limitation: for reasons currently
unanticipated, Arcan's production rates may not increase in the manner currently
expected; the application and modification of horizontal, multi-stage fracture
technologies including the application of additional fracture stimulation stages
may not have the impact currently anticipated by Arcan; Arcan's capital spending
and operational plans for 2013 may not be completed in the timelines
anticipated, in the manner anticipated or at all and the execution of such plans
may not have the results currently anticipated by Arcan; water injection may not
have the impact on production currently anticipated by Arcan; currently
unforeseen issues may arise in the continuing integration of the business and
operations of Arcan and StimSol Canada Inc. and acquisition may not positively
impact Arcan's business and operations in the manner currently anticipated or at
all; changes in commodity prices; unanticipated operating results or production
declines; waterflood impacts; Arcan may be unable to solve its
mechanical/operational issues in the timelines anticipated, in the manner
anticipated or at all; shareholder value may not be maximized in the manner
suggested by Arcan or at all; changes in tax or environmental laws or royalty
rates; increased debt levels or debt service requirements; inaccurate estimation
of Arcan's oil and gas reserves volumes; limited, unfavourable or no access to
debt or equity capital markets; inaccuracies in Arcan's calculation of reserve
life index; for reasons currently unforeseen, the current drilling locations
identified by Arcan may prove to be unsuitable or unavailable and drilling on
the locations identified may not occur; increased costs and expenses; the impact
of competitors; reliance on industry partners; reviews of Arcan's credit
facility and/or budget may not occur on the timelines anticipated or at all; and
certain other risks detailed from time to time in Arcan's public disclosure
documents including, without limitation, those risks identified in this press
release, and in Arcan's annual information form, copies of which are available
on Arcan's SEDAR profile at www.sedar.com.
The forward-looking information and statements contained in this press release
speak only as of the date of this press release, and Arcan does not assume any
obligation to publicly update or revise them to reflect new events or
circumstances, except as may be required pursuant to applicable laws.
FOR FURTHER INFORMATION PLEASE CONTACT:
Arcan Resources Ltd.
Terry McCoy
Chief Executive Officer
(403) 262-0321
tmccoy@arcanres.com
Arcan Resources Ltd.
Douglas Penner
President
(403) 262-0321
dpenner@arcanres.com
www.arcanres.com
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