EARNINGS / Summit Resources 1997 Financial and Operating Results
TSE SYMBOL: SUI
FEBRUARY 18, 1998
CALGARY, ALBERTA--Summit Resources Limited announced today its
1997 financial and operating results.
Activity levels in the Western Canadian Sedimentary Basin were at
an all time high in 1997, resulting in the drilling of 16,500
wells. Shortages in equipment, trained field personnel and
professional staff resulted in delays and escalated costs
impacting performance throughout the sector. The industry's
heightened interest in heavy oil projects resulted in the heavy
oil differential widening significantly, impacting netbacks for
heavy oil producers. Summit's blend of higher quality crude oil,
with an average API exceeding 35 degrees, mitigated this alarming,
but not surprising, spread in the differential.
During 1997 Summit participated directly in 77 wells and
farmed-out 7 wells to industry partners. Twenty-three per cent of
Summit's participation wells were exploratory where the Company
posted a 50 per cent success rate, and the remaining 77 per cent
were development where the Company achieved an 81 per cent success
rate. This drilling activity resulted in 42 oil wells (17.5 net)
and 19 gas wells (13.9 net), with an average well depth of 1,700
meters.
Summit's 1997 BOE production increased to 12,362 BOE's per day
which was within 3 per cent of budgeted production volumes
forecast at the beginning of 1997. Oil and liquids production
increased from 5,707 BOE's per day in 1996 to 6,145 BOE's per day
in 1997, while natural gas production increased to 62.2 MMcf/d
from 60.1 MMcf/d the previous year. Summit's 1997 average natural
gas price of $2.06 per Mcf (1996 - $1.70 per Mcf) continues to
rank in the top quartile for the industry. Summit's blend of
natural gas contracts and higher than average BTU content
contributed to Summit's premium pricing for its natural gas
production. While natural gas prices firmed in 1997, crude oil
prices declined by 6 per cent, with WTI prices averaging US$20.61
in 1997 compared to US$22.00 in 1996. As a result, Summit's 1997
realized crude oil price averaged $23.89 per barrel compared with
1996 realized prices of $25.49 per barrel.
During 1997 Summit expanded its production base in core areas
through a combination of successful property acquisitions, asset
rationalizations and an active drilling program which resulted in
total expenditures of $88 million. Seventy-two per cent of the
$65 million invested in oil and gas exploration and development
activities was allocated to Canadian operations, with the
remaining 28 per cent invested to expand Summit's light oil
exploration and development activities in the U.S. portion of the
Williston Basin.
Strategic property acquisitions completed in 1997 totaled $75
million and included an expansion of the Company's oil production
base through the acquisition of producing assets in the Williston
Basin and in Rabbit Hills, Montana, while an acquisition at Fox
Creek, Alberta offset a portion of the Company's natural gas and
liquids divestitures. As part of Summit's rationalization program
in 1997, dispositions of non-core assets totaling $51 million were
concluded, including dispositions at Sturgeon Lake, Dunvegan,
Manir, Pine Creek and Hays in Alberta, and Viewfield and Cantal in
Saskatchewan.
Summit's year-end 1997 long-term debt totaled $125 million,
including $17.6 million incurred by the Company to finance its
investment in Fort Chicago Energy Partners L.P. which is the
largest owner of interest in the Alliance Pipeline projects.
Excluding the debt associated with this investment, Summit's 1997
debt to cash flow ratio equates to 2.1:1.
Increased production levels in 1997 resulted in petroleum and
natural gas revenues increasing to $101 million, an 11 per cent
increase from the $91 million posted in 1996. Cash flow for the
year increased to $51 million ($1.51 per share) compared to $50
million ($1.46 per share) in 1996. 1997 cash flow was impacted by
higher operating costs due to increased production volumes from
Summit's U.S. production which were converted to Canadian dollars,
excess natural gas transportation commitments which have since
been mitigated, and generally higher operating costs throughout
the industry. Cash flow in the fourth quarter of 1997 totaled
$13.8 million ($0.41/share) based on average oil and liquids
production of 6,365 barrels per day ($22.65/bbl) and average
natural gas production of 67.7 MMcf/d ($2.14/Mcf).
Under Generally Accepted Accounting Principles (GAAP) the Company
is required to evaluate the carrying value of its assets in each
country against the future cash flows its proven reserves will
generate at constant prices over their economic life. In
performing the "ceiling test" the Company has the option to either
use average commodity prices for the year or prices in effect at
the end of the year. In Canada future net revenues are
considerably higher than the carrying costs of the reserves.
Using average oil prices for 1997 (US$20.61 WTI) Summit's proven
reserves in the United States satisfies the ceiling test
requirements under GAAP. However, using year-end constant prices
of US$17.68, a ceiling test deficiency resulted for the Company's
U.S. cost centre. In light of the soft crude oil prices that
currently exist and the expectation that soft prices are likely to
continue in 1998 due to the decreased demand in south-east Asia
and OPEC's decision to increase production output, the Company has
elected to use the more conservative year-end oil price in its
ceiling test calculation. This calculation, together with the
Company's decision to write-off certain land and seismic costs on
U.S. properties evaluated by the Company, results in Summit
recording a net loss of $31 million in 1997, which includes a
$34.5 million write-down on the Company's U.S. cost centre.
Summit's drilling and acquisition programs during the year added
proven reserves of 11.7 million BOE's and 14.5 million BOE's of
proven and probable reserves. Given the favourable market
conditions during 1997, Summit disposed of some of its
non-strategic properties, thereby reducing proven reserves by 5
million BOE's (6.6 million BOE's proven plus probable) while
netting the Company proceeds in excess of $10.00 per BOE on a
proven basis. Reserve revisions to prior years evaluations
accounted for a reduction of 0.6 million proven BOE's and 2.3
million proven plus probable BOE's. The Company's total crude
oil and liquids reserves increased to 20.1 million barrels,
including 14.6 million barrels proven, while natural gas reserves
totaled 185 Bcf, including 147.4 Bcf proven. The Company's U.S.
reserves increased by over 300 per cent to 8.4 million BOE's,
including 6.3 million barrels of proven reserves.
Summit has established a $40 million capital program for
exploration and development activities in 1998, including
drilling, facilities, land and geophysics. Sixty-eight per cent
of this total has been allocated to the drilling of 70 wells,
including 23 exploration projects and 47 development wells.
Fifty-seven per cent of the Company's drilling and facilities
capital has been allocated to natural gas and the remainder to
crude oil. Forty wells are planned in Canada to expand the
Company's natural gas and light oil production base, and 30 wells
are planned in the U.S., mostly located in the Williston Basin, to
expand the Company's crude oil production base.
1998 production volumes are projected to increase 13 per cent to
14,000 BOE's per day, comprising 6,700 barrels of oil and liquids
per day and 73 MMcf/d of natural gas. Using budget parameters of
US$18.50 per barrel for oil and $1.75 per MMcf/d (plus $0.15 per
Mcf for settlement of an outstanding gas contract), Summit
anticipates cash flow for 1998 of $48 million or $1.45 per share.
A conference call with senior management to discuss 1997 results
and review the Company's 1998 plans has been set for Thursday,
February 19, 1998 at 2:00 p.m. Calgary time. Shareholders,
analysts and other interested parties are requested to call (403)
216-9050 access number 5315# for participation in the conference
call.
Summit Resources Limited is a Canadian corporation engaged in oil
and gas exploration, development, acquisition, production and
marketing in western Canada and selected basins in the United
States. Summit's shares are listed on the Toronto Stock Exchange
(trading symbol "SUI"). |
