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CALGARY, Alberta, Aug. 08, 2018 (GLOBE NEWSWIRE) — Delphi Energy Corp. (“Delphi” or the “Company”) is pleased to announce its financial and operational results for the quarter ended June 30, 2018.
Second Quarter 2018 Highlights
- Produced 10,623 barrels of oil equivalent per day (“boe/d”) in the second quarter of 2018, a twelve percent increase from the 9,515 boe/d in the first quarter of 2018;
- Tied-in and brought on production three (1.95 net) Montney wells in Bigstone;
- Commissioned amine processing facility (65 percent working interest) allowing up to 17 million cubic feet per day (“mmcf/d”) of gross raw Montney natural gas to be sweetened prior to routing it through the Bigstone sweet natural gas plant (25 percent working interest) for final processing;
- Increased field condensate production by 16 percent to 2,858 barrels per day (“bbls/d”) and natural gas liquids by eleven percent to 1,575 bbls/d in comparison to the first quarter of 2018;
- Increased natural gas liquids and field condensate yields to 119 barrels per million cubic feet (“bbls/mmcf”), up nine percent from the 109 bbls/mmcf in the comparative quarter of 2017. Field and plant condensate yields are 87 bbls/mmcf, or 73 percent of the 119 bbls/mmcf;
- Field condensate and natural gas liquids accounted for 73 percent of crude oil and natural gas revenues and 42 percent of production;
- Realized a natural gas price, before risk management contracts and including marketing income, of $3.26 per thousand cubic feet (“mcf”) compared to an AECO price of $1.18 per mcf as a result of selling approximately 75 percent of our natural gas in Chicago, Illinois, via full-path transportation arrangements and generating marketing income from excess firm Alliance transportation;
- Cash netbacks per boe increased by 29 percent over the comparative quarter resulting in adjusted funds flow of $14.7 million, a 111 percent increase over the second quarter of 2017. Cash netbacks per boe increased 14 percent compared to the first quarter of 2018 resulting in a 29 percent increase in adjusted funds flow over the first quarter of 2018; and
- As a result of Delphi’s lenders’ annual review of the Company’s senior credit facility, the Company received an increase in the borrowing base of its credit facilities to $105.0 million.
| FINANCIAL AND OPERATIONAL HIGHLIGHTS | ||||||||||||
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||
| 2018 | 2017 | % Change | 2018 | 2017 | % Change | |||||||
| Financial | ||||||||||||
| ($ thousands, except per share) | ||||||||||||
| Crude Oil and natural gas revenues | 36,394 | 20,162 | 81 | 69,069 | 45,833 | 51 | ||||||
| Net earnings (loss) | (5,834 | ) | 4,520 | (229 | ) | (10,300 | ) | 12,676 | (181 | ) | ||
| Per share – basic and diluted | (0.03 | ) | 0.03 | (200 | ) | (0.06 | ) | 0.08 | (175 | ) | ||
| Adjusted funds flow(1) | 14,697 | 6,964 | 111 | 26,125 | 14,934 | 75 | ||||||
| Per share – basic and diluted(1) | 0.08 | 0.04 | 100 | 0.14 | 0.09 | 56 | ||||||
| Net debt(1) | 155,402 | 90,638 | 71 | 155,402 | 90,638 | 71 | ||||||
| Capital expenditures, net of dispositions | 3,410 | 22,554 | (85 | ) | 44,575 | 52,611 | (15 | ) | ||||
| Weighted average shares (000s) | ||||||||||||
| Basic | 185,547 | 164,591 | 13 | 185,547 | 160,712 | 15 | ||||||
| Diluted | 185,547 | 165,612 | 12 | 185,547 | 162,171 | 14 | ||||||
| Operating | ||||||||||||
| (boe conversion – 6:1 basis) | ||||||||||||
| Production | ||||||||||||
| Field condensate (bbls/d) | 2,858 | 1,540 | 86 | 2,666 | 1,738 | 53 | ||||||
| Natural gas liquids (bbls/d) | 1,575 | 1,019 | 55 | 1,497 | 1,160 | 29 | ||||||
| Natural gas (mcf/d) | 37,141 | 23,551 | 58 | 35,453 | 26,628 | 33 | ||||||
| Total (boe/d) | 10,623 | 6,484 | 64 | 10,072 | 7,336 | 37 | ||||||
| Average realized sales prices, before financial instruments and marketing income (1) |
||||||||||||
| Field condensate ($/bbl) | 77.24 | 59.74 | 29 | 73.89 | 60.39 | 22 | ||||||
| Natural gas liquids ($/bbl) | 44.74 | 27.02 | 66 | 44.36 | 29.92 | 48 | ||||||
| Natural gas ($/mcf) | 2.89 | 4.31 | (33 | ) | 3.29 | 4.24 | (22 | ) | ||||
| Netbacks ($/boe) | ||||||||||||
| Crude oil and natural gas revenues | 37.65 | 34.17 | 10 | 37.89 | 34.52 | 10 | ||||||
| Marketing income (1) | 1.30 | 1.72 | (24 | ) | 1.28 | 0.77 | 66 | |||||
| Realized loss on financial instruments | (3.41 | ) | 0.77 | (543 | ) | (3.16 | ) | – | – | |||
| Revenue, after realized financial instruments | 35.54 | 36.66 | (3 | ) | 36.01 | 35.29 | 2 | |||||
| Royalties | (1.30 | ) | (1.49 | ) | (13 | ) | (2.12 | ) | (2.48 | ) | (15 | ) |
| Operating expense | (9.04 | ) | (11.15 | ) | (19 | ) | (9.25 | ) | (9.85 | ) | (6 | ) |
| Transportation expense | (5.16 | ) | (6.03 | ) | (14 | ) | (5.30 | ) | (5.81 | ) | (9 | ) |
| Operating netback(1) | 20.04 | 17.99 | 11 | 19.34 | 17.15 | 13 | ||||||
| General and administrative expenses | (1.41 | ) | (2.56 | ) | (45 | ) | (1.51 | ) | (2.80 | ) | (46 | ) |
| Interest | (3.25 | ) | (3.63 | ) | (10 | ) | (3.31 | ) | (3.11 | ) | 6 | |
| Settlement of unutilized take-or-pay contract | (0.18 | ) | – | – | (0.19 | ) | – | – | ||||
| Cash netback (1) | 15.20 | 11.80 | 29 | 14.33 | 11.24 | 27 | ||||||
| (1) Refer to non-GAAP measures | ||||||||||||
FINANCIAL HIGHLIGHTS FOR THE QUARTER ENDED JUNE 30, 2018
Having finished the drilling and completion operations for the 2017/2018 winter program in the first quarter, Delphi carried out a modest capital program in the second quarter, spending $3.4 million to tie-in three (1.95 net) wells and undertake various infrastructure projects. Capital spending in the first six months of 2018 amounted to $44.6 million.
Average production was 10,623 boe/d for the quarter. Field condensate production was 2,858 bbls/d, accounting for 27 percent of production on a boe basis (compared to 24 percent in the second quarter of 2017) and 55 percent of crude oil and natural gas revenues. Total liquids (field condensate and NGL) production in the second quarter accounted for 42 percent of total production and 73 percent of crude oil and natural gas revenues.
Quarterly crude oil and natural gas revenues were $36.4 million, an increase of 11 percent over the first quarter of 2018 due to increased production and higher condensate and NGL realized prices.
A net hedging loss of $3.3 million was realized in the second quarter of which $3.7 million was due to WTI swaps on 2,500 bbls/d contracted at an average price of C$71.20 per barrel, offset by gains on natural gas hedges. The contracted volumes of WTI hedges decline to 2,100 bbls/d in the second half of 2018, 1,000 bbls/d in the first half of 2019, 600 bbls/d in the second half of 2019 and nil thereafter while the average contracted price increases to C$72.41 per barrel, C$73.29 per barrel and $72.29 per barrel, respectively.
Adjusted funds flow increased 29 percent from the first quarter of 2018 to $14.7 million or $0.08 per basic and diluted share. Prior to hedging losses, adjusted funds flow was $18.0 million, equivalent to $72.0 million on an annualized basis which provides approximately $25.0 million of free cash flow above annual capital required to maintain production at current levels.
The operating netback before hedging was $23.45 per boe while the corresponding cash netback before hedging was $18.61 per boe. After a hedging loss of $3.41 per boe, the operating and cash netbacks were $20.04 and $15.20 per boe, respectively.
Bank debt at the end of the quarter was $69.7 million and outstanding letters of credit were $7.4 million, leaving $27.9 million available to be drawn on the Company’s senior bank credit facility. Total debt including working capital deficiency, senior secured notes, and the unused take-or-pay contract liability at the end of the quarter was $155.4 million, $11.0 million lower than at the end of the first quarter.
Capital spending, production and adjusted funds flow were all within the guidance provided by the Company on March 7, 2018 for the first six months of 2018 and on May 9, 2018 for the second quarter of 2018.
NATURAL GAS TRANSPORTATION AND MARKETING
Delphi has a total of 57 mmcf/d of firm and priority interruptible service on the Alliance pipeline system and 24 mmcf/d of firm service on the NGTL pipeline system.
The proportion of natural gas sold in Chicago via Alliance decreased in the second quarter due to commissioning of the newly completed amine sweetening plant, as these volumes are sent for further processing at the Bigstone sweet gas plant which is currently only connected to NGTL. The Bigstone sweet gas plant will be connected to Alliance upon reactivation of the lateral pipeline, which is expected to occur in 2019. The net impact on adjusted funds flow is expected to be positive as the lower realized natural gas price is offset by lower operating costs, lower transportation costs and higher marketing income from the increase in excess Alliance service.
Delphi generated $1.3 million ($1.30 per boe) of marketing income in the quarter from the excess service it holds on Alliance through a combination of temporary assignment to other shippers at a premium over cost or through the purchase of natural gas in Alberta or British Columbia for sale in Chicago.
In the second quarter, the Company shipped 27.9 mmcf/d of natural gas on Alliance for sale in the Chicago market at an average realized price of $3.39 per mcf and 9.2 mmcf/d of natural gas on NGTL for sale in Alberta at an average realized price of $1.32 per mcf, resulting in a combined average realized price of $2.89 per mcf. The combined average realized price including hedging gain and marketing income was $3.39 per mcf compared to an average AECO price of $1.18.
HEDGING
| Commodity Hedges | Q3 2018 | Q4 2018 | 2019 |
| Natural gas (mcf/d) | 21.0 | 17.4 | 10.2 |
| Average hedge price (C$/mcf)(2) | 3.62 | 3.64 | 3.46 |
| Crude oil (bbl/d) | 2,100 | 2,100 | 798 |
| Average hedge price (C$/bbl) | 72.41 | 72.41 | 72.91 |
| (1) Assumes an FX of 1.327 CAD per USD for the second half of 2018 and 2019. | |||
| (2) Includes the impact of NYMEX HH natural gas – Chicago basis hedges. | |||
OPERATIONS UPDATE
In the second quarter, Delphi brought on three horizontal Montney wells, including the 15-19-59-23W5 (“15-19”) and 16-10-60-24W5 (“16-10”) West Bigstone wells. The most recent well to be brought on production was the 16-10 well through the 100 percent Company owned Negus sweet gas plant. Over the first 90 full days on production (IP90), the well flowed at an average rate of 3.7 mmcf/d of raw gas and 613 bbls/d of 42 degree API field condensate (177 bbls/mmcf of sales gas). Total sales production rate for 16-10 over this time period was approximately 1,226 boe/d including current estimated plant natural gas liquid (“NGL”) yield of 10 bbls/mmcf of sales gas.
A new enhanced oil recovery (“EOR”) surfactant was trialed on a number of western wells including the 15-19 and 16-10 wells. The EOR surfactant is specifically designed to enhance oil/condensate production. Over the first 90 days of production the 15-19 and 16-10 wells recovered 54,500 bbls and 55,200 bbls of field condensate respectively, and continue to exceed offsetting well production performance. Delphi is also shifting its well designs to larger casing sizes allowing higher pump rates and decreased frac cycle time. The 16-10 well was the first to utilize a 5.5” frac string. Its estimated this reduced the frac cycle time by approximately 1.5 days while also providing a more effective stimulation through increased fracture complexity.
A 60,000 cubic metre water storage hub is currently under construction, to enable efficient West Bigstone pad development and decrease water management costs. This will enable large scale 24 hour frac operations on future multi-well pads, while also providing security of water. In combination with the recently announced fluid disposal agreement with Catapult, full cycle water management costs and logistics will be reduced and simplified going forward. Delphi is also investigating a number of new water treatment technologies which may allow for re-use and recycling of frac flow-back fluid.
During the second quarter, the Company commissioned the Phase I Amine processing facility and commenced delivering sweetened Montney gas on May 9th to the under-utilized 85 mmcf/d Bigstone sweet natural gas plant (Delphi 25 percent working interest) for final processing. The new facility, capable of sweetening up to 17 mmcf/d of gross raw Montney natural gas, will enable reduced operating costs on that production stream by approximately $0.80 per mcf. Corporately, operating cost savings of approximately $0.70 per boe are forecast. The amine facility is part of the Company’s long term strategy to diversify its processing options, which now include the SemCAMS K3 (sour), Repsol Edson (sour), Delphi Bigstone (sweet), and Delphi Negus (sweet) processing facilities.
Given the current production volumes trending above budget, the Company reaffirms its full year 2018 production guidance of 10,000 to 10,200 boe/d, released on July 18, 2018. Delphi notes that the SemCAMS operated K3 natural gas plant was taken offline for 6 days due to unscheduled repairs near the end of July. Second half 2018 production guidance is tightened from the range of 10,000 to 10,400 boe/d previously released, to 10,000 to 10,200 boe/d as a result of this unscheduled outage.
The Company has commenced its second half drilling program with the fifth and sixth wells of the 2018 program at 16-31-59-23W5 and 13-18-60-22W5. Both these wells are close offsets to successful wells brought on production in the first half of 2018. Subsequent drills in the second half of 2018 are offsets to recent successful results at West Bigstone, at 16-10 and 15-19.
INCENTIVE STOCK OPTIONS
On June 20, 2018, the Board of Directors of the Company approved the granting of incentive stock options under its stock option plan to its employees, officers and directors to acquire up to an aggregate of 2,705,000 common shares of the Company at an exercise price of $0.89 per share. This grant follows the expiry of 815,002 options and 1,760,000 options on March 30, 2018 and April 25, 2018 respectively.
OUTLOOK
Delphi expects to drill and complete four (2.60 net) wells in the second half of 2018 spending approximately 75 to 85 percent of the planned expenditures on the new wells, with the remaining capital focused on infrastructure and production optimization projects. The Company expects operating and cash netbacks to continue to grow as the Company follows up on recent liquids-rich, successful delineation wells in West Bigstone and realizes the full benefit of recent infrastructure investments, transitioning the Company to a growth model principally financed through adjusted funds flow.
The Company looks forward to providing an update on its ongoing drilling program as information becomes available.
CONFERENCE CALL AND WEBCAST
A conference call and webcast to review 2018 second quarter results is scheduled for 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) on Thursday, August 9, 2018. The conference call number is 1-844-358-8760. A brief presentation by David J. Reid, President and CEO, and Mark Behrman, CFO will be followed by a question and answer period. The conference call will also be broadcast live on the internet and may be accessed through www.delphienergy.ca or by entering https://edge.media-server.com/m6/p/p25n7y4h in your web browser.
A recorded rebroadcast will be archived and made available on the Company’s website at www.delphienergy.ca or by entering https://edge.media-server.com/m6/p/p25n7y4h in your web browser. Delphi’s second quarter 2018 financial statements and management’s discussion and analysis are available on the Company’s website at www.delphienergy.ca and SEDAR at www.SEDAR.com.
About Delphi Energy Corp.
Delphi Energy Corp. is an industry-leading producer of liquids-rich natural gas. The Company has achieved top decile results through the development of our high quality Montney property, uniquely positioned in the Deep Basin of Bigstone, in northwest Alberta. Delphi continues to outperform key industry players by improving operational efficiencies and growing our dominant Bigstone land position in this world-class play. Delphi is headquartered in Calgary, Alberta and trades on the Toronto Stock Exchange under the symbol DEE.
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