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Eagle Energy Inc. Announces First Quarter 2019 Results and Confirms Annual Meeting Date


CALGARYMay 9, 2019 /CNW/ – (TSX: EGL):  Eagle Energy Inc. (“Eagle“) today reports its financial and operating results for the quarter ended March 31, 2019.

As a reminder, Eagle’s annual meeting will be held on June 18, 2019 at 9:00 a.m. at Altius Centre, 2nd Floor, 500 – 4 Avenue SW, Calgary for shareholders of record on May 7, 2019.

When reflecting on Eagle’s first quarter, Wayne Wisniewski, President and Chief Executive Officer, stated, “We are fortunate in that WTI has increased and Canadian oil differentials have narrowed during the first quarter.  This has lifted us from the lows of December 2018, when depressed WTI prices and historically high Canadian oil differentials resulted in our Dixonville field revenue being just over four dollars per barrel.  Eagle saw a 15% netback per boe improvement from the fourth quarter of 2018 and we have restored Dixonville production levels to increase field level cash flow.  We continue to evaluate exposure to market risks from fluctuations in commodity prices and have entered into hedging contracts to reduce the risk that commodity prices pose to our corporate cash flow.”

Mr. Wisniewski continued, “We continue to work with our financial advisors to investigate, evaluate and consider possible asset sales and restructuring alternatives, have curtailed 2019 capital spending and continue to look at ways to further reduce debt, general and administrative costs and finance costs.”

First Quarter 2019 Financial Results

Eagle’s unaudited condensed consolidated interim financial statements and accompanying notes for the three months ended March 31, 2019 and related management’s discussion and analysis (“MD&A“) have been filed with the securities regulators and are available online under Eagle’s issuer profile at www.sedar.com and on Eagle’s website at www.EagleEnergy.com.

This news release contains non-IFRS financial measures and statements that are forward-looking.  Investors should read “Non-IFRS Financial Measures” and “Note about Forward-looking Statements” near the end of this news release.  Figures within this news release are presented in Canadian dollars unless otherwise indicated.

Review of the Three Months ended March 31, 2019

  • Reduced long term debt by 21% (from $US 38.5 million to $US 30.4 million) from the first quarter of 2018 using proceeds from the 2018 third quarter Twining area disposition.

  • Reduced finance expense by 32% from the first quarter of 2018 (excluding costs associated with the disposition). 

  • Increased field netback per boe by 15% when compared to the fourth quarter of 2018 when Alberta oil price differentials were historically wide. 

  • Continued to reduce expenses by trimming corporate office staff by 20% and decreasing field contractors in the Dixonville area by 25%. 

  • Hedged a combined 675 barrels of oil per day at an average WTI price of $US 59.62 per barrel for the April through September 2019 period to mitigate the risk that fluctuating commodity prices have on generating positive cash flows from operations. 

  • Curtailed 2019 capital expenditures to preserve maximum financial flexibility.

Ongoing Measures to address a Going Concern Uncertainty

At March 31, 2019, the following circumstances cause material uncertainties that may cast significant doubt regarding Eagle’s ability to continue as a going concern:

  • Eagle had a working capital deficiency of $40.2 million.

  • Eagle had negative funds flow from operations for the three months ended March 31, 2019.

  • Eagle’s estimate of future cash flows from operating activities over the next twelve months is not sufficient to repay the loan principal which is classified as a current liability.

  • Eagle was in default of two of its four financial covenants under the four-year secured term loan from its U.S.-based lender (the “Loan Agreement“) at March 31, 2019. Violation of any financial covenant constitutes an immediate event of default under the Loan Agreement. As a result, Eagle’s debt continues to be classified as a current liability. 

  • There is no assurance that Eagle will not be in violation of one or more financial covenants in future quarters.

Notwithstanding the default, the lender has not, as of the date hereof, exercised any of its available remedies.  However, there can be no assurance that it will not do so in the future.

Funds flow from operations for the first quarter of 2019 was $1.5 million below fourth quarter 2018 levels despite lower quarter-over-quarter administrative and finance expenses.  Lower first quarter 2019 funds flow from operations was due to the following:

  • Lower overall sales volumes. Dixonville production was not yet fully restored after the well shut-in program was implemented in the fourth quarter of 2018 in response to low commodity prices. In addition, North Texasproduction was reduced when a significant well was temporarily shut in for repairs.

  • Higher field operating expenses. This was as a result of both the additional field expenses at Dixonville to restore shut-in production and the additional costs to repair the well in North Texas

  • One-time charges. A total of $0.8 million related to one-time severance and retention costs went through first quarter 2019 general and administrative expenses.

  • A realized hedging gain in the fourth quarter of 2018. Fourth quarter 2018 funds flow from operations included a $1.3 million realized risk management gain from commodity hedging, while there was no comparable amount during the first quarter of 2019 because Eagle had no 2019 commodity hedges in effect until April 2019.

Eagle has undertaken several cost-cutting measures to reduce administrative and operating expenses, such as reducing its staff headcount, reducing its number of contractors, negotiating better pricing with contractors and listing its Calgary and Houston office space for sublease.  Eagle continues to evaluate exposure to market risks from fluctuations in commodity prices and has entered into risk management contracts to reduce commodity price risks.  Eagle has curtailed capital spending for 2019.  Eagle also continues to work with its financial advisors to investigate, evaluate and consider possible asset sales and restructuring alternatives.

Negative funds flow from operations in the first quarter of 2019 due to lower production and higher operating costs caused Eagle to be in default of the Consolidated Fixed Charge Coverage Ratio covenant under the Loan Agreement.  In addition, when first quarter 2019 negative funds flow from operations was combined with low WTI oil prices and historically wide Alberta oil price differentials during the fourth quarter of 2018, Eagle was also in default of the Consolidated Leverage Ratio covenant, which is a trailing four quarters based calculation.

Eagle’s ability to meet its ongoing financial liabilities, including liabilities relating to the Loan Agreement, and to continue as a going concern, is dependent upon the ongoing support from its lender and its ability to fund the repayment of its debt by generating positive cash flows from operations, securing funding from additional debt or equity financing, disposing of assets or making other arrangements.  There is no certainty that such initiatives will be successful.

During 2019, Eagle has undertaken the following:

  • On March 12, 2019, Eagle entered into a fixed price financial swap on 450 barrels of oil per day for the period of April 1 to September 30, 2019 at a WTI price of $US 57.81 per barrel in order to mitigate the risk that fluctuating commodity prices have on generating positive cash flows from operations.

  • On April 8, 2019, Eagle entered into a fixed price financial swap on 225 barrels of oil per day for the period of April 1 to September 30, 2019 at a WTI price of $US 63.23 per barrel in order to mitigate the risk that fluctuating commodity prices has on generating positive cash flows from operations. 

  • Continued to reduce expenses by trimming corporate office staff by 20% and decreasing field contractors in the Dixonville area by 25%.

  • Given the improvement in commodity prices since the end of 2018, Eagle’s ongoing work with its financial advisors in investigating, evaluating and considering possible asset sales and restructuring alternatives, Eagle made the decision to forego entering into another forbearance agreement (upon the January 31, 2019 expiry of the initial forbearance agreement) with its lender. Eagle felt this afforded it the maximum flexibility to manage its business and avoided incurring additional fees and conditions associated with a forbearance agreement.

Summary of Quarterly Results

Q1/2019

Q4/2018

Q3/2018

Q2/2018

Q1/2018

Q4/2017

Q3/2017

Q2/2017

($000’s except for boe/d and 
per share amounts)

Sales volumes – boe/d

1,542

1,852

1,958

2,262

2,974

3,804

3,749

3,966

Revenue, net of royalties

5,822

5,577

9,010

10,228

12,461

14,725

12,459

14,167

per boe

41.95

32.73

50.01

49.69

46.57

42.08

36.12

39.25

Operating, transportation and 
marketing expenses

3,150

2,730

3,946

4,206

5,109

6,864

6,301

5,885

per boe

22.69

16.02

21.91

20.43

19.10

19.61

18.27

16.31

Field netback

2,672

2,847

5,064

6,022

7,352

7,861

6,158

8,282

per boe

19.25

16.71

28.10

29.26

27.47

22.47

17.85

22.94

Funds flow from operations

(433)

1,062

1,622(2)

1,932

1,718(3)

3,488

3,346

4,272

per boe

(3.12)

6.23

9.00

9.39

6.42

9.98

9.70

11.84

per share – basic

(0.01)

0.02

0.04

0.04

0.04

0.08

0.08

0.10

per share – diluted

(0.01)

0.02

0.04

0.04

0.04

0.08

0.07

0.10

(Loss) earnings

(2,908)

(8,259)

(1,887)

(15,093)

(2,568)

(14,293)

(4,711)

675

per share – basic

(0.07)

(0.19)

(0.04)

(0.34)

(0.06)

(0.34)

(0.11)

0.02

per share – diluted

(0.07)

(0.19)

(0.04)

(0.34)

(0.06)

(0.34)

(0.11)

0.02

Current assets

7,633

7,751

13,270

10,920

14,941

13,869

11,122

11,847

Current liabilities

47,809

47,769

9,686

5,762

7,528

13,715

8,042

6,599

Total assets

138,011

136,674

141,264

159,935

174,877

207,314

213,867

222,155

Total non-current liabilities

21,083

16,658

51,886

62,427

70,870

94,312

92,367

97,086

Shareholders’ equity

69,119

72,247

79,692

81,709

96,479

99,287

113,458

118,470

Shares issued

44,244

44,244

44,244

43,750

43,750

43,302

43,302

42,857

For the three months ended March 31, 2019, sales volumes were lower than the previous quarter due to the selective well shut in program in Dixonville and a significant well in North Texas being shut-in for repairs for a portion of the quarter.  Production is down from previous quarters due to the sale of Salt Flat in February 2018 and Twining in August 2018.

First quarter 2019 field netback per boe increased 15% from the fourth quarter of 2018. This increase was due to significantly improved pricing on Canadian production being partially offset by higher per boe operating expenses resulting from a North Texas well repair and costs incurred to restore Dixonville production to the level it was at prior to the selective well shut in program that was implemented in response to low fourth quarter 2018 oil prices.

First quarter 2019 funds flow from operations was negative, and $1.5 million below the fourth quarter of 2018. This was primarily due to a $1.3 million risk management gain realized in the fourth quarter of 2018. In addition, lower 2019 first quarter funds flow was due to lower overall sales volumes (Dixonville production was not yet fully restored after the well shut-in program in response to low commodity prices and North Texas production was reduced when a significant well was temporarily shut in for repairs), higher operating expenses (as a result of both the additional field expenses at Dixonville to restore shut-in production and the additional costs to repair the well in North Texas) and one-time charges of $0.8 million related to severance and retention costs. Despite a 17% decrease in volumes and higher total operating costs when compared to the fourth quarter of 2018, first quarter 2019 total field netback only decreased by 6% due to higher realized pricing on Canadian properties.

Changes in (loss) earnings from one quarter to the next often do not move directionally or by the same amount as quarterly changes in funds flow from operations.  This is due to items of a non-cash nature that factor into the calculation of (loss) earnings, and those that are required to be fair valued at each quarter end.  First quarter 2019 funds flow from operations was 141% less than the fourth quarter of 2018, yet first quarter 2019 net income was only 65% less than the fourth quarter of 2018. This was primarily due to a $5.3 million non-cash impairment expense relating to the Dixonville oil and gas properties that was recognized in the fourth quarter of 2018.



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