EARNINGS / Amber Q2 Results
AMBER ENERGY INC. ANNOUNCES SECOND QUARTER FINANCIAL AND OPERATING RESULTS
CALGARY, July 28 /CNW/ - Amber Energy Inc. (''Amber'') announces its
second quarter financial and operating results for the six-month period ended
May 31, 1998.
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HIGHLIGHTS
For the six months ended May 31 (unaudited)
1998 1997 % Change
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Operations
Production
Heavy oil 11,867 3,662 224
Light oil and NGLs 3,576 2,427 47
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Total crude oil and NGLs (Bbl/d) 15,443 6,089 154
Natural gas (Mmcf/d) 95.1 91.4 4
Barrels of oil equivalent (Boe/d) 24,953 15,229 64
Average product prices
Heavy oil 5.78 13.70 (58)
Light oil and NGLs 19.38 28.85 (33)
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Total crude oil and NGLs ($/Bbl) 8.93 19.73 (55)
Natural gas ($/Mcf) 1.63 1.73 (6)
Average production expenses
Heavy oil 2.03 2.70 (25)
Light oil and NGLs 4.62 7.15 (35)
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Total crude oil and NGLs ($/Bbl) 2.63 4.48 (41)
Natural gas ($/Mcf) 0.27 0.24 13
Total production expenses ($/Boe) 2.66 3.21 (17)
Wells drilled
Gross 141 151 (7)
Net 124.1 104.5 19
Success rate 94% 90% -
Financial ($000's)
Revenues (before royalties) 53,435 50,721 5
Funds from operations 23,939 28,289 (15)
Net income (loss) (385) 7,873 (105)
Capital expenditures 212,084 158,059 34
Issue of common shares 82,180 63,455 30
As at May 31
Working capital deficit 21,039 10,360 103
Long-term debt 304,180 123,705 146
Shareholders' equity 244,526 155,430 57
Total assets 616,979 330,494 87
Common shares outstanding (000's) 57,994 52,522 10
Weighted average common shares (000's) 55,849 50,652 10
Per share data ($/share)
Funds from operations: basic 0.43 0.56 (0.23)
fully diluted 0.42 0.53 (0.21)
Earnings (loss): basic (0.01) 0.16 (106)
fully diluted (0.01) 0.15 (106)
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OPERATIONS
Amber's record activity level continued in the second quarter with
capital expenditures reaching $212.1 million for the six months ended May 31,
1998. Total wells drilled in the first half were 141 (124.1 net), with our
highest drilling success rate ever of 94%. Oil production increased 154% to
average 15,443 Bbl/d, due primarily to our successful development at Pelican
Lake. Gas production increased 4% to average 95.1 Mmcf/d, despite plant
shut-ins due to forest fires and compressor maintenance in the Wabasca area.
On June 11, 1998, Amber press released its May 31, 1998 mid- year independent
reserve report which showed a 26% increase in proven and probable reserves
over the last six months. Most of the oil reserve additions were due to
successful horizontal and stratigraphic test drilling at Pelican Lake.
Natural gas reserve additions resulted from successful exploration and
development drilling in several core gas areas. Amber now owns total proved
and probable reserves of 316 million barrels of oil equivalent ( 10:1) which
will generate significant cash flow for many years.
At Pelican Lake, our 101 well horizontal drilling program was completed
during the second quarter with a 100% success rate. Oil production from this
area continued to be trucked to markets during the second quarter, resulting
in low netbacks as shown in the accompanying Pelican Lake Field Netbacks
table. In early June 1998, Amber announced the completion of the Pelican Lake
Pipeline System, including the installation of 110 kilometers of 20-inch pipe
to carry blended crude oil from Pelican Lake to Nipisi. Modifications were
also made to the pipeline terminals at Wabasca and Nipisi including the
construction of Amber's battery which is now capable of processing 40,000
Bbl/d of blended crude oil. Amber's heavy oil production, processing and
transportation system at Pelican Lake will ensure safe, low cost production
for the life of the reserves. Amber has already benefitted from this
investment through stable production rates and low operating costs. Operating
costs at Pelican Lake for the first half of 1998 were $2.02/Bbl and are
expected to decrease due to higher production in the second half of 1998.
August 1998 netbacks at Pelican Lake are expected to be approximately Cdn
$11.00/Bbl.
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Pelican Lake Field Netbacks
Six Months
Dec 1/97 - May 31/98 Aug/98 E
$/Bbl $/Bbl
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WTI US$ 16.17 14.50
Differential to LLK US$ (7.24) (4.15)
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LLK US$ Price 8.93 10.35
US/Cdn Exchange 0.70 0.68
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LLK Cdn$ Price 12.79 15.22
Trucking Cost (3.35) -
Pipeline Operating Cost - (0.10)
Condensate Cost (2.67) (1.11)
Terminal/Transportation Cost (1.75) (0.85)
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Wellhead Price Cdn$ 5.02 13.16
Royalties (0.05) (0.13)
Operating Cost (2.02) (2.00)
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Field Netback Cdn$ 2.95 11.03
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Amber's net production during June 1998 from Pelican Lake averaged
approximately 18,000 Bbl/d of heavy crude oil. We are currently installing a
gas conservation system which will allow us to conserve and sell solution gas
through our Hoole gas plant. When this system is operational in September
1998, we expect to increase our oil production by approximately 2,500 Bbl/d
and add 8 Mmcf/d of solution gas sales.
In 1997, Amber contracted Petroleum Recovery Institute (''PRI'') to
perform a detailed reservoir study to assess secondary recovery schemes
including downspacing and waterflooding of the Pelican Lake oil field. The
PRI Report will be completed this summer and Amber has already initiated a
field pilot project with water injection to begin in 1999. The potential
reserves that could be added from a successful secondary recovery project
could double the primary recoverable reserves currently booked at Pelican
Lake.
In other areas, our successful winter drilling program at Springburn
resulted in Amber's net production reaching 2,800 Bopd in March. Current
production is approximately 2,000 Bbl/d due to temporary facility and trucking
constraints and the shut-in of two new pools pending receipt of Good
Production Practice from the Alberta Energy and Utilities Board. We are
planning to construct a central oil battery and gathering system at Springburn
in the second half of 1998 to maintain low operating costs and facilitate
higher production rates. Successful exploratory gas wells drilled in March
1998 at East Prairie and Wabasca will be tied in and on stream by the fourth
quarter of 1998 or sooner if field conditions allow. These new wells will add
initial production of 10 Mmcf/d of natural gas.
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Drilling Activity
For the six months ended May 31, 1998
Success
Oil Gas Dry Total Rate (%)
Gross Net Gross Net Gross Net Gross Net Gross Net
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Exploratory 6 4.0 7 5.5 5 4.6 18 14.1 72 67
Development 72 68.6 26 17.2 2 1.2 100 87.0 98 99
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Total 78 72.6 33 22.7 7 5.8 118 101.1 94 94
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Stratigraphic
test wells 23 23.0
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Total wells
drilled 141 124.1
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Capital Expenditures ($ millions)
For the six months ended May 31
1998 1997
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Land 23.1 36.2
Seismic 4.9 7.2
Drilling and completion 96.7 55.6
Well equipment and facilities 85.6 28.1
Property acquisitions (net of dispositions) 1.5 30.7
Other 0.3 0.3
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Total 212.1 158.1
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FINANCIAL
World oil prices dropped to 12-year lows in the first half of 1998. This
has resulted in Amber's average oil and liquids price in the half decreasing
by 55% to $8.93/Bbl. Natural gas prices fell 6% to average $1.63/Mcf during
the half. These lower commodity prices were partially offset by a 41%
decrease in oil operating costs to $2.63/Bbl. Total Boe operating costs in
the first six months of 1998 declined by 17% to $2.66/Boe, which is among the
lowest in the industry. This plunge in oil prices resulted in a 15% decrease
in cash flow to $23.9 million and a net loss of $0.4 million in the first half
of 1998.
The end of the first half coincided with the startup of Amber's Pelican
Lake Pipeline System, which eliminated the trucking of Amber's heavy crude oil
from Pelican Lake and resulted in stable increased production and higher
netbacks. As shown in the Pelican Lake Field Netbacks table, our netbacks at
Pelican Lake are approximately $7.00/Bbl higher currently than they averaged
in the first half of 1998, despite WTI prices dropping by approximately US
$2.00/Bbl. In addition to the savings from eliminating the trucking of our
oil, a major factor in these improving netbacks is the shrinking heavy oil
differential, which has fallen from US $8.10/Bbl in December 1997 to
approximately US $4.15/Bbl in August 1998. Amber has recently entered into an
agreement with a major U.S. refinery to fix the differential on 5,000 Bbl/d of
our Pelican Lake production at US $4.65/Bbl for a one-year period beginning
September 1, 1998. We will continue to pursue other attractive long-term
differential transactions to secure continued high netbacks for our Pelican
Lake heavy oil production. We expect a dramatic improvement in cash flow and
positive earnings in the second half which will allow us to generate positive
earnings for the 1998 fiscal period.
Amber's capital expenditures increased by 34% to a record $212.1 million
in the first half of 1998. This program was funded by internally generated
cash flow, an $85 million equity issue completed in the first quarter, and an
increase in long-term debt to $304 million. Subsequent to the first half,
Amber has entered into an agreement to place US $153 million of senior and
subordinated debt with several major U.S. institutions at an average interest
rate of 6.9%. This has allowed the Company to lock-in a significant portion
of total debt at attractive interest rates. This debt placement is expected to
close by July 31, 1998 after which Amber's total credit facility will be Cdn
$345 million. We plan to divest certain non-core assets during the second half
of 1998. These divestitures will have minimal effect on reserves and cash flow
but will create more room in our bank operating lines to accelerate our 1999
drilling program.
Amber also announced the adoption of a Shareholder protection rights plan
(the ''Plan'') by the Board of Directors of the Corporation. The Plan is
intended to afford the Board of Directors with additional time to evaluate any
offer and to explore, develop and pursue alternatives to assure full value for
shareholders. The Plan is also intended to assist in ensuring that all
shareholders of the Corporation have an equal opportunity to participate in
any take-over bid.
OUTLOOK
We are now in the seventh month of the current cycle of extremely low
world oil prices. In this environment, we reconfirm our statements made
previously: our low cost structure (i.e., low finding costs, low operating
costs and low royalties) in our oil development areas of Pelican Lake and
Springburn will generate high rates of return at low oil prices. For this
reason we believe that our oil production will continue to grow, with over 400
drillable locations at Pelican Lake and over 100 drillable locations at
Springburn. Our natural gas production growth will accelerate as we tie in
new low cost gas production at Pelican Lake, Wabasca and East Prairie in the
second half of 1998. Further development in these areas and in the Ekwan area
will result in continued growth in 1999. In addition, Amber has recently
acquired over 250,000 acres of undeveloped land in new exploration areas that
are predominantly gas-prone. We expect to begin drilling in these areas by
late 1998 and believe that these new areas are capable of providing dramatic
growth in natural gas development over the next several years.
While low oil prices continue to present challenges to us, we have
already seen heavy oil differentials shrink by almost US $4.00/Bbl since
December 1997 to US $4.15/Bbl. We expect these differentials to continue to
shrink as more heavy oil production is shut in and major heavy oil
developments are postponed or cancelled. These lower differentials will
enhance the impact of improving oil prices when we come out of this low price
cycle and provide increased cash flow and profitability to Amber in 1999. We
are also experiencing very strong summer natural gas prices as it becomes
increasingly clear that expanded export pipeline capacity will lead to higher
1999 natural gas prices. We believe that the potential for improving
commodity prices during the second half of 1998, combined with our tremendous
growth prospects for both oil and natural gas, will lead to dramatic growth in
our operating results over the next several years.
Amber is an independent Canadian oil and gas exploration, development and
production company with common shares trading on both The Toronto Stock
Exchange and The Alberta Stock Exchange under the symbol AMB.
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For further information: Richard Lewanski, President & CEO; James C.
(Pep) Lough, Vice President, Finance & CFO; (403) 237-9977, Fax: (403)
237-9970, www.amber-energy.com
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