PWI.un Excellent results released today......These results should get PWI.un heading to the $9.00 level.
PrimeWest pays record distributions in second quarter
PrimeWest Energy Trust PWI.UN
Shares issued 38,061,130 Aug 14 close $8.00
Tue 15 Aug 2000 News Release
Mr. Kent MacIntyre reports
PrimeWest Energy Trust has completed its interim operating and financial
results for the second quarter ended June 30, 2000. Cash flow from
operations was 62 cents per trust unit, (61 cents per trust unit fully
diluted) of which 39 cents per trust unit was distributed to unitholders.
Second quarter per-unit cash flow was the strongest in the history of the
trust, representing a 24-per-cent increase over the previous record
achieved during the first quarter of 2000 and a 114-per-cent improvement
over the comparative quarter in 1999.
Distribution declaration
The next distribution payment, totalling 16 cents per trust unit, will be
made on Sept. 15, 2000, to all unitholders of record on Aug. 31, 2000. With
the regular and extra distributions in September, PrimeWest will have paid
a total of $1.46 per trust unit during the previous 12-month period
(October, 1999, through September, 2000), and $4.71 per trust unit since
inception. The ex-distribution date for the September payment is Aug. 29,
2000.
"PrimeWest remains on track for best-ever cash flow and distributions this
year," said Kent MacIntyre, vice-chairman and chief executive officer.
"Unitholders have enjoyed the momentum and impacts of our successful
acquisition program this year, continuing cost reductions and the benefits
of strong commodity prices.
"At the same time as we are paying record distributions, we are also
managing our debt prudently, so that we will be strongly positioned in the
event that commodity prices cycle downwards."
Results of operations
Production volumes for the quarter averaged 12,414 barrels of oil
equivalent per day, up from 11,841 boe in the first quarter of 2000 and
from 11,816 boe in the second quarter of 1999. The increase reflects new
volumes from the trust's acquisition and development program, which offset
natural production declines.
PrimeWest participated in a total of 20 separate development projects
during the quarter, as part of an operating strategy that has shifted
toward project diversification and an increased emphasis on technology and
stewardship. The company's second quarter projects included: the drilling
and completion of two wells in Lone Pine Creek and Enchant, the
recompletion and/or work over of 15 wells, and repairs and maintenance at
five facilities. The company also abandoned and/or reclaimed 10 wells.
The combined result of these activities was the addition of approximately
250 boe per day of production on an annualized basis.
During the quarter, world oil prices remained extremely strong. The average
West Texas Intermediate (WTI) crude oil price was $28.63 (U.S.) per barrel
compared with $28.73 (U.S.) in the first quarter of this year and $17.66
(U.S.) per barrel for the second quarter of 1999. During the quarter, North
American prices for natural gas rose sharply both on the New York
Mercantile Exchange (NYMEX) and in the Alberta markets compared with the
first quarter of 2000 and the same period last year. The average AECO price
was $4.23 per million cubic feet compared with $3.16 for the first quarter
of 2000 and $2.66 for the same quarter in 1999.
The average selling price PrimeWest received in the second quarter for all
products combined increased to $37.22 per boe compared with $31.73 per boe
in the first quarter of 2000 and $21.32 per boe in the second quarter of
1999.
In late 1999 and early 2000, PrimeWest layered in several hedging
structures, which at June 30, 2000, represented approximately 38 per cent
of total anticipated crude oil production to year-end, and about 20 per
cent of anticipated full-year natural gas production (both figures after
royalties). The main purposes of the company's risk management strategy
have been to protect PrimeWest's regular monthly distribution rate of 10
cents per trust unit, and to provide an element of stability and
predictability to the distribution stream.
At June 30, 2000, hedging structures represented about 20 per cent of total
anticipated crude oil production to June 30, 2001, and approximately 11 per
cent of total anticipated natural gas production for the same period.
PrimeWest will continue to monitor the markets for both crude oil and
natural gas and make considered risk-management decisions to minimize
opportunity losses while at the same time preserve an element of stability
and predictability in the company's distribution stream. The effect of
these hedging transactions will continue to be reported quarterly.
Revenues
Revenues from the sales of crude oil, natural gas and natural gas liquids
were $42-million or $1.08 per trust unit, up 83 per cent over the same
period in 1999 due to higher commodity prices and higher production
volumes. Opportunity losses from hedging activities for the period were
$2.2-million or six cents per trust unit.
Cash flow
Cash flow from operations was $24.1-million or 62 cents per trust unit for
the quarter compared with $17.9-million or 50 cents per trust unit in the
first quarter of 2000 and $9.7-million or 29 cents per trust unit posted in
the second quarter of 1999. These increases are due mainly to higher
commodity prices.
Royalties
Crown and other royalties, net of ARTC, were $7.4-million up from
$6.5-million in the first quarter of 2000 due to the Venator acquisition
and higher commodity prices, and up from $3.6-million in the second quarter
of 1999. The year-over-year increase was due to higher commodity prices
received, higher royalty rates, and a lower ARTC claim rate. (Royalty rates
and ARTC claim rates are sensitive to commodity prices.)
Operating expenses
Operating expenses were $7.1-million for the second quarter or $6.30 per
boe, in total from $6.8-million in the first quarter due to the effects of
the acquisition of Venator but flat on a per-boe basis. Compared with the
corresponding period in 1999, second quarter operating expenses were up 3
per cent in total and down 2 per cent per boe.
Operating netback
PrimeWest's operating netback (before general and administration,
management fees, and interest expense) was $24.36 per boe, up from $19.52
per boe in the first quarter of 2000 and $11.53 per boe in the
corresponding period last year. These increase were due mainly to higher
commodity prices, offset by higher crown and other royalties.
General and administrative expenses
Cash general and administrative expenses, net of overhead recoveries, were
$1.26-million or $1.12 per boe, up slightly from the first quarter of 2000,
yet down 3 per cent from the same period in 1999. Non-cash general and
administrative costs, representing the liability associated with the
trust's long-term incentive program, were $4-million in the quarter, up
from $0.5-million in the first quarter of 2000. There were no costs for
this program in the corresponding period in 1999, as the program was not
"in the money" at that time. This is a non-cash charge in that payouts are
made by the issuance of trust units upon exercise.
Management fees
Cash and non-cash management fees increased to $0.88-million for the
quarter as compared with $0.67-million in the first quarter of 2000 and
$0.44-million for the corresponding period in 1999. Management fees are
mainly based on net production revenue, which itself is highly dependent on
commodity prices received.
Interest expense
Interest expense was $1.4-million compared with $1.5-million in the first
quarter of 2000 and $1.1-million in the corresponding period of 1999. The
increases have been due to higher interest rates.
Depletion, depreciation and amortization (DD&A)
The second quarter 2000 DD&A rate was $8.78 per boe compared with a first
quarter rate of $8.55 per boe (due to the Venator acquisition) and with a
1999 rate of $8.05 per boe (due in part to proven reserve reductions booked
at the end of 1999).
Site reclamation and restoration reserve
During the second quarter, PrimeWest reserved $0.3-million or 30 cents per
produced boe for future site restoration and reclamation. This compares
with $0.3-million or 30 cents per produced boe in the first quarter, and
$0.2-million or 20 cents per produced boe in the second quarter of 1999.
The increase in 2000 reflects a more conservative contribution policy,
which PrimeWest considers to be among the most prudent in the sector.
Liquidity and capital resources
Capital expenditures, excluding acquisitions, totalled $4.5-million during
the quarter. First quarter 2000 capital expenditures, excluding
acquisitions, also totalled $4.5-million.
Net debt (long-term debt net of working capital) at June 30, 2000, was
$83.7-million or $2.16 per trust unit. This compares with $83.5-million or
$2.33 per trust unit at March 31, 2000, and $85.8-million or $2.40 per
trust unit at year-end 1999.
Unitholders' equity
In November, 1999, PrimeWest received consent from the Toronto Stock
Exchange to implement a trust unit repurchase program for up to 1.8 million
trust units. To Aug. 14, 2000, the company had repurchased for retirement a
total of 263,100 trust units at an average price of $6.39 per trust unit,
for a total of $1.68-million.
Developments and outlook
Distribution reinvestment discount
PrimeWest's distribution reinvestment plan enables participants to reinvest
their monthly cash distributions and automatically purchase additional
trust units directly, at a 5-per-cent discount to the prevailing market
value, without incurring brokerage fees or other expenses.
For further information or to join this plan, contact the company's plan
agent, the trust company of Bank of Montreal, at 1-800-332-0095. PrimeWest
Energy Trust welcomes questions from unitholders and potential investors;
call investor relations at 403-234-6600; or toll-free in Canada at
1-877-968-7878; or visit the company on the Internet at its Web site,
primewestenergy.com.
Reserve Royalty acquisition
On July 27, 2000, PrimeWest announced that its offer to purchase Reserve
Royalty Corporation was successful. The company has begun to integrate the
two companies' operations.
The bulk of Reserve Royalty's assets are in the form of gross overriding
royalties (GORRs). GORRs provide an economic interest in oil and gas
production without any obligation for the payment of lessor royalties,
operating costs, capital expenditures or environmental liability costs.
This results in high netbacks per unit of production.
Reserve Royalty also owns 300,000 net acres of undeveloped royalty lands,
which may provide future production and reserve additions with no
exploration or development risk or capital contribution.
The transaction adds approximately 5.3 million barrels of established
reserves and, beginning Aug. 1, 2000, approximately 1,500 boe of daily
production. It was completed through an exchange of 6.66 million trust
units worth $54-million plus approximately $27-million of assumed net debt.
The transaction will drive synergies and economies of scale. To illustrate,
PrimeWest's first quarter 2000 G&A costs per unit of production were about
one-fifth that of Reserve Royalty's. The company can administer these
properties more effectively as a larger organization.
Venator acquisition
On April 18, 2000, PrimeWest announced that its offer to purchase Venator
Petroleum Company Limited was successful. PrimeWest has now integrated the
two companies' operations. The transaction added 4.3 million barrels of
established reserves and, effective April 19, 2000, approximately 1,300 boe
of daily production.
PrimeWest's capital budget was increased earlier in the year for water
flood optimization and development drilling on the Venator properties. In
June and July, two successful oil wells were drilled at Enchant.
Crossfield developments
In June, PrimeWest took additional steps to increase the value of its
Crossfield-area assets. These initiatives will increase the operational
efficiency of the Crossfield gas plant, increase third party processing
revenues, add production and reserves, and enhance the economic value of
the trust's reserves in the area.
PrimeWest has sold a 25.8-per-cent interest in the Crossfield plant to
TriGas Exploration Inc. In consideration of this, TriGas has dedicated for
processing at the plant all of its operated production from three nearby
fields, on a life-of-reserves basis. TriGas has significant shut-in gas in
these fields and an active exploration and development program planned for
the next two years.
In a subsequent transaction, PrimeWest agreed to purchase TransCanada
Midstream's 39-per-cent interest in the Crossfield plant and D1 unit,
however this transaction did not close as a third party exercized a first
right of refusal. This third party has an active drilling program nearby
and is expected to deliver additional gas volumes to the Crossfield plant
over the next two years.
These transactions set the stage for a series of capacity and efficiency
improvements, all of which have begun as part of PrimeWest's expanded 2000
capital budget announced May 11, 2000.
A $3.5-million ($1.0-million net to PrimeWest) plant debottlenecking
project will increase the plant's maximum throughput capacity. Capacity
will grow from the current rating of 107 million cubic feet per day of raw
gas (which, due to bottlenecks, is effectively limited to the current
throughput of 85 million cubic feet per day) to 120 million cubic feet per
day. The debottlenecking will enable the processing by year-end 2000 of
additional volumes of area gas, which are currently shut-in. Greater
throughput will further reduce per-unit processing expenses.
A $1.78-million ($512,000 net to PrimeWest) plant-automation project,
expected to be completed by year-end, will further reduce facility
operating costs, including those for fuel gas consumption associated with
utility loading.
A $663,000 ($362,000 net to PrimeWest) compressor rewheeling project was
completed in early July, and has increased D1 unit raw gas deliverability
by two million cubic feet per day (1.1 net to PrimeWest). As a result of
lower suction pressures, a review of suspended unit wells is under way to
determine if additional production can be obtained. In addition to this,
PrimeWest has voluntarily degrandfathered the plant to comply with new,
more stringent government regulations stipulating acceptable levels of
emissions.
Distribution outlook
Taking into account year-to-date distributions declared and paid, and those
anticipated for the upcoming months, PrimeWest expects that full-year
distributions declared will be not less than $1.65 per trust unit. Monthly
distribution levels are assessed on at least a quarterly basis.
"We continue to execute well on all four of our strategies -- financial
prudence, risk management, operating excellence and asset replenishment,"
said president and chief operating officer, Hugh Gillard. "The two
acquisitions we have completed so far this year and our initiatives at
Crossfield are concrete steps forward for us.
"These and other efforts are helping us to hold PrimeWest's operating costs
in check, mitigate the natural production declines on existing properties,
and add material new reserves and production."
Second quarter conference call and Webcast
PrimeWest will be conducting a conference call and Webcast for interested
analysts, brokers, investors and media representatives about its second
quarter results and outlook for 2000 at 2 p.m. MT (4 p.m. ET) on Aug. 16,
2000.
Callers may dial 1-800-361-1028 a few minutes prior to start and request
the PrimeWest conference call. The call also will be available for replay
by dialling 1-877-289-8525, and entering pass code 13725 followed by the
pound key.
Interested users of the Internet are invited to go to
www.newswire.ca/webcast/pages/primewest20000816.html for the live Webcast
and/or replay and at the PrimeWest Web site, www.primewestenergy.com.
WARNING: The company relies on litigation protection for "forward-looking"
statements.
CONSOLIDATED STATEMENT OF INCOME
Three months ended June 30
(in thousands of dollars)
2000 1999
Revenues
Sales of crude oil,
natural gas and
natural gas liquids $41,962 $22,860
Crown and other
royalties, net
of ARTC (7,411) (3,633)
Other income 90 77
------- -------
34,641 19,304
------- -------
Expenses
Operating 7,122 6,895
Cash general and
admin 1,260 1,291
Non-cash general and
administrative 3,999 -
Interest 1,429 1,053
Corporate
acquisition costs - 139
Cash management fees 716 328
Non-cash management
fees 162 113
Depletion,
depreciation and
amortization 9,921 8,654
------- -------
24,609 18,473
------- -------
Net income (loss)
for the period $10,032 $ 831
======= =======
Net income (loss)
per trust unit 0.26 0.03
Fully diluted net
income (loss)
per trust unit 0.25 0.03
CONSOLIDATED STATEMENT OF INCOME
Six months ended June 30
(in thousands of dollars)
2000 1999
Revenues
Sales of crude oil,
natural gas and
natural gas liquids $76,273 $43,003
Crown and other
royalties, net
of ARTC (13,927) (6,852)
Other income 124 828
------- -------
62,470 36,979
------- -------
Expenses
Operating 13,914 14,075
Cash general and
admin 2,364 2,519
Non-cash general and
administrative 4,512 -
Interest 2,886 2,192
Corporate
acquisition costs - 1,138
Cash management fees 1,266 588
Non-cash management
fees 277 212
Depletion,
depreciation and
amortization 19,139 17,481
------- -------
44,358 38,205
------- -------
Net income (loss)
for the period $18,112 $(1,226)
======= =======
Net income (loss)
per trust unit 0.49 (0.04)
Fully diluted net
income (loss)
per trust unit 0.48 (0.04)
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