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Bonavista Energy Corporation: Announcing 2012 Fourth Quarter Results

CALGARY, ALBERTA--(Marketwire - Feb. 28, 2013) - Bonavista Energy Corporation (BNP.TO) is pleased to report to shareholders its results for the fourth quarter ended December 31, 2012. Our audited consolidated financial statements, Annual Report and other disclosure documents for 2012 will be available on or before March 28, 2013 through our filings on SEDAR at www.sedar.com or can be obtained from Bonavista's website at www.bonavistaenergy.com.

Highlights  
  Three months ended December 31,   %   Years ended December 31,   %  
  2012 2011   Change   2012   2011   Change  
Financial    
($ thousands, except per share)    
Production revenues 223,021 285,167   (22 %) 832,491   1,044,414   (20 %)
Funds from operations(1) 110,015 150,843   (27 %) 378,667   553,303   (32 %)
  Per share(1) (2) 0.57 0.91   (37 %) 2.16   3.44   (37 %)
Dividends declared(3) 63,481 51,850   22 % 224,801   200,032   12 %
  Per share 0.36 0.36   -   1.44   1.44   -  
Net income (loss) 14,442 (3,321 ) 535 % 64,202   137,184   (53 %)
  Per share(4) 0.07 (0.02 ) 450 % 0.37   0.85   (56 %)
Adjusted net income(5) 16,535 16,994   (3 %) 58,049   139,383   (58 %)
  Per share(4) 0.09 0.10   (10 %) 0.33   0.87   (62 %)
Total assets           4,062,852   3,924,160   4 %
Long-term debt, net of working capital           963,678   1,131,715   (15 %)
Long-term debt, net of adjusted working capital(6)           963,500   1,123,001   (14 %)
Shareholders' equity           2,285,889   2,001,802   14 %
Capital expenditures:                      
  Exploration and development 76,937 81,035   (5 %) 402,090   453,550   (11 %)
  Acquisitions, net of dispositions 118,837 57,858   105 % (10,956 ) 153,160   (107 %)
Weighted average outstanding equivalent shares: (thousands)(4)  
  Basic 192,638 165,355   16 % 175,581   160,712   9 %
  Diluted 194,322 165,355   18 % 176,747   161,787   9 %
Operating                      
(boe conversion - 6:1 basis)                      
Production:                      
  Natural gas (mmcf/day) 269 268   -   253   255   (1 %)
  Natural gas liquids (bbls/day) 14,563 14,628   -   14,074   12,890   9 %
  Oil (bbls/day)(7) 12,395 14,110   (12 %) 12,997   13,868   (6 %)
    Total oil equivalent (boe/day) 71,842 73,373   (2% ) 69,250   69,332   -  
Product prices:(8)                      
  Natural gas ($/mcf) 3.22 3.69   (13 %) 2.60   4.06   (36 %)
  Natural gas liquids ($/bbl) 42.60 58.78   (28 %) 45.19   55.09   (18 %)
  Oil ($/bbl)(7) 75.73 89.36   (15 %) 77.30   81.91   (6 %)
Operating expenses ($/boe) 8.69 9.26   (6 %) 9.07   9.05   -  
General and administrative expenses ($/boe) 1.07 0.95   13 % 1.06   0.95   12 %
Cash costs ($/boe)(9) 12.67 13.16   (4 %) 13.26   13.27   -  
Operating netback ($/boe)(10) 19.12 24.75   (23 %) 17.70   24.53   (28 %)
                       
  December 31,   %  
Highlights (cont'd) 2012   2011   Change  
Drilling (gross wells): 115   143   (20 %)
  Natural gas 47   67   (30 %)
  Oil 67   76   (12 %)
    Average success rate 99 % 100 % (1 %)
Land:            
    Undeveloped (net acres) 1,253,141   1,474,080   (15 %)
    Total (net acres) 2,832,701   3,078,418   (8 %)
Reserves: (11)            
  Proved:            
    Natural gas (bcf) 921.0   838.5   10 %
    Oil and natural gas liquids (mbbls) 94,914   92,011   3 %
      Total oil equivalent (mboe) 248,409   231,760   7 %
  Proved and probable:            
    Natural gas (bcf) 1,372.3   1,246.2   10 %
    Oil and natural gas liquids (mbbls) 143,505   133,697   7 %
      Total oil equivalent (mboe) 372,220   341,390   9 %
        % Proved producing 40 % 43 % (3 %)
        % Proved 67 % 68 % (1 %)
        % Probable 33 % 32 % 1 %
  Net present value of future cash flow before income taxes ($ millions):  
      0% discount rate 9,005   9,766   (8 %)
      5% discount rate 5,742   6,184   (7 %)
      10% discount rate 4,126   4,472   (8 %)
  Reserve life index (years):            
    Proved 9.6   8.8   9 %
    Proved and probable 13.5   12.2   11 %
Finding, development and acquisition costs - proved and probable ($/boe):  
  Including changes in future development expenditures 11.16   13.98   (20 %)
  Excluding changes in future development expenditures 6.98   11.08   (37 %)
Recycle ratio - proved and probable: (12)  
  Including changes in future development expenditures 1.6   1.8   (11 %)
  Excluding changes in future development expenditures 2.5   2.2   14 %
NOTES:
(1) Management uses funds from operations to analyze operating performance, dividend coverage and leverage. Funds from operations as presented does not have any standardized meaning prescribed by IFRS and therefore it may not be comparable with the calculations of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with IFRS. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures and interest expense. Funds from operations per share is calculated based on the weighted average number of shares outstanding consistent with the calculation of net income per share.
(2) Basic funds from operations per share calculations include exchangeable shares which are convertible into common shares on certain terms and conditions.
(3) Dividends declared includes both cash dividends and common shares issued pursuant to Bonavista's dividend reinvestment plan (DRIP) and Bonavista's stock dividend program (SDP). For the three months ended December 31, 2012 approximately 1.6 million common shares were issued under the DRIP and SDP with an approximate value of $24.7 million. For the year ended December 31, 2012, approximately 5.0 million common shares were issued under the DRIP and SDP with an approximate value of $82.9 million.
(4) Basic net income per share calculations include exchangeable shares which are convertible into common shares on certain terms and conditions.
(5) Amounts have been adjusted to exclude unrealized gains and losses on financial instrument commodity contracts.
(6) Amounts have been adjusted to exclude associated assets or liabilities from financial instrument commodity contracts.
(7) Oil includes light, medium and heavy oil.
(8) Product prices include realized gains and losses on financial instrument commodity contracts.
(9) Cash costs equal the total of operating, transportation, general and administrative, and financing expenses.
(10) Operating netback equals production revenues including realized gains and losses on financial instrument commodity contracts, less royalties, operating and transportation expenses, calculated on a boe basis.
(11) Working interest reserves are gross reserves prior to deduction of royalties and without including any of our royalty interests.
(12) Recycle ratio is calculated using operating netback per boe divided by finding, development and acquisition costs per boe.
  Three months ended
Share Trading Statistics December 31, 2012 September 30, 2012 June 30, 2012 March 31, 2012
($ per share, except volume)        
High 18.85 19.14 20.15 26.79
Low 14.05 15.46 13.76 19.77
Close 14.82 17.44 15.92 20.20
Average Daily Volume - Shares 626,743 596,502 720,519 593,273

MESSAGE TO SHAREHOLDERS

The North American energy sector was challenged by low realized commodity prices throughout 2012. Persistently high US production levels and the absence of winter heating demand drove AECO natural gas prices down to a 14 year low, averaging $2.27 per gigajoule in 2012, a 34% decrease from 2011. In addition, realized propane and ethane prices fell 41% and 28% respectively in 2012 resulting from a supply imbalance caused by industry's focus on natural gas liquids revenue to support the economic development of natural gas resources. Compounding this compression in North American natural gas prices, Canadian energy producers were further challenged in 2012 by discounted pricing for crude oil resulting from steadily increasing continental supply and regional transportation and infrastructure bottlenecks.

Technological advancements continue to add crude oil and natural gas supply making it increasingly difficult to predict the future pricing for these commodities. Furthermore, incremental infrastructure and valuable export opportunities are facing strong opposition leaving our domestic energy sector challenged in the short term. Nonetheless, Bonavista remains true to our strategy of focusing on those elements of our business that we can control to create value in any environment. The key elements of this strategy include:

  • Delivering an exploration and development program focused on profitability and capital efficiency, supported by low risk drilling opportunities, disciplined cost control and optimum execution;

  • Delivering an acquisition and divestiture program designed to concentrate our asset portfolio in highly prospective, multi-zone areas where we can control and enhance operating and capital efficiencies to extract incremental value from our assets;

  • Maintaining agility with our capital program to ensure the pursuit of our highest return opportunities; and

  • Remaining focused on restoring sustainability and financial flexibility.

While declining Canadian natural gas production and fuel switching demand in the US power generation market enabled natural gas prices to recover somewhat in the fourth quarter of 2012, the futures market for natural gas prices weakened again in early 2013, coincident with a lack of winter heating demand. Accordingly, on January 9, 2013 Bonavista's Board of Directors approved a reduction in the monthly dividend from $0.12 per share to $0.07 per share. This new level provides Bonavista the flexibility to capitalize on numerous low risk drilling and acquisition opportunities, while maintaining a healthy balance sheet. Given the current commodity price environment, Bonavista believes this dividend level offers an appropriate balance between capital reinvestment and dividend allocation resulting in long term profitability, consistent with our historical track record.

Specific accomplishments for Bonavista in 2012 include:

  • Completed a successful capital expenditure program, investing $402.1 million in exploration and development activities drilling 115 wells with an overall 99% success rate; 

  • Completed an active acquisition and divestiture program, divesting of $180.8 million of non-core assets and reinvesting $169.9 million in strategic acquisitions within our core regions to increase the focus of our asset portfolio

  • Replaced 222% of 2012 annual production; 

  • Increased proved and probable reserves by 9% to 372.2 mmboe resulting in a finding, development and acquisition cost of $6.98 per boe (excluding changes in future development capital) and $11.16 per boe (including changes in future development capital);

  • Improved our operating costs on a per boe basis, decreasing 6% for the three months ended December 31, 2012 to $8.69 per boe from $9.26 per boe in the comparable period in 2011;

  • Increased our drilling inventory by 12% to 1,570 locations (88% horizontal), of which 95% are oil and liquids rich natural gas opportunities;

  • Managed our exposure to commodity price volatility resulting in approximately 52% of our forecasted natural gas production (net of royalties) hedged at an average floor price of $3.03 per mcf and 37% of our forecasted oil and liquids production (net of royalties) hedged at an average floor price of $87.25 per bbl for 2013;

  • Generated funds from operations of $378.7 million ($2.16 per share) for the year ended December 31, 2012;

  • Raised $345 million from an equity financing to accommodate our 2012 and 2013 capital programs and provide flexibility for future growth; and

  • Since 2003, when Bonavista introduced an income component to our total shareholder return, Bonavista has delivered cumulative dividends of over $2.5 billion or $26.19 per common share.

Accomplishments for Bonavista subsequent to 2012 include:

  • Bonavista closed a $72.5 million agreement on January 9, 2013 to acquire 2,450 boe per day of low decline production situated on a highly synergistic land base and infrastructure footprint further enhancing the level of concentration and control within our deep basin core area.

  • Bonavista entered into a strategic business arrangement involving the disposition of certain Duvernay rights in exchange for cash proceeds, a four year extension to the primary term of 50% of the freehold acreage included in the "Hoadley transaction" completed in 2009, a reduced lessor royalty applicable to future capital activity on this acreage and other miscellaneous considerations.

2012 Reserve Highlights

  • Bonavista replaced 2012 annual production by 222%, adding 56.1 mmboe of proved and probable reserves. Proved and probable reserve additions included 19.7 mmbbls of oil and liquids and 36.4 mmboe of natural gas bringing total year end 2012 reserves to 372.2 mmboe. 

  • Bonavista's oil and liquids focused exploration and development activity replaced 2012 annual oil and liquids production by 218%, resulting in a 16% increase in year end 2012 oil and liquids reserves net of acquisitions and dispositions.

  • Bonavista's proved and probable reserve life index increased 11% to 13.5 years based on the GLJ year end reserve report.

  • Bonavista's successful capital expenditure program in 2012 resulted in attractive finding, development and acquisition costs, including changes in future development expenditures, of $11.16 per boe on a proved and probable basis. Despite a compressed commodity price environment throughout 2012, these finding, development and acquisition cost metrics generated an attractive proved and probable operating netback recycle ratio of 1.6:1 based on 2012 operating netbacks and 1.8:1 based on forecasted 2013 operating netbacks. 

  • Proved and probable future development capital increased by 21% to $1.4 billion, representing the growth in development potential of our asset base while remaining at a manageable level within 3.0 times forward cash flow and 3.2 times budgeted 2013 capital expenditures.

The reserve estimates contained in the following tables represent Bonavista's gross reserves as at December 31, 2012 and are defined under NI 51-101, as our interest before deduction of royalties and without including any of our royalty interests.

A summary of this independent reserves evaluation is presented in the tables below:

  Natural Gas   Light and Medium Oil   Heavy Oil   Natural Gas Liquids   Total Reserves(2 )
Reserves:(1)(4) (MMcf ) (Mbbls ) (Mbbls ) (Mbbls ) (Mboe )
Proved:                    
  Proved producing 550,744   22,108   3,650   31,206   148,756  
  Proved non-producing 27,448   817   488   1,189   7,068  
  Proved undeveloped 342,776   6,000   723   28,733   92,585  
Total proved 920,968   28,925   4,861   61,128   248,409  
  Probable 451,323   11,048   2,837   34,707   123,812  
Total proved and probable 1,372,291   39,973   7,698   95,834   372,220  
Proved reserve life index, years(3)   9.6  
Proved and probable reserve life index, years(3)   13.5  
       
(1) Bonavista's gross reserves are based on the GLJ reserve report dated February 27, 2013, GLJ reserve estimates based on forecast prices and costs as of January 1, 2013.
(2) Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
(3) Calculated based on the amount for the relevant reserve category divided by the 2013 production forecast.
(4) Amounts may not add due to rounding.

Bonavista's proved and probable reserve life index has consistently increased since converting to an income trust in 2003 illustrated by the following table:

  2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Proved and probable, RLI (years) 7.3 8.6 8.8 8.9 9.2 9.4 11.5 12.0 12.2 13.5

The following tables highlight our proved and probable finding and development ("F&D") costs, our proved and probable finding, development and acquisition ("FD&A") costs and the associated recycle ratios:

  2012   2011   2010  
Total proved reserves (Mboe):            
  Opening balance 231,760   222,921   193,187  
  Discoveries and extensions 24,258   18,674   24,124  
  Acquisitions and dispositions 13,953   12,797   19,099  
  Revisions and economic factors 3,674   2,431   10,674  
  Production (25,236 ) (25,063 ) (24,163 )
Closing balance 248,409   231,760   222,921  
Total proved and probable reserves (Mboe):            
Opening balance 341,390   310,749   271,913  
  Discoveries and extensions 36,645   33,667   32,583  
  Acquisitions and dispositions 20,266   22,402   25,555  
  Revisions and economic factors (844 ) (365 ) 4,861  
  Production (25,236 ) (25,063 ) (24,163 )
Closing balance 372,220   341,390   310,749  
Capital Efficiency:            
Operating netback ($/boe) (1) 17.70   24.53   23.85  
Finding and development costs:            
  Total F&D expenditures ($ millions) 402.1   453.6   348.1  
  Total F&D expenditures plus change in forecast future development costs ($ millions) 524.7   480.5   474.4  
             
  Proved and probable F&D costs ($/boe) (2)(3)(5) 13.85   14.43   12.67  
  Proved and probable three-year F&D costs ($/boe) (2)(3)(5) 13.89   13.32   14.39  
  Recycle ratio (4) 1.4   1.7   1.9  
             
Finding, development and acquisition costs:            
  Total FD&A expenditures ($ millions) 391.1   617.1   568.6  
  Total FD&A expenditures plus change in forecast future development costs ($ millions) 625.8   778.7   836.2  
             
  Proved and probable FD&A costs ($/boe) (2)(3)(5)(6) 11.16   13.98   13.27  
  Proved and probable three-year FD&A costs ($/boe) (2)(3)(5)(6) 12.82   12.86   13.55  
  Recycle ratio (4) 1.6   1.8   1.8  
(1) Operating netback is calculated using production revenues including realized gains or losses on financial instruments commodity contracts less royalties, transportation and operating costs calculated on a per barrel of oil equivalent basis.
(2) Amounts are calculated including the change in future development costs.
(3) Both F&D and FD&A costs take into account reserve revisions during the year on a per barrel of oil equivalent basis (6:1).
(4) Recycle ratio is defined as operating netback per barrel of oil equivalent divided by either F&D or FD&A costs on a per barrel of oil equivalent.
(5) BOE's may be misleading, particularly if used in isolation. A BOE conversion of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
(6) The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.

Future development costs of $1.4 billion at year end 2012 consist of 636 gross (472 net) future drilling locations which have the following development schedule:

Year Future Development Costs,
Proved and probable reserves, undiscounted ($ millions)
2013 274
2014 357
2015 290
2016 219
2017 137
Thereafter 97
Total 1,374

2012 Acquisition and Divestiture Highlights

Bonavista completed 24 property transactions in 2012, both acquisitions and divestitures resulting in net disposition proceeds of $11.0 million for the year. Acquisition expenditures in 2012 of $169.9 million added production of 7,300 boe per day and proved and probable reserves of 29.9 mmboe resulting in acquisition metrics of $23,000 per boe per day and $10.39 per boe including future development costs. Divestiture activity in 2012 resulted in proceeds of $180.8 million involving the sale of certain non-core, higher cost assets comprising 3,200 boe per day of production and 9.7 mmboe of proved and probable reserves. The transaction metrics associated with our 2012 divestiture activity are attractive at $57,000 per boe per day and $21.68 per boe including changes in future development costs.

With a specific goal to increase asset quality and concentration, Bonavista was an active consolidator in the deep basin area of west central Alberta in 2012. On October 1, 2012 Bonavista closed a $155 million asset acquisition producing 6,700 boe per day, which doubled Bonavista's land position and greatly enhanced its control of strategic facility infrastructure. With the second transaction that Bonavista closed in January 2013, this recent acquisition activity has significantly expanded our operational presence in the area increasing production by 150% to approximately 14,000 boe per day, proved and probable reserves by 160% to 56 mmboe, land position by 140% to 210,000 net acres, processing capacity by 120% to 230 mmcf per day and inventory levels by 60% to 200 horizontal locations. More important in today's commodity price environment, the increased scale of operations offered by this consolidation activity has enabled operating efficiency gains as evidenced by a 25% decline in area operating costs. Furthermore, with a larger development program now in place, Bonavista believes it can drive incremental growth and capital efficiencies through increasing economies of scale. 

2012 Operational Highlights

Hoadley Glauconite Liquids Rich Natural Gas

Bonavista drilled seven horizontal wells in the fourth quarter bringing total 2012 activity to 34 horizontal wells in a program focused on continuous optimization of field level economics. Specific efforts in 2012 consisted of downspacing initiatives, longer lateral sections and enhancing our understanding of the geological characteristics of the reservoir.

Bonavista's 2012 development activities on the Hoadley Glauconite trend resulted in an efficient exploitation program adding $200.9 million of NPV 10% value and 13.1 mmboe of proved and probable reserves with attractive metrics of $6,800 per boe per day based on average initial month production rates and $7.25 per boe. Based on current production levels and forward commodity pricing, Bonavista's horizontal Glauconite program is expected to provide sufficient cash flow in 2013 to support continued growth at the field level while contributing to improved overall corporate sustainability. 

Despite the active development program in 2012, Bonavista increased its drilling inventory by 8% to 410 locations through continued land assembly and the testing of downspacing to four wells per section in a pilot program that has yielded successful initial results. We will continue to monitor well performance with these pilots throughout 2013 and with continued positive results, we expect the program to increase in scope in future years.

At current natural gas prices, single well economics associated with this play remain competitive on a North American scale and within our asset portfolio owing to the predictable results, attractive natural gas liquids yield, low operating costs and strong capital efficiencies. Bonavista's Glauconite development program remains a key growth platform in 2013, with a drilling program of approximately 45 horizontal wells.

West Central Cardium Light Oil

Bonavista drilled 12 horizontal wells in the fourth quarter bringing total 2012 activity to an annual record of 32 horizontal wells in a program balanced between the proven high productivity trends and the emerging portions of our land base. Our operated development program in 2012 focused on the Ferrier/Willesden Green area with 19 horizontal wells drilled. Production results in this area have been strong delivering average first month production rates of 250 boe per day in 2012. In a continued effort to de-risk additional acreage, Bonavista drilled one well at Lochend in the fourth quarter which confirmed our geological interpretation of the area despite operational issues that restricted the effective stimulation of the wellbore to less than 50% of the original program. 

Bonavista's 2012 activity in the Cardium resulted in the addition of $111.9 million in NPV 10% value and 3.4 mmboe of proved and probable reserves with efficient metrics of $15,700 per boe per day based on average initial months production rates and $21.25 per boe. Importantly, Bonavista was successful in the conversion of 2.7 mmboe of Proved Undeveloped reserves to Proved Developed Producing reserves while continuing to grow our inventory of future drilling opportunities to 140 horizontal locations.

Bonavista's Cardium development program continues to rank favourably in our portfolio and we plan to drill approximately 20 horizontal wells in 2013.

Deep Basin Multi-zone Liquids Rich Natural Gas

Bonavista drilled two horizontal wells in the fourth quarter contributing to a total of eight wells in 2012 targeting low risk opportunities in the Bluesky formation at Pine Creek. Since entering the area in 2010 Bonavista's activities in this multi-zone area of the deep basin involved a focus on low risk opportunities in the Bluesky and Rock Creek formations. This approach provided an opportunity to gain operational experience as we continue to evaluate additional emerging plays including the Montney, Notikewin and Wilrich. 

Bonavista plans to drill approximately 15 to 20 horizontal wells in the area including 10 Rock Creek light oil or liquids rich natural gas wells at Rosevear, two Bluesky liquids rich natural gas wells at Pine Creek and selective testing of the prolific Wilrich play in 2013. Bonavista's acquisition activity in 2012 provided a solid platform of inventory and operations in the Wilrich, a play rapidly emerging with significance in the Deep Basin.

Additional Emerging Opportunities

Bonavista continued to de-risk two key emerging plays in the fourth quarter, drilling six horizontal Viking oil wells at Provost in eastern Alberta and one horizontal well targeting liquids rich natural gas in the Ellerslie formation in west central Alberta. Production results in the Viking formation at Provost have met expectations throughout 2012. Backed by incremental operational experience in this play, we are poised to enhance capital efficiencies with plans to drill 18 to 20 Viking oil wells in 2013. Similarly, we plan to drill up to seven Ellerslie horizontal wells in 2013 as we progress both the Ellerslie and Viking emerging plays to scaleable capital programs.

Bonavista will continue to delineate its liquids rich Montney acreage at Blueberry in northeast British Columbia in 2013 with one to two horizontal wells planned. While encouraged by the high natural gas liquids yield exhibited by the six horizontal wells drilled to date, development economics are challenged in the current low natural gas price environment. Notwithstanding the near term challenges, offsetting industry activity in the Montney horizon has accelerated over the past year driven by technological achievements in well cost reductions and an increased motivation to secure large scale resources to support eventual west coast LNG export initiatives. Bonavista intends to drill four to six wells over the next two years to verify the scale of the opportunity while monitoring industry activity to maximize the net present value of the resource situated on our 55 net section land base.

In addition to the Montney, Ellerslie and Viking formations, our technical teams continue to identify and evaluate additional emerging resource opportunities in 2013 with a focus on light oil or liquids rich natural gas in numerous formations.

Strengths of Bonavista Energy Corporation

Beginning in 1997, with an initial restructuring to create a high growth junior exploration company, throughout the energy trust phase between July 2003 and December 2010, and now operating as a dividend paying corporation, Bonavista remains committed to the same strategies that have resulted in our tremendous success over the past 15 years. We have steadily improved the quality and maintained a high level of investment activity on our asset base, increasing production by approximately 110% since converting to an energy trust in July 2003 and a further 8% since converting back to a corporation at the end of 2010. These results stem from the operational, technical and financial expertise of our people with their entrepreneurial approach to generating low risk, highly profitable projects within the Western Canadian Sedimentary Basin. Our experienced technical teams have a solid understanding of our assets as they exercise the discipline and commitment required to deliver long-term value to our shareholders. We actively participate in undeveloped land acquisitions, property purchases and farm-in opportunities, which have all enhanced the quality and quantity of our extensive drilling inventory. These activities have led to low cost reserve additions, and a predictable production base that continues to grow at a healthy pace. Our production base is currently 64% weighted towards natural gas and is geographically focused within select, multi-zone regions primarily in Alberta and British Columbia. The low cost structure of our asset base ensures positive operating netbacks in most operating environments. Furthermore, our assets are predominantly operated by Bonavista, providing control over the pace of operations and optimum influence over our operating and capital cost efficiencies.

Our team brings a successful track record of executing low to medium risk development programs, including both asset and corporate acquisitions, along with sound financial management. Our Board of Directors and management team possess extensive experience in the oil and natural gas business. They have successfully guided our organization through many different economic cycles utilizing a proven strategy consisting of disciplined cost controls and prudent financial management. Directors, management and employees also own approximately 13% of the equity of Bonavista, resulting in the alignment of interests with all shareholders.

Outlook

As we progress into our third year as a dividend paying corporation, Bonavista remains committed to a business model built on maximizing total shareholder return. Throughout the volatile commodity price environment of 2012, Bonavista decisively adjusted to the environment while maintaining sharp attention to our core strengths that have proven to add shareholder value over the long term. These strengths include continually exercising cost discipline and a high level of capital spending efficiency as we pursue low risk, profitable opportunities. 

In 2013, Bonavista intends to maintain the same strategies we employed in 2012 in our quest to drive incremental efficiency into our business through further concentration of our asset base in a compelling acquisition and divestiture market. We are encouraged by the number of acquisition opportunities in the market and look forward to capitalizing on those that provide a synergistic advantage. Additionally, we are currently in the process of marketing certain non-strategic assets which, if successful, would enable a redeployment of capital into our most capital efficient areas of operation. 

Until conclusion of our current asset divestiture process, Bonavista's 2013 capital budget remains at approximately $425 million, with a program to drill between 120 and 125 wells within our core areas. This capital program is expected to result in 2013 production volumes of between 73,500 and 74,500 boe per day. As in years past, we will be attentive to changes in commodity prices and the business environment and will maintain flexibility with our capital expenditure plans in order to maximize shareholder value. 

We would like to thank our employees for their commitment to Bonavista's proven operating strategies and our shareholders for their continual support as we strive to weather this latest phase of the commodity cycle. We have confidence that our strategies are appropriate for today's environment and we look forward to continually creating long-term value for our shareholders. Our team is very committed to this vision.

BONAVISTA ENERGY CORPORATION  
Supplemental Financial Information  
Consolidated Statements of Financial Position  
  December 31,   December 31,  
(thousands) 2012   2011  
(unaudited)            
Assets:            
  Current assets:            
    Accounts receivable $ 102,500   $ 133,324  
    Prepaid expenses   11,089     9,660  
    Marketable securities   2,768     -  
    Other assets   12,191     8,655  
    Financial instrument commodity contracts   8,608     5,203  
    137,156     156,842  
  Financial instrument commodity contracts   1,224     -  
  Financial instrument contracts   4,293     3,604  
  Property, plant and equipment   3,691,572     3,518,847  
  Exploration and evaluation assets   217,382     233,642  
  Goodwill   11,225     11,225  
  $ 4,062,852   $ 3,924,160  
             
Liabilities and Shareholders' Equity:            
  Current liabilities:            
    Accounts payable and accrued liabilities $ 181,674   $ 176,743  
    Dividends payable   21,303     17,292  
    Financial instrument commodity contracts   8,786     13,917  
    211,763     207,952  
             
  Financial instrument commodity contracts   1,550     -  
  Long-term debt   889,071     1,080,605  
  Other liabilities   13,650     -  
  Decommissioning liabilities   447,753     444,132  
  Deferred income taxes   213,176     189,669  
               
  Shareholders' equity:            
    Shareholders' capital   2,059,305     1,446,804  
    Exchangeable shares   405,183     585,754  
    Contributed surplus   44,848     32,092  
    Deficit   (223,447 )   (62,848 )
    2,285,889     2,001,802  
  $ 4,062,852   $ 3,924,160  
             
BONAVISTA ENERGY CORPORATION  
Supplemental Financial Information  
Consolidated Statements of Income and Comprehensive Income  
  Three months   Years  
(thousands, except per ended December 31,   ended December 31,  
 share amounts) 2012   2011   2012   2011  
(unaudited)                
                 
Revenues:                
  Production $ 223,021   $ 285,167   $ 832,491   $ 1,044,414  
  Royalties   (29,650 )   (44,902 )   (124,300 )   (161,742 )
    193,371     240,265     708,191     882,672  
  Realized gains on financial instrument commodity contracts   204     812     8,581     7,766  
  Unrealized gains (losses) on financial instrument commodity contracts   (2,793 )   (27,109 )   8,210     (2,935 )
    (2,589 )   (26,297 )   16,791     4,831  
    190,782     213,968     724,982     887,503  
                         
Expenses:                        
  Operating   57,464     62,486     229,847     229,072  
  Transportation   9,732     11,488     38,367     40,581  
  General and administrative   7,089     6,392     26,967     24,146  
  Transaction costs   960     -     960     -  
  Goodwill impairment   -     20,096     -     20,096  
  Share-based compensation   5,845     6,402     19,450     17,282  
  Gain on disposition of property, plant and equipment   (21,449 )   (4,880 )   (59,675 )   (11,901 )
  Loss on disposition of exploration and evaluation assets   311     -     5,938     -  
  Depletion, depreciation, amortization and impairment   90,282     100,967     331,023     313,475  
    150,234     202,951     592,877     632,751  
                         
Income from operating activities   40,548     11,017     132,105     254,752  
  Finance costs   9,493     17,307     53,350     86,171  
  Finance income   8,791     (8,415 )   (11,739 )   (25,752 )
  Net finance costs   18,284     8,892     41,611     60,419  
                         
Income before taxes   22,264     2,125     90,494     194,333  
  Deferred income taxes   7,822     5,446     26,292     57,149  
Net income (loss) and comprehensive income $ 14,442   $ (3,321 ) $ 64,202   $ 137,184  
Net income (loss) per share - basic $ 0.07   $ (0.02 ) $ 0.37   $ 0.85  
Net income (loss) per share - diluted $ 0.07   $ (0.02 ) $ 0.36   $ 0.85  
                         
BONAVISTA ENERGY CORPORATION  
Supplemental Financial Information  
Consolidated Statements of Changes in Equity  
For the years ended December 31  
(thousands) Shareholders' capital   Exchangeable shares   Contributed surplus   Deficit   Total shareholders'
equity
 
(unaudited)                              
Balance as at December 31, 2011 $ 1,446,804   $ 585,754   $ 32,092   $ (62,848 ) $ 2,001,802  
Net income   -     -     -     64,202     64,202  
Issuance of equity, net of issue costs   334,736     -     -     -     334,736  
Issued for cash on exercise of common share incentive rights   4,510     -     -     -     4,510  
Exercise of common share incentive rights   4,609     -     (4,609 )   -     -  
Conversion of restricted share awards   5,183     -     (5,183 )   -     -  
Share-based compensation expense   -     -     20,070     -     20,070  
Share-based compensation capitalized   -     -     2,478     -     2,478  
Issued pursuant to the dividend reinvestment and stock dividend plans   82,892     -     -     -     82,892  
Exchangeable shares exchanged for common shares   180,571     (180,571 )   -     -     -  
Dividends declared   -     -     -     (224,801 )   (224,801 )
                               
Balance as at December 31, 2012 $ 2,059,305   $ 405,183   $ 44,848   $ (223,447 ) $ 2,285,889  
(thousands)  Shareholders' capital    Exchangeable shares    Contributed surplus    Deficit   Total shareholders'
equity
 
(unaudited)                              
Balance as at December 31, 2010 $ 1,162,680   $ 650,668   $ 28,074   $ -   $ 1,841,422  
Net income   -     -     -     137,184     137,184  
Issuance of equity, net of issue costs   193,597     -     -     -     193,597  
Issued on business acquisition   939     -     -     -     939  
Issued for cash on exercise of common share incentive rights   12,521     -     -     -     12,521  
Exercise of common share incentive rights   7,794     -     (7,794 )   -     -  
Conversion of restricted share awards   4,359     -     (4,359 )   -     -  
Share-based compensation expense   -     -     13,411     -     13,411  
Share-based compensation capitalized   -     -     2,760     -     2,760  
Exchangeable shares exchanged for common shares   64,914     (64,914 )   -     -     -  
Dividends declared   -     -     -     (200,032 )   (200,032 )
                               
Balance as at December 31, 2011 $ 1,446,804   $ 585,754   $ 32,092   $ (62,848 ) $ 2,001,802  
BONAVISTA ENERGY CORPORATION  
Supplemental Financial Information  
Consolidated Statements of Cash Flows  
  Three months   Years  
  ended December 31,   ended December 31,  
(thousands) 2012   2011   2012 2011  
(unaudited)      
Cash provided by (used in):              
Operating Activities:              
  Net income $ 14,442   $ (3,321 ) $ 64,202 $ 137,184  
  Adjustments for:                      
    Depletion, depreciation, amortization and impairment   90,282     100,967     331,023   313,475  
    Share-based compensation   7,017     4,988     18,364   15,868  
    Unrealized gains (losses) on financial instrument commodity contracts   2,793     27,109     (8,210)   2,935  
    Loss (gain) on disposition of property, plant and equipment   (21,449 )   (4,880 )   (59,675)   (11,901 )
    Loss on disposition of exploration and evaluation assets   311     -     5,938   -  
    Goodwill impairment   -     20,096     -   20,096  
    Net finance costs   18,284     8,892     41,611   60,419  
    Deferred income taxes   7,822     5,446     26,292   57,149  
  Decommissioning expenditures   (11,410 )   (5,973 )   (25,530)   (21,136 )
  Changes in non-cash working capital items   (5,206 )   (8,174 )   13,466   (6,923 )
    102,886     145,150     407,481   567,166  
                       
Financing Activities:                      
  Issuance of equity, net of issue costs   -     -     331,188   191,506  
  Issuance of senior notes   -     152,214     -   152,214  
  Proceeds on exercise of common share incentive rights   355     -     4,510   12,521  
  Dividends paid   (38,323 )   (51,824 )   (137,898)   (204,176 )
  Interest paid   (14,892 )   (14,414 )   (40,907)   (41,182 )
  Proceeds from long-term debt   -     -     -   88,579  
  Repayment of long-term debt   127,198     (69,492 )   (182,329)   (116,605 )
    74,338     18,938     (25,436)   82,857  
                       
Investing Activities:                      
  Business acquisition   (155,266 )   (69,309 )   (155,266)   (172,944 )
  Exploration and development   (76,937 )   (81,035 )   (402,090)   (453,550 )
  Property acquisitions   (9,491 )   (1,433 )   (14,626)   (19,806 )
  Property dispositions   45,920     12,884     180,848   30,357  
  Office equipment and leasehold improvements   (704 )   (211 )   (3,307)   (10,361 )
  Changes in non-cash working capital items   19,254     (24,984 )   12,396   (23,719 )
    (177,224 )   (164,088 )   (382,045)   (650,023 )
                       
Change in cash   -     -     -   -  
                       
Cash, beginning of period   -     -     -   -  
Cash, end of period $ -   $ -   $ - $ -  
                       

FORWARD LOOKING INFORMATION

Forward-Looking Statements - Certain information set forth in this document, including management's assessment of Bonavista's future plans and operations, contains forward-looking statements including; (i) forecasted capital expenditures and plans; (ii) exploration, drilling and development plans, (iii) prospects and drilling inventory and locations; (iv) anticipated production rates; (v) anticipated operating and service costs; (vi) our financial strength; (vii) incremental development opportunities; (viii) reserve life index; (ix) total shareholder return; (x) growth prospects; (xi) asset acquisition and disposition plans; (xii) sources of funding, which are provided to allow investors to better understand our business. By their nature, forward-looking statements are subject to numerous risks and uncertainties; some of which are beyond Bonavista's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, changes in environmental tax and royalty legislation, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. 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. Bonavista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements or if any of them do so, what benefits that Bonavista will derive there from. Bonavista 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. 

Non-IFRS Measurements - Within this press release, references are made to terms commonly used in the oil and natural gas industry. Management uses "funds from operations" and the "ratio of debt to funds from operations" to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by IFRS and therefore it may not be comparable with the calculation of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with IFRS. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures and interest expense. Basic funds from operations per share is calculated based on the weighted average number of common shares outstanding in accordance with International Financial Reporting Standards. Operating netbacks equal production revenue and realized gains or losses on financial instrument commodity contracts, less royalties, transportation and operating expenses calculated on a boe basis. Total boe is calculated by multiplying the daily production by the number of days in the period. Management uses these terms to analyze operating performance and leverage.

Conversion of Natural Gas to Barrels of Equivalent (BOE)

To provide a single unit of production for analytical purposes, natural gas production and reserves volumes are converted mathematically to equivalent barrels of oil (boe). We use the industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 boe ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the boe ratio is useful for comparative measures and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.