EARNINGS / WestCastle Releases First Quarter, 1998 Results
TSE SYMBOL: WCL.UN
OTC Bulletin Board SYMBOL: WCTS
MAY 22, 1998
CALGARY, ALBERTA--WestCastle Energy Trust is a Calgary-based
closed-end investment trust which, through WestCastle Acquisition
Corp., acquires and holds long life producing oil and natural gas
properties. These entities are managed by WestCastle Energy Corp.,
which provides an experienced management team with expertise in
all aspects of property acquisitions, operations, development and
finance.
Trust units trade on the Toronto Stock Exchange under the symbol
WCL.UN
1998 Quarterly Distributions:
-March 31 - $0.20 per Unit
The key elements which differentiate WestCastle are:
- The high quality of the assets, which were specifically acquired
from a number of vendors and were chosen for their suitability to
a trust vehicle.
- 97 percent of total reserves are classified as "proved developed
producing" and the reserve life index is 12.1 years.
- A good balance between gas reserves (53 percent) and oil and NGL
reserves (47 percent).
- The control offered by the high level of operatorship - over 90
percent.
- An abandonment and reclamation fund of $4,500,000 to offset
existing and future costs which would otherwise be paid from cash
flow.
Chief Executive Officer's Message
As the new Chief Executive Officer I am reporting, on behalf of
the Board of Directors, the operating and financial results of
WestCastle Energy Trust for the period ended March 31, 1998, as
well as introducing a number of events and initiatives which have
occurred since the end of this period. I am disappointed that the
net revenues available for distribution for the first quarter
($0.18 per unit) were two cents less than the actual amount
distributed ($0.20 per unit). The difference is primarily
attributable to operating costs being higher than budgeted. The
two cent deficit will be amortized over the remaining three
quarters of this fiscal year. Now that WestCastle has operated
its assets for a complete twelve month period, we have a better
appreciation of all of the costs involved and the scope of
operating our assets. This knowledge should allow us to be more
accurate in our estimates of future distributions. We are not
satisfied with the current level of operating costs and know that
there is room for significant improvement. Our systems for
tracking costs will also be revised with a view to enhancing
accuracy and timeliness of information.
Since assuming the role of C.E.O. following the resignation of Al
Dillabough on April 24, 1998, we have taken a number of
initiatives to improve the operation of the Trust and its assets.
First and foremost, we have commenced a search for a new Chief
Operating Officer with strong technical and executive abilities.
I am also seeking a replacement for the President, Michael Smith,
who resigned on May 21, 1998, but will remain on the Board and be
an active member of the management team. We are hopeful we can
find one individual capable of taking on both the President and
Chief Operating Officer roles. In addition, other engineering and
technical professionals will be added to the team to ensure the
best possible performance from the Trust's assets. These staff
additions will be at little or no incremental cost to the Trust as
a result of various resignations and certain other administrative
efficiencies to be implemented.
Another important initiative now underway is the development of a
new plan and budget for the remainder of 1998 and 1999. The
process is expected to be completed before the end of the second
quarter and will be critical as we change from quarterly to
monthly distributions. This budget will be based on the
historical performance of the Trust over the past twelve months,
including actual operating costs. Although it is too early in the
process to project with certainty, the Board expects that in the
event current commodity prices remain for the balance of the year,
the Trust will distribute approximately $0.73 per unit during
1998. Any improvements in prices, production or operating or
administrative efficiencies developed by the new operating staff
should increase these numbers. During the first quarter, WTI oil
prices averaged US $15.90 per barrel and WestCastle's natural gas
price averaged $1.70 per mcf. Unit distributions will increase
approximately $0.06 for each $1.00 increase in WTI oil price or
for each $0.10 increase in natural gas prices.
During the first quarter, the Directors, along with financial
advisors, considered a number of different strategic alternatives
for the Trust and concluded that the best way to maximize value in
the near term is to ensure that the assets are being operated and
administered efficiently and performing to their full potential.
We are convinced that WestCastle has good quality royalty trust
assets, and in order to realize their value and provide for future
growth, we must engage the best possible operating personnel and
systems to bring results in line with previous expectations.
The management and staff at Westcastle are a very capable group
and are disappointed with the Trust's performance to date. All
oil and gas trusts are operating in a difficult environment with
lower than expected commodity prices, a tight labor market, a very
competitive acquisition market and limited access to capital. We
are making the changes required to meet these challenges and as
your new C.E.O. I am focusing on our problems with vigor and see
many opportunities for meaningful improvements that should result
in increased distributions going forward.
R. Bradley Hurtubise
Chairman & Chief Executive Officer
May 21, 1998
Operations
On the operating side, the trust exited the first quarter
producing in excess of 6,900 BOEs per day. Demand for
infrastructure in the industry has resulted in delays in
installing field compression. In Parkland, the operator has
informed us that by the end of May they will have completed their
installation and we are expecting incremental production of
approximately 150 to 200 BOEs per day net to the Trust. In
Crossfield WestCastle has, as operator of the Crossfield Turner
Valley Unit No. 1, recently installed two field unit compressors,
which should begin to add production by June 1, 1998. We are
still looking to purchase two more compressor packages for
locations we have identified to add production. We still believe
that the Crossfield production enhancements could add at least 100
BOEs per day to WestCastle.
Management has begun detailed technical evaluation of two other
WestCastle properties. In Pembina, we have witnessed successful
initiatives from other operators near our properties and we feel
that certain of our Pembina properties are excellent candidates
for production exploitation. In Medicine Hat, we are testing
additional zones and management has been very encouraged from the
results of pressure testing we have undertaken. Preliminary data
indicates that we should be able to add both incremental
production and reserves from uphole zones within our existing well
bores. Because all these wells have been drilled and tied-in,
these reserves and production will be added with minimal capital
spending. We expect to proceed with this exploitation during the
second quarter and hope to realize this new gas production by mid
to late summer going into the 1998-99 heating season. Also in
Medicine Hat, a pilot project aimed at increasing well
productivity is currently being undertaken. Management is of the
view that cleaning the well bores of formation blockage and other
contaminants could enhance single well productivity. We are
testing this using three different processes to determine the most
effective method and hope to able to announce positive results
during the next quarter.
Financial
The accompanying combined financial statements reflect the results
of operations for the period from January 1, 1998, to March 31,
1998, for both WestCastle Energy Trust and WestCastle Acquisition
Corp. Since this period is in the first year of operations, no
comparative figures are reported. The Trust distributions total
$0.20 per unit for the period, which is less than our expectation
mainly due to significantly lower liquids prices and small
decreases in production levels. WestCastle produced 6,884 BOEs
per day to the end of March, with gas contributing 57 percent of
the production.
The average oil price received during the period was $21.01 per
BOE. Liquids averaged $19.21 per BOE Gas prices were also down at
$1.70 per mcf. Royalty rates were slightly lower than 1997 at 18
percent. Operating costs were higher in the quarter, averaging out
at $7.79 per BOE. General and administrative expenses came in at
$393,000 or $0.63 per BOE, while interest costs escalated slightly
to $558,000 or $0.90 per BOE, reflecting the general increase in
interest rates. Management fees of $137,000 in cash were paid in
the period and at the end of March, Quarterly Incentive Program
issued 10,141 units to the Manager.
Bank debt outstanding as at March 31, 1998 of approximately $38
million remains virtually unchanged from year end 1997.
/T/
COMBINED STATEMENT OF INCOME AND CASH AVAILABLE
FOR DISTRIBUTION TO UNITHOLDERS
For the period from January 1, 1998 to March 31, 1998
(thousands of dollars - unaudited)
REVENUE
Oil and gas sales, net of royalties of $2,107 $10,224
--------------------------------------------------------------
10,224
--------------------------------------------------------------
EXPENSES
Oil and gas operations 4,827
General and administrative 393
Management fees 148
Interest expense 558
Depletion, depreciation and amortization 4,759
Capital taxes 14
--------------------------------------------------------------
10,699
--------------------------------------------------------------
NET LOSS 475
Depletion, depreciation and amortization 4,759
1 percent residual interest (42)
Capital expenditures (120)
1997 Deficit brought forward (460)
--------------------------------------------------------------
CASH AVAILABLE FOR DISTRIBUTION 3,662
--------------------------------------------------------------
--------------------------------------------------------------
Per unit
Net loss ($0.02)
-------
-------
Cash available for distribution $0.18
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-------
Cash declared for distribution $0.20
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-------
COMBINED BALANCE SHEET
March 31, 1998
(thousands of dollars - unaudited)
ASSETS
CURRENT
Cash held in trust $4,119
Accounts receivable 7,287
Prepaid expenses 2,907
--------------------------------------------------------------
14,313
Oil and gas properties and equipment 204,653
--------------------------------------------------------------
$218,966
--------------------------------------------------------------
--------------------------------------------------------------
LIABILITIES:
CURRENT
Distribution payable to Unitholders $4,059
Accounts payable and accrued liabilities 3,796
--------------------------------------------------------------
7,855
Long-term debt 38,257
Future abandonment and site restoration costs 4,870
--------------------------------------------------------------
50,982
--------------------------------------------------------------
UNITHOLDERS' EQUITY 167,984
--------------------------------------------------------------
$218,966
--------------------------------------------------------------
--------------------------------------------------------------
COMBINED STATEMENT OF UNITHOLDERS' EQUITY
For the period from January 1, 1998 to March 31, 1998
(thousands of dollars - unaudited)
BALANCE, BEGINNING OF PERIOD 172,539
Net loss (475)
Trust unit issue costs (21)
Distributions to Unitholders - $0.20 per unit (4,059)
--------------------------------------------------------------
BALANCE, END OF PERIOD 167,984
--------------------------------------------------------------
--------------------------------------------------------------
COMBINED STATEMENT OF CHANGES IN FINANCIAL POSITION
For the period from January 1, 1998 to March 31, 1998
(thousands of dollars - unaudited)
NET INFLOW (OUTFLOW) OF CASH RELATED TO
THE FOLLOWING ACTIVITIES
OPERATING
Net income/(loss) $(475)
Add:
Depletion, depreciation and amortization 4,759
--------------------------------------------------------------
4,284
Changes in non-cash working capital, net 1,264
--------------------------------------------------------------
5,548
--------------------------------------------------------------
FINANCING
Trust Unit issue costs (21)
Future removal and site restoration costs (350)
Decrease in long-term debt (228)
Cash held in trust (1,417)
Distribution to Unitholders (4,059)
--------------------------------------------------------------
(6,075)
--------------------------------------------------------------
INVESTING
Purchase of oil and gas properties and equipment 527
--------------------------------------------------------------
527
--------------------------------------------------------------
NET CASH INFLOW 0
CASH POSITION, BEGINNING AND END OF PERIOD 0
Corporate Information
Directors and Officers:
R. Bradley Hurtubise (1)
Chairman and Chief Executive Officer
W. Gordon Brown
Director
J.E. (Ed) Czaja
Director
J. Al Dillabough
Director
Robert F. Taylor (1)
Director
Michael C. Smith
President and Director
Keith T. Smith (1)
Executive Vice-President and Director
Neil D. Graham
Chief Financial Officer
David L. Bowman
Vice-President, Operations
B.J. Cavers
Vice-President, Land
Michael Holtz
Vice-President, Marketing
Donald M. Boykiw
Corporate Secretary
(1) Audit Committee Members
Trustee and Transfer Agent:
The Trust Company of Bank of Montreal
Calgary, Alberta
Bankers:
Bank of Montreal
Calgary, Alberta
Auditors:
Deloitte & Touche
Calgary, Alberta
Engineering Consultants:
Sproule Associates Limited
Calgary, Alberta
Legal Counsel:
Bennett Jones Verchere
Calgary, Alberta
Stock Exchange Listing:
The Toronto Stock Exchange: WCL.UN
Toronto, Ontario
Executive Offices:
Suite 1700, First Canadian Centre
350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Ph: 403-232-2242 Fax: 403-265-8049
Website: www.westcastle.com
Trading Information:
Listing date: March 14, 1997
Exchange and Trading Symbol: TSE: WCL.UN
Units outstanding: 20,292,652
Close March 31, 1998: $5.65 per unit
/T/
WestCastle Energy Trust is a publicly listed Trust, whose Units
trade under the symbol WCL.UN on the Toronto Stock Exchange.
There are currently 20,292,652 units issued and outstanding.
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