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Twin Butte Energy Announces Third Quarter Financial Results, Strong Drilling Results, and Dividend Reduction

Twin Butte Energy Announces Third Quarter Financial Results, Strong Drilling Results, and Dividend Reduction

Canada NewsWire

CALGARY, Nov. 11, 2015 /CNW/ - (TSX: TBE) – Twin Butte Energy Ltd. ("Twin Butte" or  the  "Company") is pleased to report its financial and operational results for the three and nine months ended September 30, 2015.  

Twin Butte has transitioned to a medium gravity oil focused producer with lower operating costs, lower royalties, lower per well capital costs and a deeper inventory of economic development opportunities. The combination of lower capital costs and average new well productivity at Provost and Lloydminster is delivering development economics competitive with, or better than, those in western Canada's best oil resource plays.

Highlights of Twin Butte's successful third quarter 2015 are as follows:

  • Increased medium barrel weighting to 54% of Company oil production compared to 42% in Q3 2014.

  • Reduced per well drill, complete and equip costs for Provost area Sparky multistage fracture stimulated horizontals (~700m lateral length) to $800,000 per well from ~$1.4 million 12 months ago.

  • Brought 6 Provost Sparky horizontals on production in the quarter with current combined rates of 725 boepd (>85% oil), exceeding type curve expectations.

  • Reduced per well drill, complete and equip costs for Lloydminster area horizontals to $700,000 from $1.3 million 12 months ago.

  • Brought 5 Lloydminster horizontals on production with current combined rates of 480 barrels per day, exceeding type curve expectations.

  • Added high quality inventory through crown land purchases in both the Provost and Lloydminster areas at costs significantly lower than historic prices.

  • Generated funds flow of $33 million ($0.09/share), with production of 16,303 boe per day.

  • Decreased operating and transportation costs to $20.15 as compared to Q3 2014 costs of $21.18 per boe.

  • Held net debt at $308.4 million, providing a debt to cash flow ratio of 2.3 times on an annualized basis. Net debt has been reduced by $44.9 million year to date.

  • Declared $5.66 million in third quarter dividends.

  • Maintained financial discipline by managing total payout to 98% for the third quarter or 65% year to date in response to low oil prices.

Certain selected financial and operational information for the three and nine months ended September 30, 2015 and 2014 is outlined below and should be read in conjunction with Twin Butte's condensed interim financial statements for the three and nine months ended September 30, 2015 and 2014 and accompanying management discussion and analysis filed with the Canadian securities regulatory authorities which may be accessed through the SEDAR website ( and also on the Company's website.

Three months ended September 30

Nine months ended September 30



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(1) Funds flow, Corporate acquisitions, Capital expenditures, Net debt, Field netback and Operating netback are non-GAAP measures. Refer to "Non-GAAP Measures" in the MD&A or the reader advisory in this release for further discussion and reconciliation to GAAP measures if applicable.


In the third quarter Twin Butte continued to make progress on all of our 2015 priorities, maintaining financial discipline, delivering a dividend to shareholders and continuing to improve the asset base.  The improvement in the asset base has been accomplished through successful deployment of new development techniques at lower than expected cost, the commissioning the Sounding Lake Sparky oil battery and adding additional prospective lands in the Provost and Lloydminster areas.

Twin Butte is now a medium weighted oil producer with a lower cost structure; a lower, more predictable decline profile; and a deeper, more profitable long term development inventory.  The Company has delivered on the transition away from vertical heavy oil production with its higher operating costs, higher royalty rates and unpredictable decline, and is now better positioned for long term success.

The Company remains committed to a growth and dividend model.   The confidence in the potential of the asset base has, through the successful deployment of several new development technologies over the past year, grown to the point where the opportunity to organically grow oil production at prices in the $55-60 per barrel (US WTI) range is established. There remains significant underexploited oil in place in the Provost-Lloydminster area and when developed with the appropriate technology, is resulting in opportunities that are economically competitive, or better, than those found in the best of the resource plays in western Canada. Twin Butte is uniquely positioned to take advantage of these opportunities. 

The first priority for 2015 was to manage the balance sheet through a low period in oil prices.  2015 year end net debt, comprised of an $85 million convertible debenture due December 2018, bank debt and working capital deficiency, is forecast to be under $300 million dollars. This is a decrease of more than $50 million compared to year end 2014. The Company is currently in semi-annual discussions with our banking syndicate and expects finalization of the lending facility later in Q4.

The total 2015 capital program has been reduced from $100 million to under $90 million, as the Company remains committed to only investing in projects that achieve a 2:1 recycle rate at strip pricing. This reduction, along with the shut-in of 200 boepd of uneconomic third party operated gas production, will decrease the Company's 2015 annual production guidance by 300 boepd to 17,200 boepd.

To further support the balance sheet during this period of commodity price weakness, Twin Butte has reduced its monthly dividend, effective for the dividend payable in January 2016, to $0.00083 per share from $0.003 per share.  The Company believes long term in delivering a dividend as part of its return to shareholders however due to the current economic climate it believes a reduction was appropriate to ensure maximum flexibility entering 2016. 

The Company has pulled on several levers in response to the decline in oil prices.  The capital program has been reduced over $30 million from the original $120 million announced a year ago. On an annual basis, the dividend has been reduced from $0.192 per share to $0.01 per share, reducing the annual commitment by $65 million dollars.  Salaries for executives and board compensation have been reduced ~20% and staff salaries were reduced in Q4 2015.  In these challenging times, the Executive and Board of Twin Butte will make the right decisions for the Company's long term success.


Twin Butte's third quarter 2015 financial and operating results saw the Company continue to demonstrate disciplined spending, holding net debt to $308.4 million and providing a 2.3 times debt to cash flow ratio on an annualized basis. The Company declared $5.7 million in dividends, which when combined with net organic capital spending of $27 million, generated an all-in quarterly and year-to-date payout ratio of 98% and 65% respectively. With a reduced capital program in the fourth quarter, and forecasted cash flow supported by the Company's hedge program, net debt is expected to further decrease $10 million by year end to under $300 million.

Despite average realized commodity prices dropping 49% year over year, funds flow for the third quarter 2015 was only down 39%. Twin Butte's strong 2015 hedge book, significantly lower royalties due to both the price drop and the transition to a horizontal medium and horizontal heavy oil asset base, and lower operating costs all contributed to this result.  

Twin Butte's commodity hedging strategy provided $19.9 million of realized gains in the third quarter, delivering the cash flow support in a low commodity price environment. The Company has favorable hedge coverage through the fourth quarter of 2015 with approximately 6,000 bbls/d hedged at ~$80/bbl WCS Cdn (~$100/bbl WTI Cdn).  In 2016 the Company has 1,000 bbls/d hedged at $65/bbl WCS Cdn along with 5,500 bbls/d of WCS:WTI differential hedged at $18.61/bbl Cdn.


Twin Butte invested $26.6 million of net capital in Q3 2015. The capital program included the drilling of 19 gross wells (19 net), and startup of the Sounding Lake Sparky oil battery in the Provost region.   

Q3 production was 16,303 boepd, with current production of ~16,000 boepd.  Q3 production was negatively impacted by the shut-in of ~200 boepd of uneconomic, third party operated gas production in west central Alberta, and by ~100 bbls/d due to the building of heavy oil inventory in the Lloydminster area. This strategic inventory build will allow the Company to reduce emulsion hauling and processing costs through Q4 and into 2016.   

Technology Deployment

Key to the transition and long term value associated with the Twin Butte asset base has been the adoption of multiple existing technologies to an area they had not been effectively deployed in. 

In Provost, multiple new approaches to decrease either per well capital costs or long term area operating costs have been successfully introduced.  Horizontal multistage fractured wells targeting the Sparky and Lithic channel intervals have opened up significant inventory for development.  Moving from vertical to horizontal disposal wells is decreasing upfront capital costs per disposal barrel and lowering operating costs due to reduced power consumption requirements.

In Lloydminster, adopting unlined horizontals has reduced drill times and costs compared to a year ago.  Initial results suggest removing downhole equipment is improving average per well productivity.  The Company's early success with multilateral drilling is further increasing productivity in a capital efficient, economic manner.  The combination of reducing water and emulsion trucking through on-lease disposal wells and more prudent well servicing strategies is decreasing current and long term operating costs.

These technologies or approaches are all existing in the basin but had not been used by Twin Butte or effectively deployed by industry in the ProvostLloydminster area 15 months ago.       

Provost – Medium oil

Drilling activity resumed at Provost in late Q2 with initial production results either at or above expectations.  The development program targeted a combination of short (700m) and long (1400m) horizontal multistage frac Sparky and Lithic channel wells and Dina/Cummings oil over water prospects.

Six Sparky wells were brought on stream in the quarter and currently are collectively producing above expectation at 725 boepd (~85% oil).  Drill, complete and equip costs for ~700m long multistage fractured Sparky wells decreased to ~$800,000 down ~$600,000 compared to similar wells drilled last year.  The vast majority (over 67%) of the savings are due to efficiency gains including decreasing average drill times, now consistently under 4 days spud to rig release, reducing casing size from 5 ½" to 4 ½", and adopting an enhanced version of SW Saskatchewan Dodsland Viking completion techniques. Based on current Twin Butte realized costs and productivity, the Sounding Lake Sparky play has go-forward development economics superior to most, if not all, of the Dodsland Viking oil play.     

Five Lithic channel wells were drilled and brought on stream in the quarter.  As with the Sparky wells, per well capital costs are down significantly compared to last year and average productivity remains on the type curve.

The company successfully commissioned the new Sounding Lake oil battery on time and on budget in August.  This facility has, and will continue to provide low operating cost capacity for future Sparky and Lithic channel area development.  Long term Provost operating costs are expected to continue to trend lower, benefiting from new infrastructure, continued development and recently drilled horizontal water disposal wells, which have higher injectivity than historical vertical injectors and require significantly less disposal pumping.

 The Company's confidence in the depth and quality of the Provost area inventory continues to grow. 

Lloydminster – Heavy

Per well Lloydminster drill, complete and equip costs which averaged ~$1.3 million dollars in 2014, averaged $700,000 in Q3, a 46% reduction. Cost savings are related to quicker drill times, removal of slotted liners in the horizontal section and service cost reductions. 

The Q3 program consisted of 2 dual laterals and 3 single laterals.  On average, productivity is ahead of expectations.  Of particular note were the results achieved at Lashburn, Saskatchewan, where we offset our successful single lateral well drilled in Q1 2015.  The 3-14 single lateral, currently producing ~100 bbls/d, and the 13-11 dual lateral, currently producing ~225 bbls/d, were drilled and brought in stream in Q3. 

Additional lands were acquired in the quarter as the Company selectively increased its inventory of highly prospective lands at low prices. 

The long term operating cost structure of horizontal development in the Lloydminster area is significantly lower than the historical cost structure associated with Twin Butte's legacy vertical production. The reservoirs targeted horizontally produce negligible sand and at lower water cuts, which results in much lower trucking and processing costs. This, along with multi-well pad operating efficiencies, has led to average operating costs on horizontal activity in the Lloyd area of $10-12 per barrel with new producers below $10 per barrel.  This is a marked reduction from average vertical operating costs of over $25 per barrel.  Most Lloydminster horizontal wells are eligible for Alberta or Saskatchewan provincial horizontal royalty incentive programs, which further decrease the overall cost burden, as the bulk of TBE activity is on crown lands. At strip pricing, these horizontal wells, with the cost reductions achieved, are some of the most economic wells drilled in either province this year.

Multilateral drilling, though in its infancy in the Lloydminster area, continues to show significant promise in further reducing per lateral costs. In combination with lower capital costs, adding this technology to the Company's toolkit has significantly increased the potential inventory on existing Twin Butte lands.  

Longer term waterflood projects will become a more significant portion of Twin Butte development activities and are expected to reduce overall heavy oil decline rates and maximize asset value. Waterfloods at Wildmere and Freemont are currently in construction and scheduled to be onstream in early 2016.


Over the past year the Company has made material strides in lowering operating costs, lowering royalties, decreasing per well capital costs and enhancing the quality of future inventory, all of which are key to long term profitability and the sustainability of the business.  Consistent with our strategy and reinforced during this period of low oil prices, Twin Butte will continue to prudently manage its balance sheet, preserve long term upside, and selectively invest in projects profitable at current strip prices.

Twin Butte expects to release 2016 guidance in early December. With lower debt, a lower dividend, and reduced operating and per well capital costs the Company is better positioned to sustain production while maintaining a total payout ratio of less than 100% over the long term. With its materially improved asset base, the Company has significant torque to even a modest recovery in oil prices.

Priorities in an oil price recovery will be first to expand the capital program, second to reduce debt or consider raising the dividend. 

Maximizing long term asset value and financial discipline continue as the Company's key principles during this challenging oil price environment.  

About Twin Butte:

Twin Butte Energy Ltd. is a dividend paying value oriented intermediate producer with a significant low risk, high rate of return drilling inventory focused on large original oil and gas in place play types. With a stable low decline production base, Twin Butte is well positioned to provide shareholders with a dividend and growth potential over both the short and long term. Twin Butte is committed to continually enhance its asset quality while focusing on the sustainability of its dividend. The common shares of Twin Butte are listed on the TSX under the symbol "TBE".

Reader Advisory

Forward-Looking Statements

In the interest of providing Twin Butte's shareholders and potential investors with information regarding Twin Butte, including management's assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation.  Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In particular but without limiting the foregoing, this news release contains forward-looking statements pertaining to the following: future dividend levels; funds flow and cash flow forecasts; the volumes and estimated value of Twin Butte's oil and natural gas reserves; the life of Twin Butte's reserves; the volume and product mix of Twin Butte's oil and natural gas production; future oil and natural gas prices; future operational activities; future results from operations and operating metrics, including future production growth and other matters set forth under the heading "Outlook" herein, including estimated budget levels and targeted pay-out ratio in respect of the payment of dividends. In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future.

With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas prices and differentials between light, medium and heavy oil prices; results from operations including future oil and natural gas production levels; future exchange rates and interest rates; Twin Butte's ability to obtain equipment in a timely manner to carry out development activities; decline rates based on analogous information; its ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; Twin Butte's ability to obtain financing on acceptable terms; and Twin Butte's ability to add production and reserves through its development and exploitation activities. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following:  the risks associated with the oil and gas industry; commodity prices; operational risks in exploration; development and production; delays or changes in plans; risks associated with the uncertainty of reserve estimates; health and safety risks, and; the uncertainty of estimates and projections of production, costs and expenses. volatility in market prices for oil and natural gas; general economic conditions in Canada, the U.S. and globally; and the other factors described under "Risk Factors" in Twin Butte's most recently filed Annual Information Form available in Canada at The recovery and reserve estimates of Twin Butte's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Barrels of Oil Equivalent

Barrels of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indicated value.

Reserve Life Index

The reader is also cautioned that this news release contains the term reserve life index ("RLI"), which is not a recognized measure under generally accepted accounting principles ("GAAP").  Management believes that this measure is a useful supplemental measure of the length of time the reserves would be produced over at the rate used in the calculation.  Readers are cautioned, however, that this measure should not be construed as an alternative to other terms determined in accordance with GAAP as a measure of performance.  Twin Butte's method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

Operating Netback

The reader is also cautioned that this news release contains the term operating netback, which is not a recognized measure under GAAP and is calculated as a period's sales of petroleum and natural gas, net of royalties less net production and operating expenses as divided by the period's sales volumes.  Management uses this measure to assist them in understanding Twin Butte's profitability relative to current commodity prices and it provides an analysis tool to benchmark changes in operational performance against prior periods and to peers on a comparable basis.  Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance.  Twin Butte's method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

Net Debt

The reader is cautioned that this news release contains the term net debt, which is not a recognized measure under GAAP and is calculated as bank debt, convertible debentures, and adjusted for working capital excluding mark-to-market derivative contracts.  Working capital excluding mark-to-market derivative contracts is calculated as current assets less current liabilities both of which exclude derivative contracts and current liabilities excludes the current portion of debt.  Management uses net debt to assist them in understanding Twin Butte's liquidity at specific points in time.  Mark-to-market derivative contracts are excluded from working capital, in addition to net debt, as management intends to hold each contract through to maturity of the contract's term as opposed to liquidating each contract's fair value or less.

Future Oriented Financial Information

This news release, in particular the information in respect of anticipated cash flows, may contain Future Oriented Financial Information ("FOFI") within the meaning of applicable securities laws. The FOFI has been prepared by management of the Company to provide an outlook of the Company's activities and results and may not be appropriate for other purposes. The FOFI has been prepared based on a number of assumptions including the assumptions discussed under the heading "Forward-Looking Statements" and assumptions with respect to production rates and commodity prices. The actual results of operations of the Company and the resulting financial results may vary from the amounts set forth herein, and such variation may be material. The Company and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments.

SOURCE Twin Butte Energy Ltd.

Twin Butte Energy Ltd., Rob Wollmann, President and Chief Executive Officer; R. Alan Steele, Vice President Finance, Chief Financial Officer and Corporate Secretary, Tel: (403) 215-2045, Website: www.twinbutteenergy.comCopyright CNW Group 2015

Source: Canada Newswire (November 11, 2015 - 9:14 PM EST)

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