CALGARY, ALBERTA — (Marketwire) — 02/28/13 — Bonavista Energy Corporation (TSX: BNP) is pleased to report to shareholders its results for the fourth quarter ended December 31, 2012. Our audited consolidated financial statements, Annual Report and other disclosure documents for 2012 will be available on or before March 28, 2013 through our filings on SEDAR at or can be obtained from Bonavista–s website at .
MESSAGE TO SHAREHOLDERS
The North American energy sector was challenged by low realized commodity prices throughout 2012. Persistently high US production levels and the absence of winter heating demand drove AECO natural gas prices down to a 14 year low, averaging $2.27 per gigajoule in 2012, a 34% decrease from 2011. In addition, realized propane and ethane prices fell 41% and 28% respectively in 2012 resulting from a supply imbalance caused by industry–s focus on natural gas liquids revenue to support the economic development of natural gas resources. Compounding this compression in North American natural gas prices, Canadian energy producers were further challenged in 2012 by discounted pricing for crude oil resulting from steadily increasing continental supply and regional transportation and infrastructure bottlenecks.
Technological advancements continue to add crude oil and natural gas supply making it increasingly difficult to predict the future pricing for these commodities. Furthermore, incremental infrastructure and valuable export opportunities are facing strong opposition leaving our domestic energy sector challenged in the short term. Nonetheless, Bonavista remains true to our strategy of focusing on those elements of our business that we can control to create value in any environment. The key elements of this strategy include:
While declining Canadian natural gas production and fuel switching demand in the US power generation market enabled natural gas prices to recover somewhat in the fourth quarter of 2012, the futures market for natural gas prices weakened again in early 2013, coincident with a lack of winter heating demand. Accordingly, on January 9, 2013 Bonavista–s Board of Directors approved a reduction in the monthly dividend from $0.12 per share to $0.07 per share. This new level provides Bonavista the flexibility to capitalize on numerous low risk drilling and acquisition opportunities, while maintaining a healthy balance sheet. Given the current commodity price environment, Bonavista believes this dividend level offers an appropriate balance between capital reinvestment and dividend allocation resulting in long term profitability, consistent with our historical track record.
Specific accomplishments for Bonavista in 2012 include:
Accomplishments for Bonavista subsequent to 2012 include:
2012 Reserve Highlights
The reserve estimates contained in the following tables represent Bonavista–s gross reserves as at December 31, 2012 and are defined under NI 51-101, as our interest before deduction of royalties and without including any of our royalty interests.
A summary of this independent reserves evaluation is presented in the tables below:
Bonavista–s proved and probable reserve life index has consistently increased since converting to an income trust in 2003 illustrated by the following table:
The following tables highlight our proved and probable finding and development (“F&D”) costs, our proved and probable finding, development and acquisition (“FD&A”) costs and the associated recycle ratios:
Future development costs of $1.4 billion at year end 2012 consist of 636 gross (472 net) future drilling locations which have the following development schedule:
2012 Acquisition and Divestiture Highlights
Bonavista completed 24 property transactions in 2012, both acquisitions and divestitures resulting in net disposition proceeds of $11.0 million for the year. Acquisition expenditures in 2012 of $169.9 million added production of 7,300 boe per day and proved and probable reserves of 29.9 mmboe resulting in acquisition metrics of $23,000 per boe per day and $10.39 per boe including future development costs. Divestiture activity in 2012 resulted in proceeds of $180.8 million involving the sale of certain non-core, higher cost assets comprising 3,200 boe per day of production and 9.7 mmboe of proved and probable reserves. The transaction metrics associated with our 2012 divestiture activity are attractive at $57,000 per boe per day and $21.68 per boe including changes in future development costs.
With a specific goal to increase asset quality and concentration, Bonavista was an active consolidator in the deep basin area of west central Alberta in 2012. On October 1, 2012 Bonavista closed a $155 million asset acquisition producing 6,700 boe per day, which doubled Bonavista–s land position and greatly enhanced its control of strategic facility infrastructure. With the second transaction that Bonavista closed in January 2013, this recent acquisition activity has significantly expanded our operational presence in the area increasing production by 150% to approximately 14,000 boe per day, proved and probable reserves by 160% to 56 mmboe, land position by 140% to 210,000 net acres, processing capacity by 120% to 230 mmcf per day and inventory levels by 60% to 200 horizontal locations. More important in today–s commodity price environment, the increased scale of operations offered by this consolidation activity has enabled operating efficiency gains as evidenced by a 25% decline in area operating costs. Furthermore, with a larger development program now in place, Bonavista believes it can drive incremental growth and capital efficiencies through increasing economies of scale.
2012 Operational Highlights
Hoadley Glauconite Liquids Rich Natural Gas
Bonavista drilled seven horizontal wells in the fourth quarter bringing total 2012 activity to 34 horizontal wells in a program focused on continuous optimization of field level economics. Specific efforts in 2012 consisted of downspacing initiatives, longer lateral sections and enhancing our understanding of the geological characteristics of the reservoir.
Bonavista–s 2012 development activities on the Hoadley Glauconite trend resulted in an efficient exploitation program adding $200.9 million of NPV 10% value and 13.1 mmboe of proved and probable reserves with attractive metrics of $6,800 per boe per day based on average initial month production rates and $7.25 per boe. Based on current production levels and forward commodity pricing, Bonavista–s horizontal Glauconite program is expected to provide sufficient cash flow in 2013 to support continued growth at the field level while contributing to improved overall corporate sustainability.
Despite the active development program in 2012, Bonavista increased its drilling inventory by 8% to 410 locations through continued land assembly and the testing of downspacing to four wells per section in a pilot program that has yielded successful initial results. We will continue to monitor well performance with these pilots throughout 2013 and with continued positive results, we expect the program to increase in scope in future years.
At current natural gas prices, single well economics associated with this play remain competitive on a North American scale and within our asset portfolio owing to the predictable results, attractive natural gas liquids yield, low operating costs and strong capital efficiencies. Bonavista–s Glauconite development program remains a key growth platform in 2013, with a drilling program of approximately 45 horizontal wells.
West Central Cardium Light Oil
Bonavista drilled 12 horizontal wells in the fourth quarter bringing total 2012 activity to an annual record of 32 horizontal wells in a program balanced between the proven high productivity trends and the emerging portions of our land base. Our operated development program in 2012 focused on the Ferrier/Willesden Green area with 19 horizontal wells drilled. Production results in this area have been strong delivering average first month production rates of 250 boe per day in 2012. In a continued effort to de-risk additional acreage, Bonavista drilled one well at Lochend in the fourth quarter which confirmed our geological interpretation of the area despite operational issues that restricted the effective stimulation of the wellbore to less than 50% of the original program.
Bonavista–s 2012 activity in the Cardium resulted in the addition of $111.9 million in NPV 10% value and 3.4 mmboe of proved and probable reserves with efficient metrics of $15,700 per boe per day based on average initial months production rates and $21.25 per boe. Importantly, Bonavista was successful in the conversion of 2.7 mmboe of Proved Undeveloped reserves to Proved Developed Producing reserves while continuing to grow our inventory of future drilling opportunities to 140 horizontal locations.
Bonavista–s Cardium development program continues to rank favourably in our portfolio and we plan to drill approximately 20 horizontal wells in 2013.
Deep Basin Multi-zone Liquids Rich Natural Gas
Bonavista drilled two horizontal wells in the fourth quarter contributing to a total of eight wells in 2012 targeting low risk opportunities in the Bluesky formation at Pine Creek. Since entering the area in 2010 Bonavista–s activities in this multi-zone area of the deep basin involved a focus on low risk opportunities in the Bluesky and Rock Creek formations. This approach provided an opportunity to gain operational experience as we continue to evaluate additional emerging plays including the Montney, Notikewin and Wilrich.
Bonavista plans to drill approximately 15 to 20 horizontal wells in the area including 10 Rock Creek light oil or liquids rich natural gas wells at Rosevear, two Bluesky liquids rich natural gas wells at Pine Creek and selective testing of the prolific Wilrich play in 2013. Bonavista–s acquisition activity in 2012 provided a solid platform of inventory and operations in the Wilrich, a play rapidly emerging with significance in the Deep Basin.
Additional Emerging Opportunities
Bonavista continued to de-risk two key emerging plays in the fourth quarter, drilling six horizontal Viking oil wells at Provost in eastern Alberta and one horizontal well targeting liquids rich natural gas in the Ellerslie formation in west central Alberta. Production results in the Viking formation at Provost have met expectations throughout 2012. Backed by incremental operational experience in this play, we are poised to enhance capital efficiencies with plans to drill 18 to 20 Viking oil wells in 2013. Similarly, we plan to drill up to seven Ellerslie horizontal wells in 2013 as we progress both the Ellerslie and Viking emerging plays to scaleable capital programs.
Bonavista will continue to delineate its liquids rich Montney acreage at Blueberry in northeast British Columbia in 2013 with one to two horizontal wells planned. While encouraged by the high natural gas liquids yield exhibited by the six horizontal wells drilled to date, development economics are challenged in the current low natural gas price environment. Notwithstanding the near term challenges, offsetting industry activity in the Montney horizon has accelerated over the past year driven by technological achievements in well cost reductions and an increased motivation to secure large scale resources to support eventual west coast LNG export initiatives. Bonavista intends to drill four to six wells over the next two years to verify the scale of the opportunity while monitoring industry activity to maximize the net present value of the resource situated on our 55 net section land base.
In addition to the Montney, Ellerslie and Viking formations, our technical teams continue to identify and evaluate additional emerging resource opportunities in 2013 with a focus on light oil or liquids rich natural gas in numerous formations.
Strengths of Bonavista Energy Corporation
Beginning in 1997, with an initial restructuring to create a high growth junior exploration company, throughout the energy trust phase between July 2003 and December 2010, and now operating as a dividend paying corporation, Bonavista remains committed to the same strategies that have resulted in our tremendous success over the past 15 years. We have steadily improved the quality and maintained a high level of investment activity on our asset base, increasing production by approximately 110% since converting to an energy trust in July 2003 and a further 8% since converting back to a corporation at the end of 2010. These results stem from the operational, technical and financial expertise of our people with their entrepreneurial approach to generating low risk, highly profitable projects within the Western Canadian Sedimentary Basin. Our experienced technical teams have a solid understanding of our assets as they exercise the discipline and commitment required to deliver long-term value to our shareholders. We actively participate in undeveloped land acquisitions, property purchases and farm-in opportunities, which have all enhanced the quality and quantity of our extensive drilling inventory. These activities have led to low cost reserve additions, and a predictable production base that continues to grow at a healthy pace. Our production base is currently 64% weighted towards natural gas and is geographically focused within select, multi-zone regions primarily in Alberta and British Columbia. The low cost structure of our asset base ensures positive operating netbacks in most operating environments. Furthermore, our assets are predominantly operated by Bonavista, providing control over the pace of operations and optimum influence over our operating and capital cost efficiencies.
Our team brings a successful track record of executing low to medium risk development programs, including both asset and corporate acquisitions, along with sound financial management. Our Board of Directors and management team possess extensive experience in the oil and natural gas business. They have successfully guided our organization through many different economic cycles utilizing a proven strategy consisting of disciplined cost controls and prudent financial management. Directors, management and employees also own approximately 13% of the equity of Bonavista, resulting in the alignment of interests with all shareholders.
Outlook
As we progress into our third year as a dividend paying corporation, Bonavista remains committed to a business model built on maximizing total shareholder return. Throughout the volatile commodity price environment of 2012, Bonavista decisively adjusted to the environment while maintaining sharp attention to our core strengths that have proven to add shareholder value over the long term. These strengths include continually exercising cost discipline and a high level of capital spending efficiency as we pursue low risk, profitable opportunities.
In 2013, Bonavista intends to maintain the same strategies we employed in 2012 in our quest to drive incremental efficiency into our business through further concentration of our asset base in a compelling acquisition and divestiture market. We are encouraged by the number of acquisition opportunities in the market and look forward to capitalizing on those that provide a synergistic advantage. Additionally, we are currently in the process of marketing certain non-strategic assets which, if successful, would enable a redeployment of capital into our most capital efficient areas of operation.
Until conclusion of our current asset divestiture process, Bonavista–s 2013 capital budget remains at approximately $425 million, with a program to drill between 120 and 125 wells within our core areas. This capital program is expected to result in 2013 production volumes of between 73,500 and 74,500 boe per day. As in years past, we will be attentive to changes in commodity prices and the business environment and will maintain flexibility with our capital expenditure plans in order to maximize shareholder value.
We would like to thank our employees for their commitment to Bonavista–s proven operating strategies and our shareholders for their continual support as we strive to weather this latest phase of the commodity cycle. We have confidence that our strategies are appropriate for today–s environment and we look forward to continually creating long-term value for our shareholders. Our team is very committed to this vision.
FORWARD LOOKING INFORMATION
Forward-Looking Statements – Certain information set forth in this document, including management–s assessment of Bonavista–s future plans and operations, contains forward-looking statements including; (i) forecasted capital expenditures and plans; (ii) exploration, drilling and development plans, (iii) prospects and drilling inventory and locations; (iv) anticipated production rates; (v) anticipated operating and service costs; (vi) our financial strength; (vii) incremental development opportunities; (viii) reserve life index; (ix) total shareholder return; (x) growth prospects; (xi) asset acquisition and disposition plans; (xii) sources of funding, which are provided to allow investors to better understand our business. By their nature, forward-looking statements are subject to numerous risks and uncertainties; some of which are beyond Bonavista–s control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, changes in environmental tax and royalty legislation, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Bonavista–s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements or if any of them do so, what benefits that Bonavista will derive there from. Bonavista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Non-IFRS Measurements – Within this press release, references are made to terms commonly used in the oil and natural gas industry. Management uses “funds from operations” and the “ratio of debt to funds from operations” to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by IFRS and therefore it may not be comparable with the calculation of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with IFRS. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures and interest expense. Basic funds from operations per share is calculated based on the weighted average number of common shares outstanding in accordance with International Financial Reporting Standards. Operating netbacks equal production revenue and realized gains or losses on financial instrument commodity contracts, less royalties, transportation and operating expenses calculated on a boe basis. Total boe is calculated by multiplying the daily production by the number of days in the period. Management uses these terms to analyze operating performance and leverage.
Conversion of Natural Gas to Barrels of Equivalent (BOE)
To provide a single unit of production for analytical purposes, natural gas production and reserves volumes are converted mathematically to equivalent barrels of oil (boe). We use the industry-accepted standard conversion of six thousand cubic feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 boe ratio is based on an energy equivalency conversion method primarily applicable at the burner tip. It does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the boe ratio is useful for comparative measures and observing trends, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.
Contacts:
Keith A. MacPhail
Executive Chairman
Jason E. Skehar
President & CEO
Glenn A. Hamilton
Senior Vice President & CFO
Bonavista Energy Corporation
1500, 525 – 8th Avenue SW
Calgary, AB T2P 1G1
(403) 213-4300