ENERGY TRUSTS / PrimeWest Energy Trust - 1998 Third Quarterly Report
CALGARY, Nov. 4 /CNW/ -
HIGHLIGHTS
Three Months Ended September 30 (Unaudited) 1998 1997
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Sales Volumes
Crude Oil and NGL (bbl/d) 7,450 5,062
Natural Gas (Mcf/d) 49,950 43,310
BOE per day 12,445 9,393
Average Selling Price
Crude Oil and NGL (Cdn $/bbl) $ 16.49 $ 23.07
Natural Gas (Cdn $/Mcf) $ 1.76 $ 1.57
Per BOE (Cdn $/BOE) $ 16.92 $ 19.81
Operating Results (000's)
Revenues $ 19,377 $ 17,117
Operating Cash Flow $ 5,774 $ 7,037
Cash Available for Distribution $ 6,000 $ 7,557
EBITDA $ 6,903 $ 7,435
Debt Outstanding $ 77,030 $ 50,991
Units Outstanding at September 30 32,999 24,938
Average Number of Units for Quarter 32,983 24,935
Three Months Ended September 30 (Unaudited) 1998 1997
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($/BOE)
Revenue $ 16.92 $ 19.81
Royalties, net of ARTC $ (2.93) $ (3.44)
Operating Expenses $ (6.85) $ (6.45)
Netback $ 7.14 $ 9.92
THIRD QUARTER HIGHLIGHTS
- PrimeWest Energy Trust distributed $0.18 per Trust unit to Unitholders
during the third quarter based on operating cash flow of $0.18 per
Trust unit.
- During the third quarter, PrimeWest embarked on an asset disposition
program to dispose of eleven non-core properties. On October 19,
1998, PrimeWest announced it had entered into agreements to sell 1.57
million barrels of oil equivalent (BOE) of established (proven plus
half probable) reserves for $11.5 million. The sale price of these
assets represents an attractive value to the Trust ($7.31 per BOE).
Upon closing the transactions, sale proceeds reduce long term debt by
$0.35 per unit, while only reducing distributions by approximately
$0.02 per unit on an annualized basis.
- Production during the third quarter was lower than our previous
quarter. Production declined primarily due to the sale of producing
properties in July, and production downtime at Laprise Creek to
undertake compressor upgrades to improve gas deliverability.
- Operating costs averaged $6.85 per BOE in the third quarter. Operating
expenses are expected to continue trending lower in the fourth quarter
as a result of the disposal of higher operating cost properties and
increased utilization at the East Crossfield Gas Plant.
DISTRIBUTION ENHANCEMENT ACTIVITIES
- PrimeWest's non-core asset sales since June 1998 will reduce debt by
almost $20 million. Once completed, the properties will have been sold
at values higher than their expected long run value to the Trust.
These dispositions not only improve the focus of our property
portfolio but also improve the Trust's financial flexibility. In the
future, PrimeWest plans to redeploy this capital into acquisitions and
enhancement opportunities that should create higher returns and greater
future distributions for our Unitholders.
- During the third quarter, our technical staff laid the foundation for
strong fourth quarter production. Most of our efforts were centered on
the preparatory work for capital activity that will take place in the
fourth quarter. Late in the third quarter we commenced a 10 well
in-fill drilling program at Grand Forks, the production from which will
commence in the fourth quarter.
- Also in the fourth quarter, PrimeWest is drilling one horizontal
re-entry well in the Garrington Elkton M pool (100% working interest)
and drilling one horizontal re-entry well at Kaybob (20% working
interest). Following up on last summer's drilling success at Lone Pine
Creek (East Crossfield), we are currently shooting a 25 square mile 3-D
seismic program (average 65% working interest) to confirm five
horizontal drilling locations previously identified through 2-D seismic
data. We expect two horizontal wells will be drilled shortly
thereafter.
- Our capital initiatives are the building blocks of further improvements
in production and distributions. PrimeWest's continuing ability to
record superior returns on its property enhancement program will not
only offset some of the recent weakness experienced in the commodity
markets, but is the basis of our ability to provide Unitholders with
superior long term returns through unit distributions.
DISTRIBUTION OUTLOOK
- We anticipate a stronger fourth quarter as a result of higher commodity
prices, in particular higher natural gas prices, and increased oil and
natural gas production resulting from our capital development program.
PrimeWest anticipates a 1998 production exit rate in excess of 13,000
BOE per day, up 4.5% from the third quarter average production rate.
- Looking out to 1999, we see continued production growth from our
inventory of property enhancement projects. Although we are not
projecting stronger WTI oil prices for 1999, we expect significantly
stronger natural gas pricing and approved medium crude quality
differentials for 1999. Our larger base of production coupled with our
ongoing capital program and strong gas markets will set the stage for
an improved distribution outlook in 1999.
Signed on behalf of the Board,
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KENT J. MACINTYRE
Director
Vice Chairman, CEO
November 5, 1998
PrimeWest is a high-quality investment product offering unique features:
1. Monthly cash distributions derived from oil and natural gas
properties.
2. A high rate of return.
3. Sound risk management strategies that increase the reliability of
cash distributions.
4. Advantageous tax structure.
PrimeWest is based in Calgary, Alberta, the heart of the western Canadian
oilpatch. PrimeWest is listed on The Toronto Stock Exchange, symbol PWI.UN.
Consolidated Balance Sheets
As At September 30 As At December 31
1998 1997
(Unaudited) 000$ (Audited) 000$
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ASSETS
Current Assets
Cash - 10,713
Accounts Receivable 17,895 14,083
Prepaid Expenses 2,669 1,131
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20,564 25,927
Cash Reserved for Site Restoration &
Reclamation 2,117 1,738
Capital Assets (Net) 299,743 258,100
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322,424 285,705
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LIABILITIES AND UNITHOLDERS' EQUITY
Current Liabilities
Accounts Payable & Accrued
Liabilities 18,335 13,353
Accrued Distributions to
Unitholders 1,980 9,731
Due to Related Company 650 891
Current Portion of Long-Term Debt 106 106
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21,071 24,081
Long-Term Debt 77,030 66,723
Site Restoration & Reclamation
Provision 3,493 1,597
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101,594 92,401
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Unitholders' Equity
Net Capital Contributions 292,332 232,987
Accumulated Income (Loss) (6,666) 5,184
Accumulated Cash Distributions (64,191) (44,365)
Accumulated Dividends (645) (442)
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Total Unitholders' Equity 220,830 193,364
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322,424 285,765
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Consolidated Statements of Income and Cash Available for Distribution
Three Months Ended Nine Months Ended
(Unaudited) 000$ Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
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REVENUES
Sales of Products 19,377 17,117 56,660 53,227
Crown & Other Royalties,
net of ARTC (3,360) (2,973) (10,116) (10,545)
Interest & Other Income 77 47 100 101
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16,094 14,191 46,644 42,783
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EXPENSES
Operating 7,841 5,573 22,881 14,627
General &
Administrative 1,047 836 3,604 2,598
Management Fees 303 347 916 1,082
Interest 1,216 523 3,496 1,395
Depletion, Depreciation
& Amortization 9,901 7,103 27,596 21,652
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20,308 14,382 58,493 41,354
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Net (Loss)/Income for
the Period (4,214) (191) (11,849) 1,429
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Add Back (Deduct) Amounts
to Reconcile to Distribution:
Proceeds on Disposition
of Properties 888 131 9,238 1,018
Repayment of Long-Term
Debt (404) - (4,608) (543)
Depletion, Depreciation
& Amortization 9,901 7,103 27,596 21,652
Contribution to
Reclamation Fund (258) - (677) -
Reserve to Fund Future
Costs - 389 - -
Management Fees Paid
through Units 87 125 326 361
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10,214 7,748 31,875 22,488
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Cash Available For
Distribution 6,000 7,557 20,026 23,917
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Cash Available to
Trust Unitholders (99%) 5,940 7,481 19,826 23,678
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Cash Available for
Distribution per
Trust Unit 0.18 0.30 0.64 0.95
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Trust Units Issued
and Outstanding 32,998,617 24,937,518 32,998,617 24,937,518
Average Number of
Trust Units
Outstanding 32,983,479 24,935,614 30,977,984 24,923,176
Consolidated Statements of Changes in Financial Position
Nine Months Ended Nine Months Ended
Sept. 30, 1998 Sept 30, 1997
(Unaudited) 000$ (Unaudited) 000$
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OPERATING ACTIVITIES
Net Income (Loss) for the Period (11,849) 1,429
Add: Items not Requiring an Outlay
of Cash Depletion, Depreciation &
Amortization 27,596 21,652
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Funds from Operations 15,747 23,081
Change in Non-Cash Working Capital (611) 463
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15,136 23,544
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FINANCING ACTIVITIES
Proceeds from Issue of Trust units
(Net of Costs) 59,345 305
Cash Distributions to Unitholders (19,826) (23,678)
Dividends (203) (240)
Increase in Long-Term Debt 10,307 36,869
Change in Non-Cash Working Capital (7,750) (3,475)
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41,873 9,781
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INVESTING ACTIVITIES
Expenditures on Capital Assets (12,170) (7,417)
Acquisition of Oil & Gas Assets (63,726) (34,589)
Proceeds on Disposal of Oil
& Gas Assets 9,238 1,041
Cash Utilized (Reserved) for
Future Site Restoration (379) 87
Expenditures on Site Restoration
& Reclamation (685) (87)
Change in Non-Cash Working Capital - 6,747
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(67,722) (34,218)
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Increase (Decrease) in Cash for
the Period (10,713) (893)
Cash, Beginning of Period 10,713 7,122
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Cash, End of Period - 6,229
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MANAGING PRIMEWEST AS A GOING CONCERN - A MESSAGE FROM KENT MACINTYRE
Over the past two years we have managed PrimeWest Energy Trust as a
''going concern'' by employing the unique strategy of replacing reserves and
growing production through the acquisition and enhancement of oil and gas
properties. Our strategy is unique amongst royalty trusts because we control
almost all our enhancement activities through ''hands on'' management of our
properties - few royalty trusts can make this claim. Our growth strategy has been a success. Since our IPO in October 1996 we
have increased production from 7,500 BOE per day to a projected 1998 exit rate
in excess of 13,000 BOE per day. To fuel our growth we have relied on both
receptive debt and equity markets to source new capital. However, for the time
being, turmoil in North American equity markets has eliminated reasonable
access to equity capital for virtually all royalty trusts. Therefore, key to
our future success is to maintain a prudent balance sheet to provide financial
flexibility to pursue property enhancement activities that will fuel
distribution growth.
Over the past several months PrimeWest has been actively managing and
rationalizing its asset portfolio. This activity has positioned our balance
sheet to support our long-term property acquisition and enhancement strategy.
Since June of 1998, the Trust has entered into agreements to sell
approximately $20 million in non-core assets for an average established
reserve price of $7.63 per BOE. In turn, we will have reduced debt by almost
25% or $0.60 per Trust unit, while at the same time minimizing the impact on
future distributions.
As we exit 1998, our production should exceed 13,000 BOE per day compared
to an exit rate of just under 10,000 BOE per day at the end of 1997.
Concurrent with our increased base of production, our debt to cash flow ratio
is projected to average less than a multiple of 2 years, compared to 2.4 years
at the end of 1997. In addition, PrimeWest will possess undrawn credit lines
in excess of $50 million.
This improved financial position combined with higher production and cash
flow will ensure that PrimeWest will be able to continue to capitalize on its
growth strategy in 1999 and beyond, to provide an improving long term
distribution profile to our Unitholders.
CROSSFIELD OPERATING COST EXPECTED TO TREND LOWER
Over the past year we have kept our Unitholders informed about our
efforts to reduce operating costs at the East Crossfield natural gas
processing plant where we process approximately 25% of our sales gas. Our
efforts to manage these high costs are finally paying off. Starting in the
fourth quarter, we will begin to realize operating cost reductions at East
Crossfield, which will prevail for the foreseeable future.
Over the summer, we identified and secured incremental natural gas
processing volumes from both third parties and from our properties. Our
objective was to develop a larger base of natural gas production to share in
the primarily fixed East Crossfield plant costs. A good portion of this
incremental natural gas, approximately 15 mmcf per day, has begun flowing to
the plant. We have entered into a firm processing arrangement for an
additional 10 mmcf per day that is expected to begin flowing by the beginning
of December 1998.
As a result of these volumes, plant utilization will increase from about
50%, as experienced during 1997 and in the third quarter, to about 75% by the
end of 1998. This higher utilization will reduce PrimeWest's operating costs
at the East Crossfield and Lone Pine Creek properties by 20-30% by the end of
the year.
While these operating cost reductions will not have a significant
positive impact on 1998 distributions, we expect to realize distribution
improvements next year as the reductions impact our 1999 operating cost
performance.
TAX STATUS OF DISTRIBUTIONS
One of the most frequently asked questions from our investors is: ''What
portion of the 1998 distribution paid to Unitholders will be taxable?''
We currently forecast that no portion of the 1998 Trust distribution will
be taxable. This is the result of the Trust possessing sufficient tax shelter
to protect Unitholder distributions, which have been impaired by weak
commodity prices during 1998.
PrimeWest will be compiling the detailed tax information following our
year end, December 31, 1998. At this time, PrimeWest will be able to confirm
the exact income tax situation for our Unitholders. Should a portion of the
1998 distributions be determined to be taxable, this information will be
reported in Box 26 of the T3 slip each Unitholder will receive no later than
March 31, 1999. Please note that if our current projections of no taxable
income for 1998 are correct, T3 slips will not be issued.
It should be noted, however, that non-taxable distributions reduce the
Unitholders' cost base, potentially creating a capital gain or loss upon
eventual disposition of the units.
DISTRIBUTION HISTORY
Record Date Payment Date Amount Taxation Year
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December 31, 1996 January 15, 1997 $0.44 1997
March 31, 1997 April 15, 1997 $0.35 1997
June 30, 1997 July 15, 1997 $0.30 1997
September 30, 1997 October 15, 1997 $0.30 1997
December 31, 1997 January 15, 1998 $0.39 1998
January 31, 1998 February 15, 1998 $0.08 1998
February 28, 1998 March 15, 1998 $0.08 1998
March 31, 1998 April 15, 1998 $0.08 1998
April 30, 1998 May 15, 1998 $0.08 1998
May 31, 1998 June 15, 1998 $0.08 1998
June 30, 1998 July 15, 1998 $0.06 1998
July 31, 1998 August 15, 1998 $0.06 1998
August 31, 1998 September 15, 1998 $0.06 1998
September 30, 1998 October 15, 1998 $0.06 1998
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TOTAL DISTRIBUTIONS since December 1996 $2.42
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