EARNINGS / Beau Canada Exploration First Quarter Results
BEAU CANADA EXPLORATION LTD.
TSE, ME SYMBOL: BAU
MAY 15, 1998
CALGARY, ALBERTA--
SALE OF FORT CHICAGO INTERESTS IMPROVES EARNINGS, LOWER COMMODITY
PRICES AND PRODUCTION REDUCE CASH FLOW
SUMMARY
- Net income of $10.0 million ($0.11/share) is 145 percent higher
than the results for the first quarter 1997, due to a $9.3 million
gain on the sale of Beau Canada's Fort Chicago (Alliance
Pipeline) interest.
- Cash flow decreased 44 percent from last year's levels to be at
$8.6 million ($0.10/share) due to depressed commodity prices and
lower production volumes.
- Production averaged 14,044 boe/d, a 17 percent decrease from
last year's levels due to shut-in heavy oil production of 2,000
bls/d due to low prices and shut-in gas production as a result of
the fire at Helmet/Peggo that decreased gas production by
approximately 18 mmcf/d.
/T/
Highlights - First Quarter Results
Three months ended March 31
--------------------------------------------------------------
1998 1997 Percentage
Change
--------------------------------------------------------------
FINANCIAL ($000):
Revenue 27,137 25,630 6
Cash Flow 8,602 15,257 (44)
per share 0.10 0.18 (44)
--------------------------------------------------------------
Net Income 10,034 4,088 145
per share 0.11 0.05 120
--------------------------------------------------------------
PRODUCTION:
Oil & Liquids (bbls/d) 8,373 10,024 (16)
Gas (mmcf/d) 56.7 68.3 (17)
--------------------------------------------------------------
Barrels of oil
equivalent/d 14,044 16,854 (17)
AVERAGE PRICES:
Oil & Liquids per barrel 13.47 19.32 (30)
Gas per mcf 1.77 2.24 (21)
--------------------------------------------------------------
--------------------------------------------------------------
Three months Three months
ended March 31 ended March 31
1998 1997
DRILLING RESULTS: Gross Net Gross Net
--------------------------------------------------------------
Oil Wells 6 2.1 2 0.7
Gas Wells 8 6.9 8 5.3
Dry and Abandoned - - 1 1.0
--------------------------------------------------------------
14 9.0 11 7.0
--------------------------------------------------------------
Success Rate (percent) 100 86
/T/
PRODUCTION
The Company's overall production decreased to an average of 14,044
boe/d in the first quarter of 1998, down 17 percent from average
production for the same quarter in 1997.
Oil and natural gas liquids production averaged 8,373 bbls/day in
the quarter, down from 10,024 bbls/day produced in the same period
in 1997. Due to low oil prices, the Company has chosen to
shut-in 2,000 bbls/day of heavy oil production in the Winter,
Westhazel, Kitscoty, and Northminster areas of Saskatchewan. The
oil well drilling program has also been deferred until some
improvement is seen in prices. This has further contributed to
lower production volumes as natural declines take effect.
Gas production in the first quarter was down 17 percent from last
year's levels and averaged 56.7 mmcf/d. A fire at a third-party
compressor station in mid-January caused the Company to shut-in
its entire Peggo production. As a result, the Company lost 10
weeks of production from this area that was producing 16 - 18
mmcf/d before the incident. The Company is insured for business
interruption and expects to be fairly compensated for this loss.
This compressor station is now functional and production from this
area has resumed.
Gas production is now approximately 85 mmcf/d as incremental
production was added from successful drilling and tie-ins at
Helmet/Peggo, Foxglove, Gold Creek and Cecil.
ACTIVITY
Beau Canada participated in the drilling of 14 (9.0 net) wells in
the first quarter of 1998, with a 100 percent success rate despite
losing six weeks from the winter drilling season due to warm
weather. Drilling in the quarter occurred in the Helmet/Peggo and
Foxglove areas in north-east British Columbia, the Gold Creek area
of north-west Alberta, the Gilby area of central Alberta and the
Court area in west-central Saskatchewan. In the Helmet/Peggo
area, Beau Canada drilled 4 (4 net) successful horizontal Jean
Marie gas wells although only three of the wells could be tied-in
due to the short winter season. In the Foxglove area, the
Company drilled 2 (1.4 net) successful Slave Point gas wells .
Production from the area commenced in May 1998. The Company also
drilled one (0.8 net) successful gas well in the Gold Creek area
which is scheduled to be completed after break-up. The original
Gold Creek Wabamum well drilled late last year has now been
tied-in and is on production. A follow-up well is currently being
drilled. In Gilby, Beau Canada participated in the drilling of
one (0.7 net) successful Pekisko horizontal gas well. Beau Canada
also participated in 6 (2.1 net) successful Bakken oil wells in
the Court area of west central Saskatchewan.
Beau Canada plans to drill another 57 net wells in the remainder
of 1998. Drilling in the second and third quarters will be
concentrated in the Gilby, Gull Lake and Niton areas of central
Alberta and the Alderson area of southern Alberta. In addition to
this activity, the Company will be drilling a number of
exploratory prospects in Alberta and Saskatchewan. Drilling in
the fourth quarter is planned for north-west Alberta and
north-east British Columbia as these areas become accessible. The
Company has engaged drilling rigs for the completion of this
activity.
During the first quarter Beau Canada made a net investment of $2.8
million and took control of Genoil Inc., a company with onshore
and offshore acreage interests in the Republic of Cuba. Over the
next 12 months Genoil expects to participate in the drilling of
two wells, one operated and one non-operated.
FINANCIAL
For the three months ended March 31, 1998 Beau Canada's cash flow
was down 44 percent to $8.6 million ($0.10/share) from $15.3
million ($0.18/share) a year earlier. Net income was up 145
percent, to $10.0 million ($0.11/share) from $4.1 million
($0.05/share) in the first quarter of 1997. The Company sold its
Fort Chicago interest in February 1998 for $39.8 million,
resulting in a $9.3 million gain on its Alliance Pipeline/Fort
Chicago investment. Beau Canada retains an 18.6 mmcf/d shipping
commitment on the Alliance Pipeline. Loss of production was
responsible for about 40 percent of the $12.0 million decrease in
gross revenue, while decreased product prices were responsible
for the remainder.
A 30 percent decrease in WTI prices has resulted in a decrease in
liquids realizations to $13.47/bbl compared to $19.32/bbl in the
first quarter of 1997. Beau Canada has earned $2.2 million from
its 1998 hedging programs so far this year, mostly from its oil
hedges. Gas realizations are down to $1.77/mcf from $2.24/mcf in
the first quarter of 1997. Gas prices have improved and are
expected to be strong for the rest of the year, while oil prices
may show some small improvement.
/T/
Netbacks per BOE
--------------------------
For the three months ended
March 31
--------------------------
1998 1997
--------------------------
Revenue $ 15.19 $ 20.57
Royalties 2.01 3.67
Operating expenditures 4.11 4.79
--------------------------
Netback 9.07 12.11
General & administrative 1.30 0.96
Interest & other 0.72 0.80
Taxes 0.26 0.28
--------------------------
Cash flow 6.79 10.07
Depletion & depreciation 6.08 5.74
Site restoration 0.20 0.20
Deferred taxes (0.07) 1.43
Gain on sale of portfolio investment (7.35) -
--------------------------
Net Income $ 7.93 $ 2.70
--------------------------
--------------------------
/T/
Royalties for the quarter ended March 31, 1997, averaged 13.2
percent of sales, down from 17.9 percent in 1997. The decreased
royalty burden, as a percentage of sales, resulted primarily from
lower prices and lower production volumes.
Operating expenses have been reduced to $4.11 per BOE from $4.79
per BOE for the same period last year. This cost per BOE is
consistent with the 1997 full year average of $4.12 per BOE.
General and administrative expenses were $1.6 million for the
three month period, (1997-$1.5 million). Increased staffing
levels and salary rates account for this increase.
Interest expense was $2.1 million for this quarter, up from $1.2
million last year. Higher interest rates on higher average debt
levels accounted for this increase.
Depletion and depreciation expenses at $7.7 million for the
quarter ended March 31, 1998, have decreased from $8.7 million due
to decreased production. Site restoration expenses on a per boe
basis are the same as last year.
The Company spent $46.0 million (net of dispositions) during the
first quarter of 1998 which includes Beau Canada's net investment
of $2.8 million in Genoil. Approximately half of the Company's
exploration and production budget of $85 million was spent in the
first quarter as the winter program was completed.
First quarter capital expenditures were financed with cash flow,
debt, working capital and the proceeds from the Fort Chicago sale.
The working capital deficiency has increased to $15.3 million, up
from $12.3 million from the first quarter last year.
Beau Canada has engaged in hedging crude production in order to
maintain a minimum level of cash flow, and thus capital
expenditures. These activities increased first quarter revenues
by $2.1 million or $3.06/bbl.
The Company also uses physical and financial contracts to provide
a portfolio of gas prices and terms. Currently, the majority of
Beau Canada's gas price is floating based on Canadian and U.S.
indices.
Subsequent to the first quarter, Beau Canada entered into an
agreement to purchase the shares of APL Oil and Gas Ltd. APL
currently produces 3,000 boe/d from two core areas: Gull Lake, in
the Gilby area, which is a core area for Beau Canada, and the
Niton/Shiningbank area, which is approximately 150 km west of
Edmonton. Production is 19 mmcf/d of gas and 1,100 bbls/d of oil
and NGL's. Operating costs are approximately $3.50/boe providing
very attractive netbacks, and APL operates over 95 percent of its
production. As part of the acquisition, Beau Canada purchased
interest in four gas plants with a net capacity of over 40 mmcf/d,
fourteen compressors, an oil handling facility, and pipeline
infra-structure in the major properties. Ownership of facilities
and infra-structure is an important component in establishing
production growth in these gas prone areas. The closing is
expected to occur by the end of May subject to completion of items
customary in this type of transaction.
Capital Expenditures
For the three months ended March 31
--------------------------------------------------------
(thousands) 1998 1997
--------------------------------------------------------
Drilling and tie-ins $ 29,912 $ 19,512
Seismic 4,107 1,301
Facilities 2,628 1,465
Genoil 2,794 --
Lands 5,017 2,524
Producing property purchases 1,192 --
Corporate 521 1,820
--------------------------
Total Expenditures 46,171 26,622
Dispositions (126) (1,969)
---------------------------
Net Expenditures $ 46,045 $ 24,653
/T/
OUTLOOK
Beau Canada has positioned itself for solid gas growth for the
rest of the year and continuing into 1999. The acquisition of APL
has enabled the Company to add high quality assets in its core
areas and we look forward to enhancing the value of these assets
over the next 18 months. Crude prices have caused us to shut-in
production and defer projects but both can be resumed once prices
improve. Debt levels will rise once the acquisition has closed
but the Company is committed to bringing down debt levels and we
are pursuing our alternatives.
Cash flow for the rest of the year and in 1999 should improve
significantly from current levels with increases in production
volumes and as gas prices are widely forecasted to improve.
/T/
Consolidated Statements of Income
Three months ended March 31
--------------------------------------------------------
(thousands) 1998 1997
--------------------------------------------------------
Revenue:
Oil & gas production $ 19,201 $ 31,198
Royalties (2,541) (5,572)
----------------------------
16,660 25,626
Other 10,477 4
----------------------------
27,137 25,630
Expenses:
Oil and gas production 5,191 7,272
General & administrative 1,637 1,456
Interest on long-term debt 2,094 1,220
Capital and resource taxes 325 425
Site restoration 252 300
Depletion & depreciation 7,688 8,700
----------------------------
17,187 19,373
Net income before income taxes 9,950 6,257
Deferred income taxes (84) 2,169
---------------------------
Net Income: $ 10,034 $ 4,088
---------------------------
Weighted average number
of shares outstanding 90,434,671 87,122,492
Earnings per share (cents) 11 5
----------------------------
Consolidated Balance Sheets
As at March 31
-------------------------------------------------------
(thousands) 1998 1997
-------------------------------------------------------
ASSETS
Current Assets:
Cash $ 4,413 $ -
Accounts receivable 20,103 19,276
Prepaid expenses 1,831 1,008
-----------------------------
26,347 20,284
Property and equipment 352,383 256,732
-----------------------------
$ 378,730 $ 277,016
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued liabilities $ 38,704 $ 28,226
Royalties and taxes
payable 2,987 4,343
----------------------------
41,691 32,569
Long-term debt 145,628 85,572
Deferred revenue -- 1,074
Site restoration provision 4,218 3,648
Deferred income taxes 17,585 13,138
Minority interest 3,671 --
Shareholders' Equity:
Capital stock
(1998 - 90,514,297;
1997- 87,322,677) 115,952 109,729
Retained earnings 49,985 31,286
-------------------------
165,937 141,015
-------------------------
$ 378,730 $ 277,016
-------------------------
Consolidated Statements of Changes
in Financial Position
Three months ended March 31
---------------------------------------------------------
(thousands) 1998 1997
---------------------------------------------------------
Cash provided by (used in):
Operations:
Net income $ 10,034 $ 4,088
Items not involving cash:
Depletion & depreciation 7,688 8,700
Site restoration 252 300
Deferred income taxes (84) 2,169
Gain on sale of portfolio
investment (9,288) --
----------------------------
Cash flow 8,602 15,257
Change in deferred revenue -- (194)
Site restoration paid (46) --
Change in non-cash
working capital (6,622) (3,184)
-----------------------------
1,934 11,879
Financing:
Issue of common shares 887 857
Bank borrowings 25,141 5,950
Bridge loan facility
borrowing 19,903 --
Bridge loan facility
repayment (27,636) --
Note payable repayment (19,903) --
-----------------------------
(1,608) 6,807
Investments:
Corporate acquisition (2,794) --
Property acquisitions (1,192) --
Property and equipment
additions (42,185) (26,622)
Property dispositions 126 1,969
Portfolio investment
disposition 39,806 --
Change in non-cash
working capital 10,326 5,967
-----------------------------
4,087 (18,686)
-----------------------------
Increase (decrease) in cash 4,413 --
Cash, beginning of period -- --
-----------------------------
Cash, end of period $ 4,413 $ --
-----------------------------
Cash flow per share (cents) 10 18
-----------------------------
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