Dundee Energy Limited Announces Second Quarter 2013 Financial Results

Marketwired

TORONTO, ONTARIO--(Marketwired - Jul 30, 2013) - Dundee Energy Limited (DEN.TO) ("Dundee Energy" or the "Corporation") today announced its financial results for the three and six months ended June 30, 2013. The Corporation's unaudited condensed interim consolidated financial statements, along with management's discussion and analysis, have been filed on the System for Electronic Document Analysis and Retrieval ("SEDAR") and may be viewed under the Corporation's profile at www.sedar.com or the Corporation's website at www.dundee-energy.com.

  • Net loss attributable to owners of the parent for the quarter ended June 30, 2013 was $0.5 million, compared with a net loss attributable to owners of the parent of $0.3 million incurred in the same period of the prior year.
  • Production volumes during the second quarter of 2013 averaged 8,770 Mcf/d of natural gas and 692 bbls/d of oil and liquids, a decrease from 10,135 Mcf/d of natural gas and 799 bbls/d of oil and liquids in the second quarter of the prior year.
  • Revenues before royalty interests earned from oil and natural gas sales during the second quarter of 2013 were $9.7 million, compared with revenues of $8.9 million during the second quarter of 2012. The increase in revenues results from increases in commodity prices, partially offset by lower production volumes.
  • Cash flow from operating activities, before changes in non-cash working capital items, decreased to $2.0 million in the three months ended June 30, 2013 compared with $2.3 million in the same period of the prior year.
  • Field netbacks in the second quarter of 2013, before realized amounts related to risk management contracts, were $1.64/Mcf from natural gas and $53.85/bbl from oil and liquids, compared with $0.55/Mcf from natural gas and $53.72/bbl from oil and liquids in the second quarter of 2012.
  • Capital expenditures during the second quarter of 2013 were $3.4 million.
  • Cash and available credit under the Corporation's credit facilities totalled $15.3 million at June 30, 2013.
  • Rights offering - During the second quarter of 2013, the Corporation completed a rights offering, raising gross proceeds of $8.9 million. The Corporation issued approximately 5.7 million common shares at a price of $0.34 per share and 17.8 million flow-through common shares at $0.39 per flow-through common share. The Corporation incurred costs of $0.3 million to complete the rights offering.
  • Investment in Windiga Energy Inc. - During the second quarter of 2013, the Corporation acquired a 31% interest in Windiga, a Canadian based independent power producer focused on developing, owning and operating renewable energy facilities on the African continent, for $1.1 million.

SOUTHERN ONTARIO ASSETS

In the second quarter of 2013, production volumes decreased to 2,154 boe/d compared with an average of 2,488 boe/d in the same period of 2012.

Average daily volume during the three months ended June 30,20132012
Natural gas (Mcf/d)8,77010,135
Oil (bbls/d)664769
Liquids (bbls/d)2830
Total (boe/d)2,1542,488

Subsequent to June 30, 2013, the Corporation acquired a further 20% working interest in certain offshore gas properties in southern Ontario, increasing its working interest to 85%. The Corporation paid $5.0 million of cash consideration for the acquisition, subject to final closing adjustments. The acquisition is expected to add an average of 2,500 Mcf/d to the Corporation's existing natural gas production.

Reflecting market-related conditions, the Corporation realized an average price on sales of natural gas of $4.77/Mcf during the second quarter of 2013, a substantial improvement over the average price of $2.72/Mcf realized in the same period of the prior year. The realized sales price for crude oil during the second quarter of 2013 averaged $96.03/bbl, an 8% increase from an average sale price of $89.01/bbl realized in the second quarter of the prior year. The increase reflects a realignment of the Corporation's crude oil marketing contracts, whereby the sales price received is based on the higher-priced WTI benchmark rather than the Edmonton Par price.

Field Level Cash Flows and Field Netbacks

(in thousands)
For the three months ended June 30, 2013 2012
Natural Gas Oil and Liquids Total Natural Gas Oil and Liquids Total
Total sales $ 3,808 $ 5,914 $ 9,722 $ 2,508 $ 6,385 $ 8,893
Royalties (575 ) (902 ) (1,477 ) (372 ) (978 ) (1,350 )
Production expenditures (1,922 ) (1,625 ) (3,547 ) (1,636 ) (1,499 ) (3,135 )
1,311 3,387 4,698 500 3,908 4,408
Realized risk management (loss) gain (381 ) 137 (244 ) 1,029 (2 ) 1,027
Field level cash flows $ 930 $ 3,524 $ 4,454 $ 1,529 $ 3,906 $ 5,435
For the three months ended June 30, 2013 2012
Natural Gas Oil and Liquids Total Natural Gas Oil and Liquids Total
$/Mcf $/bbl $/boe $/Mcf $/bbl $/boe
Total sales $ 4.77 $ 94.01 $ 49.62 $ 2.72 $ 87.80 $ 39.27
Royalties (0.72 ) (14.34 ) (7.54 ) (0.40 ) (13.46 ) (5.96 )
Production expenditures (2.41 ) (25.82 ) (18.10 ) (1.77 ) (20.62 ) (13.85 )
1.64 53.85 23.98 0.55 53.72 19.46
Realized risk management (loss) gain (0.48 ) 2.18 (1.25 ) 1.12 (0.03 ) 4.54
Field netbacks $ 1.16 $ 56.03 $ 22.73 $ 1.67 $ 53.69 $ 24.00

The Corporation has entered into fixed price derivative contracts for the purpose of protecting its oil and natural gas revenue from the volatility of oil and natural gas prices and the volatility of Canadian to US foreign exchange rates. At June 30, 2013, the Corporation had entered into risk management contracts for approximately 6,250 mbtu/d of natural gas at a fixed price of $4.07/mbtu and for approximately 500 bbls/d of crude oil at a fixed price of $98.22/bbl.

Capital Expenditures

During the six months ended June 30, 2013, the Corporation incurred $5.4 million of capital expenditures on its oil and gas properties in southern Ontario. Included in this amount is $1.6 million expended on onshore drilling and completion activities relating to wells commenced in the fourth quarter of 2012, including the horizontal drill of a development well that resulted in successful oil production.

During the first half of 2013, the Corporation initiated its 2013 six-well drilling program, incurring costs of $1.5 million to June 30, 2013. The first well will be completed in the second half of 2013. Furthermore, the Corporation also expended $1.4 million on the acquisition and processing of 2-D and 3-D seismic data, which will be critical in identifying future drill candidates.

2013 Work Program

With the successful completion of the rights offering in April, the Corporation increased its 2013 work program to $13.2 million, including $7.8 million on exploration activities that it intends to incur over the remainder of 2013. The Corporation's intent is to focus its efforts on the addition of new oil reserves in order to increase production. Consequently, approximately $7.2 million of the remaining 2013 work program will be directed to onshore oil projects, with the balance of $0.6 million reserved for natural gas projects.

During the remainder of 2013, the Corporation anticipates drilling and completing an additional five wells at a cost of approximately $5.1 million. The Corporation will also complete a 314 km 2-D seismic project at a cost of an additional $2.0 million. The data accumulated will be processed and interpreted to identify future drilling programs. A further $0.1 million will be invested in facility enhancements.

As part of its offshore program, the Corporation intends to reactivate a company-owned dock located in Port Burwell in conjunction with its planned strategy to abandon a dock and a gas plant located at Port Stanley. This comprehensive project includes dredging of the Port Burwell harbour, and replacement of a pipeline to a larger diameter pipe, all of which will improve production efficiencies throughout central Lake Erie. Capital costs relating to this project are approximately $0.4 million. A further $0.2 million of the 2013 offshore work program will be incurred for non-discretionary dry dock inspection costs for two vessels.

CASTOR UNDERGROUND GAS STORAGE PROJECT

On July 26, Escal UGS S.L. ("Escal"), the owner of the Castor Project, announced that it had arranged for the issuance of euro-denominated senior secured bonds (the "Euro Bonds") totalling EUR1.40 billion. The Euro Bonds are subject to an annual interest rate of 5.756%, payable semi-annually, and are repayable in equal semi-annual installments over a period of 21 and a half years, with the last payment due in December 2034. The Euro Bonds will be listed on the Luxembourg stock exchange.

The Euro Bonds will be issued by a special purpose vehicle, Watercraft Capital S.A. ("Watercraft"), a Luxembourg corporation. The proceeds from the issuance will be subsequently on-lent to Escal, pursuant to a credit facility between Watercraft and Escal, and will be used by Escal to repay amounts owing pursuant to Escal's existing project financing.

Escal will provide a general security interest against its assets for the benefit of Watercraft to secure Escal's obligations under these arrangements, and the shareholders of Escal shall pledge their respective shares in Escal as part of the overall security package. In addition, the European Investment Bank has committed to provide a standby letter of credit as a form of subordinated credit enhancement instrument in support of the Euro Bonds. The Euro Bonds have been issued a BBB+ rating from Fitch Ratings, Inc. and a rating of BBB from Standard & Poor's. A copy of the prospectus document relating to the Euro Bonds may be accessed at www.bourse.lu/home, and referencing ISIN code XS0943010503.

Escal previously entered into an agreement with Enagas S.A., the leading gas transporter in Spain, to provide the 600 million cubic metres of cushion gas required for completion of the Castor Project. During the second quarter, Enagas completed the acquisition of approximately 150 million cubic metres of natural gas, of which 15 million cubic metres were used to test the on-shore compression facilities, and then injected into the reservoir. The balance will be delivered during August and September of this year. Procurement initiatives are underway for additional volumes.

The technical and economic audits that are required for inclusion of the Castor Project to the Spanish gas system have recently commenced. Once completed, the investment base for remuneration will be determined. For remuneration purposes, the end of the capital investment period and initiation of remuneration is deemed to be July 5, 2012, the date of receipt by Escal of the Provisional Commissioning Act. Escal currently anticipates that the necessary audits will be completed late in the fourth quarter of 2013.

INVESTMENT IN EUROGAS INTERNATIONAL INC.

At June 30, 2013, the Corporation held 32.2 million Series A Preference Shares of Eurogas International Inc. ("Eurogas International"). The Corporation has concluded that there is significant impairment in the par value of these shares and accordingly, the Corporation has fully provided against the carrying value of this asset, including any dividend amount receivable.

During early 2013, Eurogas International, together with its joint venture partner, continued to actively explore alternatives to raise the necessary funding for the drilling of two exploration wells, which it committed to as part of the Tunisian authorities' approval of a renewal of the Sfax Permit to December 8, 2015. In June 2013, Eurogas International announced that, together with its joint venture partner, it had entered into a farmout agreement with DNO Tunisia AS ("DNO") with respect to the Sfax Permit and the associated Ras El Besh development concession (the "DNO Agreement"). Completion of the DNO Agreement is conditional on the approval by the relevant Tunisian authorities of the terms of the DNO Agreement, including the appointment of DNO as the operator, and other normal conditions of closing, including the absence of a material adverse change.

The DNO Agreement provides DNO with an 87.5% participating interest in the Sfax Permit in exchange for (i) a US$6 million cash payment to the joint venture, Eurogas International's share of which approximates US$2.7 million; and (ii) the carrying of 100% of all future costs associated with the Sfax Permit, including Eurogas International's commitment to the drilling of two exploration wells as outlined above.

NON-IFRS MEASURES

The Corporation believes that important measures of operating performance include certain measures that are not defined under International Financial Reporting Standards ("IFRS") and as such, may not be comparable to similar measures used by other companies. While these measures are non-IFRS, they are common benchmarks in the oil and natural gas industry, and are used by the Corporation in assessing its operating results, including net earnings and cash flows.

  • "Field Level Cash Flows" are calculated as revenues from oil and gas sales, less royalties and production expenditures, adjusted for realized gains or losses on risk management contracts.
  • "Field Netbacks" refers to field level cash flows expressed on a measurement unit or barrel of oil equivalent basis.

ABOUT THE CORPORATION

Dundee Energy Limited is a Canadian-based oil and natural gas company with a mandate to create long-term value for its shareholders through the exploration, development, production and marketing of oil and natural gas, and through other high impact energy projects. Dundee Energy holds interests, both directly and indirectly, in the largest accumulation of producing oil and gas assets in Ontario, in the development of an offshore underground natural gas storage facility in Spain and, through a preferred share investment, in certain exploration and evaluation programs for oil and natural gas offshore Tunisia. The Corporation's common shares trade on the Toronto Stock Exchange under the symbol "DEN".

FORWARD-LOOKING STATEMENTS

Certain information set forth in these documents, including management's assessment of each of the Corporation's future plans and operations, contains forward-looking statements. Forward-looking statements are statements that are predictive in nature, depend upon or refer to future events or conditions or include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" or similar expressions. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Corporation's control, including: exploration, development and production risks; uncertainty of reserve estimates; reliance on operators, management and key personnel; cyclical nature of the business; economic dependence on a small number of customers; additional funding that may be required to execute on exploration and development work; the ability to obtain, sustain or renew licenses and permits; risks inherent to operating and investing in foreign countries; availability of drilling equipment and access; industry competition; environmental concerns; climate change regulations; volatility of commodity prices; hedging activities; potential defects in title to properties; potential conflicts of interest; changes in taxation legislation; insurance, health, safety and litigation risk; labour costs and labour relations; geo-political risks; risks relating to management of growth; aboriginal claims; volatility of the Corporation's share price; royalty rates and incentives; regulatory risks relating to oil and natural gas exploration; marketability and price of oil and natural gas; failure to realize anticipated benefits of acquisitions and dispositions; information system risk; and other risk factors discussed or referred to in the section entitled "Risk Factors" in the Corporation's Annual Information Form for the year ended December 31, 2012.

Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The Corporation's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Corporation will derive from them. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Contact:
Dundee Energy Limited
c/o Dundee Corporation
1 Adelaide Street East
21st Floor
Toronto, ON M5C 2V9
Dundee Energy Limited
Jaffar Khan
President & CEO
(403) 264-4985
(403) 262-8299
www.dundee-energy.com

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