EARNINGS / Rigel Energy records 26 percent year over year production gains
CALGARY, Nov. 13 /CNW/ - Rigel Energy Corporation announces results for
the nine months ended September 30, 1998. Revenue, net of royalties, increased
15 percent to $172.0 million over the first nine months of 1998 compared to
$149.4 million recorded during the same period in 1997. A nearly 50 percent
increase in crude oil production and a six percent improvement in natural gas
sales over the comparable period last year accounted for the growth in
revenue.
The continued downward pressure on commodity prices during the third
quarter has adversely affected the price the Corporation received for its oil
by five percent relative to the previous quarter. Lower prices combined with
higher operating and interest expenses resulted in a decline in year-over-year
cash flow and earnings. Funds generated from operations decreased 23 percent
to $71.9 million, or $1.27 per share, down from $93.0 million, or $1.65 per
share, recorded during the first nine months of 1997. The impact of lower cash
flow on the Corporation's 1998 capital program has been minimized to date
through the disposition of non-core assets.
Commenting on the results, Don West, President and CEO of Rigel said,
''The prolonged weakness in crude oil prices has had a pronounced affect on
our financial results. We expect that higher average production in the UK with
higher natural gas production and prices in Canada will contribute to a
stronger fourth quarter. A combination of physical and financial hedging
strategies will provide price protection on a majority of our natural gas
production over the balance of 1998 and 1999''.
FINANCIAL REVIEW
Effective January 1, 1998 Rigel adopted the full cost method of
accounting and restated prior period results. This change facilitates
comparative financial analysis of Rigel within its peer group in Canada.
As a result of a 26 percent increase in production on a BOE basis, gross
revenue for the nine months ended September 30, 1998 improved to $192.7
million from $185.8 million recorded during the same period in 1997. Revenue,
net of royalties, improved 15 percent to $172.0 million from $149.4 million,
due mainly to the royalty free production from the MacCulloch field in the UK.
Higher operating costs, primarily associated with the UK production, and
interest expenses due to a higher debt level, continued to have a significant
impact on cash flow during the third quarter. Cash flow during the quarter
declined to $19.1 million, or $0.34 per share, compared to $28.1 million, or
$0.50 per share, recorded for the same three-month period in 1997.
Operating costs to the end of September increased to $72.6 million
compared to $41.0 million last year. Additional production from the
MacCulloch field in the UK accounted for $30.4 million of this increase. On a
per unit basis, operating costs from MacCulloch remain high as a result of
lower than expected production levels affected by third quarter facilities
maintenance. The contractual tariffs at MacCulloch decline over time and with
higher daily production levels. As a result, operating expenses at MacCulloch
are expected to decrease by 20 percent over the balance of the year as
production returns to normal. In addition, the decline in the value of the
Canadian dollar in relation to the British pound has adversely affected the UK
operating costs by approximately 15 percent.
An increase in interest costs to $17.4 million from $6.9 million for the
corresponding nine-month period in 1997, due to the higher debt load largely
attributable to the MacCulloch purchase, also adversely affected cash flow and
earnings.
The Corporation recorded a net loss of $11.1 million, or $0.20 per share,
during the third quarter resulting in a cumulative loss of $29.5 million, or
$0.52 per share. This compares to a restated net loss of $0.3 million recorded
during the first nine months of last year. In addition to less than expected
revenues from lower crude oil prices, the high depletion rate associated with
production from the UK contributed materially to this loss. The Corporation
expects to reduce its UK depletion rate once regulatory approval has been
obtained for the development of the Blake discovery and the associated
reserves can be added to the reserve base.
The Corporation is currently negotiating a subordinated financing that
will, among other objectives, ensure the 1999 funding of Blake development
expenditures.
OPERATIONS REVIEW
Exploration and Development
Gross capital expenditures during the third quarter of 1998 totaled $40.1
million ($12.0 million in the UK) compared to $42.5 million ($0.8 million in
the UK) over the same period in 1997. A significant portion of these
expenditures related to work begun during the second quarter. The disposition
of producing properties, located primarily in southeast Saskatchewan, for
approximately $9.4 million was recorded during the third quarter of 1998.
Production from these sales represents approximately 470 BOEs per day and
brings the year to date total sales from western Canada to 2,600 BOEs per day.
Following these asset sales of $52.0 million over the first nine months of
1998, net capital expenditures totaled $91.0 million ($23.3 million in the UK)
compared to $102.4 million spent during the same period in the previous year.
The Corporation participated in the drilling of 25 wells (excluding two
service wells), resulting in five oil wells and twelve gas wells during the
third quarter of 1998 compared to 30 wells drilled during the same three-month
period in 1997, of which six were cased for oil production and nine wells for
natural gas. To date, 95 wells have been drilled in 1998, resulting in a
success rate of 74 percent.
The Peace River Arch business unit was successful in casing 10 out of 15
wells for natural gas during the third quarter. Operations focused on the
tie-in of a number of wells in the Wembley area that contributed to production
gains from the PRA unit of approximately 10 million cubic feet per day. The
program over the balance of the year includes drilling an additional six to
eight wells.
In the Western Canadian Basin business unit, a natural gas facility at
Carvel and an oil battery at Acme were commissioned during the third quarter.
Installation of a pipeline connecting two wells from Moose Mountain to
production facilities at Jumping Pound has been completed and production
testing and product sales are expected to begin in November of 1998.
In the UK, two wells were drilled at Blake during the third quarter for a
total of three appraisal wells that have helped to delineate the discovery
drilled last year. Plans for the development of the field are underway with
two production alternatives currently being evaluated and are expected to be
finalized in the near future.
The 1998 UK drilling program was completed with the third quarter
drilling of two wells north of the MacCulloch field that resulted in one
non-commercial oil and gas discovery. To continue its strategy of increasing
its presence in the UK, Rigel participated with a number of groups to submit
bids on six blocks included in the 18th Licensing Round. Bids from this
licensing round closed on September 11, 1998 with results expected later in
December of this year.
CAPITAL EXPENDITURES
Nine months ended September 30 1998 1997
($ thousands)
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Finding & on-stream costs
Lease acquisitions and retention 7,169 11,370
Seismic evaluation 11,376 7,761
Drilling & completions 78,582 49,377
Gas plants & facilities 38,249 19,334
Exploration related overhead 6,160 6,374
Miscible flood 782 1,019
Reserve acquisitions (83) 9,340
Proceeds on dispositions (51,994) (3,039)
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Net finding & on-stream costs 90,241 101,536
Administrative assets 730 889
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Net capital expenditures 90,971 102,425
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Funds generated from operations 71,897 92,964
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Re-investment ratio (%) 127 110
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Production and Pricing
Over the first nine months of 1998, crude oil and condensate sales
increased 46 percent to average 21,114 barrels per day compared to 14,446
barrels per day during the previous year. This growth is primarily due to new
production from the UK that averaged 7,912 barrels per day over the nine-month
period. Third quarter UK production was down 4,000 barrels per day from the
previous quarter to average 5,922 barrels per day. Maintenance of the sub-sea
risers at MacCulloch during the summer and down time required to tie-in a
fifth producing well in August adversely affected third quarter production.
However, production has subsequently recovered to near target levels.
North American production has been affected by the sale in March of
approximately 1,100 barrels per day of lower gravity, sour crude oil from
southwest Saskatchewan, and to a lesser extent, will be affected by the sale
of a further 300 barrels per day completed during the third quarter. Quarter
over quarter, the combined price for crude oil and condensate declined
marginally to $17.04 per barrel from $17.92, reducing the nine month average
to $18.54 per barrel -- a decrease of 27 percent from the same period last
year.
Natural gas sales to September 30, 1998 averaged 153.2 million cubic feet
per day compared to 144.8 million cubic feet per day recorded in 1997. Asset
sales in March from southwest Saskatchewan totaling approximately eight
million cubic feet per day have reduced 1998 production. Quarter over quarter
productive capacity increased by approximately 15 million cubic feet per day
in the third quarter following tie-in of new production primarily from Acme,
Carvel, Highvale, Valhalla and Hythe. Production in the last three months of
1998 is expected to exceed third quarter production by approximately 10
million cubic feet per day.
Natural gas prices remained virtually unchanged over the quarter,
averaging $1.91 per thousand cubic feet, for a year to date figure of $1.96
per thousand cubic feet compared to $1.97 over the first nine months of 1997.
The Corporation has utilized financial instruments on a volume of
approximately 100 million cubic feet per day that ensure prices of between
approximately $2.40 and $3.80 per thousand cubic feet for the period from
November 1, 1998 through to March 31, 1999 and for a price of between $2.40
and $2.70 per thousand cubic feet for the period ending October 31, 1999.
Natural gas liquids production increased 22 percent, averaging 1,975
barrels per day compared to 1,624 barrels per day recorded during the first
nine months in 1997. However, prices declined to average $9.50 per barrel
since the second quarter. NGL production has climbed by 36 percent in the
third quarter, primarily due to additional ethane sales since July from the
Wembley gas plant.
HIGHLIGHTS
For the periods ended
September 30 Three Months Nine Months
($ millions except per share
amounts; unaudited) 1998 1997(x) 1998 1997(x)
------------------------------------------------------------------------
FINANCIAL
Revenue, net of royalties 52.9 47.6 172.0 149.4
Funds generated from operations 19.1 28.1 71.9 93.0
per share 0.34 0.50 1.27 1.65
Net income (loss) (11.1) (2.0) (29.5) (0.3)
per share (0.20) (0.04) (0.52) --
Net capital expenditures 30.7 42.0 91.0 102.4
Weighted average shares
outstanding (millions) 56.4 56.2 56.4 56.1
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OPERATIONAL
Sales
Oil - NA (bbls/d) 10,648 12,938 11,355 12,889
Oil - UK (bbls/d) 5,922 -- 7,912 --
Condensate (bbls/d) 2,215 1,570 1,847 1,557
NGLs (bbls/d) 2,279 1,639 1,975 1,624
Natural gas (mmcf/d) 156.6 143.8 153.2 144.8
Price
Oil - NA ($/bbl) 17.97 24.26 18.16 25.23
Oil - UK ($/bbl) 15.05 -- 17.90 --
Condensate ($/bbl) 17.91 26.24 20.84 27.47
NGLs ($/bbl) 7.86 13.60 9.50 16.58
Natural gas ($/mcf) 1.91 1.68 1.96 1.97
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For the nine months ended 1998 1997
DRILLING STATISTICS
Gross wells 95(xx) 119(xx)
Gross oil wells 19 34
Gross gas wells 51 41
Net wells 55.5 84.0
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(x) Restated to reflect full cost accounting method.
(xx) Does not include six service wells (six in 1997) nor eight
additional wells drilled (five in 1997) for information to evaluate
horizontal drilling potential and subsequently abandoned as planned.
OUTLOOK
Since our last report, the price of crude oil has not recovered. In
general, analysts agree that a gradual reduction in bloated oil inventories,
created by the overproduction and economic downturn, has begun. However,
OPEC's willingness to maintain current production quotas has been insufficient
to achieve the balance necessary for a return to more normal prices. Recovery
may take well into 1999 before we see significant price support. Approximately
half of Rigel's revenue is derived from crude oil. We believe this strategy
offers the best value over the longer term for our shareholders. Rigel is
managing the capital program within projected cash resources, focusing on the
development of natural gas projects and oil projects that add immediate value.
The disposal of $52.0 million in assets to September 30, 1998 has assisted in
this regard. Moving towards year-end and into the winter operating season, we
look forward to much improved financial and operating results from increased
UK production, lower operating costs and the proceeds from additional natural
gas production.
<<
CONSOLIDATED BALANCE SHEET
September 30 December 31
1998 1997
($ thousands) (unaudited) restated(x)
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ASSETS
Current Assets
Cash $ 755 $ 2,823
Accounts receivable 40,081 41,119
Income taxes recoverable 850 850
Inventories and other 5,378 3,415
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Total current assets 47,064 48,207
Property, plant and equipment 1,047,158 1,047,618
Deferred charges and other 18,752 5,258
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Total assets $ 1,112,974 $ 1,101,083
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 37,569 --
Accounts payable and accrued
liabilities 48,434 46,568
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Total current liabilities 86,003 46,568
Deferred pension liability 1,519 1,387
Long-term debt 322,632 325,906
Future site restoration 21,522 20,463
Deferred income taxes 193,388 197,379
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Total liabilities 625,064 591,703
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Common shares 294,065 293,476
Retained earnings 186,362 215,904
Cumulative translation adjustment 7,483 --
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Total shareholders' equity 487,910 509,380
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Total liabilities and shareholders'
equity $ 1,112,974 $ 1,101,083
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CONSOLIDATED STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS
For the periods ended September 30 Three Months Nine Months
($ thousands except per share
amounts; unaudited) 1998 1997(x) 1998 1997(x)
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REVENUE
Sales of crude oil and natural gas $58,612 $56,879 $192,744 $185,791
Less: royalties 8,232 9,850 25,811 38,618
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50,380 47,029 166,933 147,173
Other income 2,533 605 5,087 2,186
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52,913 47,634 172,020 149,359
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EXPENSES
Operating 23,893 14,218 72,612 40,977
General and administrative 3,056 2,417 9,287 7,968
Depreciation and depletion 32,156 28,008 102,584 83,744
Future site restoration 460 338 1,488 1,038
Interest 6,757 2,452 17,371 6,856
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66,322 47,433 203,342 140,583
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INCOME (LOSS) BEFORE INCOME TAXES (13,409) 201 (31,322) 8,776
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INCOME TAXES
Current 643 392 1,453 672
Deferred (2,928) 1,818 (3,233) 8,380
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(2,285) 2,210 (1,780) 9,052
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NET INCOME (LOSS) FOR THE PERIOD (11,124) (2,009) (29,542) (276)
RETAINED EARNINGS, BEGINNING OF
PERIOD 197,486 216,753 215,904 215,020
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RETAINED EARNINGS, END OF PERIOD $186,362 $214,744 $186,362 $214,744
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NET INCOME (LOSS) PER SHARE $ (0.20) $ (0.04) $ (0.52) $ -
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(x) restated to reflect the full cost accounting method
FULL COST COMPARED TO SUCCESSFUL EFFORTS ACCOUNTING
For the periods ended September 30 Three Months Nine Months
($ thousands, except per share
amounts; unaudited) 1998 1997 1998 1997
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NET INCOME (LOSS)
Full cost $(11,124) $ (2,009) $(29,542) $ (276)
Per common share (0.20) (0.04) (0.52) --
Successful efforts (19,152) (1,289) (45,670) 2,183
Per common share (0.34) (0.02) (0.81) 0.04
RETAINED EARNINGS
Full cost 186,362 214,744 186,362 214,744
Successful efforts $ 56,588 $128,375 $ 56,588 $128,375
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CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
For the nine months ended September 30 Three Months Nine Months
($ thousands except per share
amounts; unaudited) 1998 1997(x) 1998 1997(x)
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Cash provided by (used for):
OPERATING ACTIVITIES
Net income (loss) $(11,124) $ (2,009) $(29,542) $ (276)
Add items not involving cash
Depreciation and depletion 32,156 28,008 102,584 83,744
Deferred tax provision
(recovery) (2,928) 1,818 (3,233) 8,380
Site restoration 460 338 1,488 1,038
Other 584 (6) 600 78
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Funds generated from operations 19,148 28,149 71,897 92,964
Net change in non-cash working
capital (17,764) 8,095 926 5,027
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1,384 36,244 72,823 97,991
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INVESTING ACTIVITIES
Proceeds from sale of capital
assets 9,413 535 51,994 3,039
Capital expenditures, including
exploration costs (40,073) (42,522) (142,965) (105,464)
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(30,660) (41,987) (90,971) (102,425)
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FINANCING ACTIVITIES
Changes in deferred charges
and other 227 (136) (641) (483)
Common shares 56 258 589 1,570
Increase in (repayment of)
long-term debt 5,095 7,028 (21,437) 2,046
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5,378 7,150 (21,489) 3,133
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NET INCREASE (DECREASE) IN CASH (23,898) 1,407 (39,637) (1,301)
CASH (OVERDRAFT) AT BEGINNING OF
PERIOD (12,916) 1,247 2,823 3,955
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CASH (OVERDRAFT) AT END OF PERIOD $(36,814) $ 2,654 $(36,814) $ 2,654
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(x) restated to reflect the full cost accounting method |
