EARNINGS - TOP 20 LISTED / Crestar Q1, Part I
CRESTAR ENERGY ANNOUNCES SECOND QUARTER RESULTS
CALGARY, July 28 /CNW/ -
INTERIM REPORT AND NEWS RELEASE
SIX MONTHS ENDED JUNE 30, 1998
MESSAGE TO SHAREHOLDERS
Crestar's production volumes climbed 28% to average 92,500 BOE/d for the
first six months of 1998. We had an active second quarter, drilling 77 (56
net) wells with a net success rate of 73%, bringing the total for the year to
211 (166 net) wells at a net success rate of 67%.
In spite of the strong volume performance, petroleum and natural gas
revenues for the first half of 1998 declined seven percent to $249.4 million
driven primarily by the collapse of crude oil prices. Operating costs, while
higher in absolute terms, were similar to 1997 levels on a per BOE basis.
Cash flow from operations fell 28% to $98.6 million ($1.75 per share) and
Crestar recorded a loss of $30.6 million ($0.54 per share) in the first six
months of 1998.
In the second quarter of 1998, revenues of $125.6 million were five
percent higher than the same period last year. With higher costs associated
with increased volumes, cash flow declined 14% to $50.0 million ($0.86 per
share) compared with a year ago, resulting in a loss of $14.3 million ($0.25
per share) compared with net income of $7.2 million (0.15 per share) in the
second quarter last year.
OUTLOOK
We are in a cyclical business and low points in the pricing cycle are
always a challenge. Notwithstanding the current pressure on oil prices, we
continue to believe in the long term fundamentals of our industry and remain
committed to our full cycle, balanced strategy. Under that strategy, near
term development activity is driven by near term prices. Therefore, our
development program currently emphasizes natural gas, while we are withholding
capital from oil development. Our capital budget for 1998 will be in a range
from $300 to $350 million. Spending in the higher range will depend on an
increase in oil prices. With this reduced capital, we expect that production
for the full year will be similar to our average in the first half.
As we go forward, though, Crestar is very well positioned to benefit from
price changes in both commodities. Our equity issue in February 1998 has
ensured our financial strength through this downturn and we have ample room
under our debt covenants to fund our capital program. Our balanced portfolio
of both oil and gas opportunities has enabled us to respond quickly to the
changing economics of oil production. We have shifted the focus of our
activity to our natural gas properties in 1998, just as we responded with
liquids volumes over the prior two years. Today, natural gas and NGLs account
for 68% of revenue and approximately two-thirds of our capital expenditures
program. However, oil prices and economics will rebound and we are heartened
to see the recent narrowing of crude oil price differentials, as shut-in
production has reduced the supply of heavy oil. Accordingly, we are
continuing to identify many excellent oil drilling opportunities and will have
a considerable inventory of prospects ready to pursue when commodity prices
improve.
On behalf of the Board,
S. BARRY JACKSON
President and Chief Executive Officer
July 28, 1998
PRODUCTION AND MARKETING
On a barrel of oil equivalent basis, Crestar's sales volumes increased
28% to average 92,500 BOE/d in the first six months of 1998. Second quarter
volumes were up 25% to 90,000 BOE/d from a year ago, but down five percent
from the first quarter of 1998. The decline is attributable to liquids
production declines, property dispositions and scheduled shut ins for annual
facility maintenance.
NATURAL GAS
For the six months ended June 30, 1998, Crestar's natural gas sales
averaged 419 mmcf/d, 29% higher than the same period last year. Natural gas
realizations averaged $1.89 per mcf, down three percent from a year ago.
Natural gas and gas liquids production accounted for 68% of revenue during the
period. Natural gas sales in the second quarter of 1998 averaged 414 mmcf/d,
29% higher than a year ago and two percent lower than the first quarter
of 1998. Natural gas realizations in the second quarter averaged $1.98 per
mcf, 15% higher than the second quarter of 1997 and up 10% from the first
quarter this year. We expect the recent trend of rising gas prices to continue
through the balance of 1998. Since Crestar's natural gas portfolio is largely
based on floating prices, we are well positioned to take advantage of rising
prices.
CRUDE OIL AND NATURAL GAS LIQUIDS
Average crude oil and liquids production for the first six months of 1998
rose 27% to 50,600 bbls/d. Liquids volumes for the second quarter averaged
48,600 bbls/d, 21% higher than last year, but eight percent lower than the
preceding quarter. Because of Crestar's low cost operating structure, we have
not been forced to shut in any of our heavy oil production. However, we have
deferred some development and remedial work needed to maintain our heavy oil
volumes until price differentials improve. Crestar's liquids realizations in
the first six months of 1998 fell 46% to average $11.60 per barrel. Second
quarter liquids realizations declined to $11.53 per barrel, 40% lower than a
year ago.
The decline in the base WTI benchmark crude oil price, wide price
differentials between WTI and Crestar's heavier blends of crude and higher
costs for condensate used as dilulent for heavier grades of crude contributed
to the drop in average liquids realization. In the second quarter, Crestar's
crude price differential improved by about $1.93 per barrel from the first
quarter.
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NET CAPITAL EXPENDITURES
------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
($ millions) 1998 1997 1998 1997
------------------------------------------------------------------------
Lease acquisitions and rentals 2.0 11.7 10.0 29.7
Geological and geophysical 5.9 14.5 23.5 34.3
Exploration drilling 11.7 18.5 62.0 59.6
Development drilling 5.6 18.8 28.5 28.5
Plant and production facilities 20.2 13.2 65.8 26.7
-------------------------------------
Expenditures relating to
exploration and development
activity 45.4 76.7 189.8 178.8
Acquisitions 0.1 7.4 4.4 10.1
-------------------------------------
45.5 84.1 194.2 188.9
Other 1.7 1.5 4.6 3.0
-------------------------------------
47.2 85.6 198.8 191.9
Proceeds from dispositions (7.8) (12.4) (19.7) (12.9)
-------------------------------------
Net capital expenditures 39.4 73.2 179.1 179.0
-------------------------------------
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1998 FIRST HALF DRILLING SUMMARY
------------------------------------------------------------------------
Net Success Rate
(net wells) Oil Gas Dry Total 1998 1997
------------------------------------------------------------------------
Exploratory 13 37 48 98 51% 36%
Development 20 41 7 68 90% 91%
------------------------------------------------------------------------
Total 33 78 55 166 67% 56%
------------------------------------------------------------------------
------------------------------------------------------------------------
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EXPLORATION AND DEVELOPMENT
Capital expenditures of $39.4 million in the second quarter were 46%
lower than a year ago. This decrease reflects the scaling back of our capital
program in response to lower crude prices and our decision to withhold capital
from oil development until prices improve. In the second quarter of 1998,
Crestar drilled 57 natural gas wells and 5 oil wells, with a 73% net success
rate (67% overall in the first six months of 1998).
In our northern new venture areas, we now have between 15-20 mmcf/d of
capped gas well deliverability which we expect to tie in during the coming
winter. Crestar's Halfway light oil discovery at Lapp, B.C. contains an
estimated 1.5 million barrels of recoverable 42 degree API oil. In the second
quarter, we completed construction of an oil battery and gas gathering system.
We are currently installing additional compression to conserve 2 mmcf/d of
solution gas and increase production from the existing gas wells by 3 mmcf/d.
Five additional natural gas wells at Lapp will be tied-in next winter.
In our West of Five core region, we have numerous development and
extension targets, developed from two large 3-D seismic programs shot at
Greencourt and Whitecourt in the first quarter, where we anticipate bringing
on approximately 9 mmcf/d of new gas by year end.
In our Southern core region, we have enjoyed natural gas drilling
successes at Cessford, Claresholm, Dalemead, Jumpbush, Long Coulee and Jenner,
which we will follow up through the remainder of the year. At Cessford, we
drilled 52 shallow gas wells in the second quarter, with a 100% success rate.
A typical Crestar well in this area produces at an initial rate of 150 mcf/d
and we expect similar results with the wells in the recent program. All 52
wells will be tied-in to the Crestar operated Cessford gas plant during the
third quarter.
Also at Cessford, we have identified a deeper gas-bearing zone. In the
second quarter, we drilled and cased the first two wells in a multi-well
program. Additional drilling is planned in this area in the third quarter.
At Jenner, Crestar drilled a well that encountered five potential gas
bearing pay zones, with up to 4 BCF of natural gas reserves. The well is
currently being tied-in with further offset drilling planned for the third
quarter.
ASSET MANAGEMENT
Crestar continues to actively manage its portfolio of oil and gas
properties, acquiring additional interests in our core areas and disposing of
properties that no longer fit with our strategy. During the second quarter of
1998, we completed property dispositions for net proceeds of $7.8 million. To
date in 1998, we have sold non core properties for proceeds of $19.7 million
and acquired additional properties in our core areas for $4.4 million,
resulting in net dispositions of $15.3 million for the six month period. Late
in the second quarter, we solicited and received bids on a group of low
priority properties. We expect to complete the disposition of these assets in
the third and fourth quarters, for proceeds of about $30 million. We are
targeting $40 to $60 million in property dispositions for 1998 and, with the
transactions completed or currently underway, we will be through the lower end
of this range in the third quarter.
(cont.) |
