Manitok Energy Inc. (the “Corporation” or “Manitok”) (TSX-V: MEI) announces its financial and operating results for the second quarter of 2015 and an operations update.
Readers are cautioned that as this press release contains only a summary of Manitok’s financial and operating results for the second quarter of 2015, it should be read in conjunction with the full text of Manitok’s second quarter of 2015 report containing its unaudited condensed interim financial statements as at and for the three and six months ended June 30, 2015 and the related management’s discussion and analysis, copies of which are available electronically on Manitok’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and also on Manitok’s website at www.manitokenergy.com.
Highlights of Second Quarter 2015 Results
- Capital expenditures, net of divestitures were approximately $29.0 million, which related primarily to the acquisition of assets in the Wayne area of southeast Alberta with an effective date of April 1, 2015 for total cash consideration of approximately $62.4 million after estimated post-closing adjustments, which was offset with asset divestitures of a production volume royalty, a 5% gross overriding royalty in the Wayne area and facilities in the Wayne area as press released on June 12, 2015.
- Announced revised terms and additional lands to the lease issuance and drilling commitment agreement with PrairieSky Royalty Ltd., which were previously disclosed in a press release dated May 1, 2015.
- Closed a facilities financing agreement in the Wayne area for $12.5 million. The effective interest rate over the life of the obligation is 14.5% and the obligation is secured by certain oil batteries in the Wayne area.
- Closed two tranches of a non-brokered private placement equity financing for the issuance of 12,587,600 common shares of Manitok (“Manitok Shares”) at a price of $0.80 per Manitok Share, 917,500 common shares of Manitok on a “flow-through” basis under the Income Tax Act (Canada) in respect of Canadian development expense (“Manitok CDE Flow-through Shares”) at a price of $0.85 per Manitok CDE Flowthrough Share, and 6,305,077 Manitok Shares on a “flow-through” basis under the Income Tax Act (Canada) in respect of Canadian exploration expense (“Manitok CEE Flow-through Shares”) at a price of $0.95 per Manitok CEE Flow-through Share for gross proceeds of $16.8 million (net proceeds – $15.8 million).
- Production averaged 4,521 boe/d (43% light oil and liquids) which is consistent with production of 4,504 boe/d (51% light oil and liquids) in the first quarter of 2015.
- Recorded funds from operations of $7.3 million ($0.11 per diluted share) which is an 8% decrease over funds from operations of $7.9 million ($0.12 per diluted share) in the first quarter of 2015.
- Operating netback was $25.63/boe, which is consistent with the operating netback of $25.48/boe in the first quarter of 2015.
- Increased net undeveloped land to 442,905 acres as at June 30, 2015, a 62% increase from 272,729 acres as at March 31, 2015.
Operations Update
Manitok incurred approximately $3.2 million in capital expenditures before acquisitions and divestitures in the second quarter of 2015. Approximately $1.2 million was spent on facility capital and engineering design work, primarily related to the Carseland area in southeast Alberta. The remaining expenditures mainly included costs related to first quarter 2015 activity.
Production averaged 4,521 boe/d over the second quarter as Manitok’s Carseland and Stolberg areas were partially restricted throughout the quarter. In Stolberg, the downtime amounted to 20 boe/d over the entire quarter due to restrictions imposed by TransCanada Pipeline (“TCPL”) as a result of maintenance on their system. The restriction has increased over the third quarter of 2015 and will likely continue for the remainder of 2015 in some form. To date, the TCPL restrictions have reduced the Corporation’s production in the area by 450 boe/d (100% gas) over July and August of 2015.
In Carseland, restrictions occurred as a result of continued issues processing the liquid rich, Lithic Glauconitic (“LG”) associated gas at a third party processing facility, which amounted to approximately 750 boe/d of restricted production over the second quarter of 2015. Manitok continues to work with its third party processor in an effort to increase processing capability of the liquids rich natural gas. Recently, the operator conducted minor plant modifications that slightly improved the processing capability of the plant, but Manitok and the operator are evaluating the installation of additional liquids processing equipment that would improve natural gas liquid recovery and allow an additional 10 mmcf/d of existing gas throughput capacity to be utilized. In addition, 2 Basal Quartz (“BQ”) wells in the Carseland area, which represent approximately 548 boe/d (based on initial production test rates), remain behind pipe and are not expected to be placed on production until commodity prices improve. In addition to the facilities restriction due to liquids, Carseland production was completely down as a result of ATCO shutting in its main transportation line for approximately 4 weeks over July and August.
Currently production is approximately 4,535 boe/d with continuing restrictions in both the Stolberg and Carseland areas. Restricted production accounts for about 450 boe/d at Stolberg and 900 boe/d at Carseland.
2015 Guidance
The Corporation did not drill any wells during the first half of 2015, due to the current low commodity price environment. Based on current forward strip and assuming no recovery in future crude oil prices, the Corporation anticipates drilling 3 wells in southeast Alberta to satisfy its 2015 capital commitment with PrairieSky Royalty Ltd. Based on the successful 2014 drilling program, the Corporation anticipates these wells will further delineate and develop reserves in the LG formation.
Manitok amended its $90.0 million revolving operating demand loan facility with its lender. Upon amendment, the facilities consist of a $45.0 million revolving operating demand loan facility drawn at $34.9 million at June 30, 2015 and a fully drawn $35.0 million non-revolving reducing demand loan facility. The Corporation is required to repay the $35.0 million outstanding amount on the non-revolving reducing demand loan as follows:
- $5.0 million on or before December 31, 2015;
- $10.0 million on or before March 31, 2016; and
- $20.0 million on or before May 31, 2016.
The condensed interim financial statements have been prepared in accordance with GAAP on a going concern basis, which asserts that the Corporation has the ability to realize its assets and discharge its liabilities and commitments in the normal course of business. The repayment requirements of the non-revolving reducing demand loan facility may be amended or eliminated upon a material increase in future crude oil prices, an increase in proved reserves and future renegotiations with its lender. Based on its twelve month funds from operations at current forward strip crude oil and natural gas prices, the Corporation is in the process of identifying and pursuing alternative debt arrangements, joint venture arrangements, property acquisitions or divestitures, corporate mergers and acquisitions and other recapitalization opportunities and is taking steps to manage its spending and leverage including the implementation of cost reduction and capital management initiatives to satisfy the non-revolving reducing demand loan facility repayment requirements. More details of the foregoing is available Manitok’s second quarter of 2015 report containing its unaudited condensed interim financial statements as at and for the three and six months ended June 30, 2015 and the related management’s discussion and analysis, copies of which are available electronically on Manitok’s profile on SEDAR atwww.sedar.com and also on Manitok’s website at www.manitokenergy.com.
At June 30, 2015, net bank debt was approximately $68.4 million and the long-term financial obligations secured by certain oil batteries in the Stolberg and Wayne areas was about $15.0 million.
Hedging
Oil Hedges
In the second half of 2015, Manitok has hedged 2,000 bbls/d of crude oil at an average price of $89.00 CAD WTI. Beyond 2015, Manitok has hedged 1,000 bbls/d of crude oil at $79.95 CAD WTI for the 2016 calendar year and 500 bbls/d of crude oil at $79.75 CAD WTI for the 2017 calendar year. The Corporation has also option collar transactions for 1,000 bbls/d of crude oil from $68.68 to $86.18 CAD WTI net of the deferred premium for both the 2016 and 2017 calendar years.
Gas Hedges
In 2015, Manitok has 16,000 GJs/d of natural gas at an average price of $3.83/GJ less a deferred premium of $0.35/GJ.
About Manitok
Manitok is a public oil and gas exploration and development company focusing on conventional oil and gas reservoirs in the Canadian foothills and southeast Alberta. The Corporation will utilize its experience to develop the untapped conventional oil and liquids-rich natural gas pools in both the foothills and southeast Alberta areas of the Western Canadian Sedimentary Basin.
For further information contact:
Manitok Energy Inc.
Massimo M. Geremia, President & Chief Executive Officer
Telephone: 403-984-1751
Email: mass@manitok.com
