CALGARY, ALBERTA — (Marketwire) — 08/10/12 — Skope Energy Inc. (“Skope” or the “Company”) (TSX: SKL) announced today its quarterly consolidated financial results as at and for the three months ended June 30, 2012 and the accompanying Management–s Discussion and Analysis. The Company also announced a change in its fiscal year end from March 31st to December 31st.
OPERATIONAL AND FINANCIAL HIGHLIGHTS
PRESIDENT–S MESSAGE TO SHAREHOLDERS
The Company–s most significant challenge is the ongoing management of its bank debt due to the onset of low natural gas prices. Despite the lowest natural gas prices in more than 12 years, Skope has been current on its interest payments, and has repaid almost $13 million of bank debt (including $0.6 million paid subsequent to the quarter ended June 30, 2012). This speaks to the quality of the asset base and the success of the Company–s hedging program.
As at June 30, 2012, $54.1 million had been drawn on the credit facility. The revolving period of the credit facility expired on July 31, 2012. On August 1, 2012, the lender determined not to extend the revolving period of the credit facility and requested payment of all obligations owing under the credit facility by no later than August 13, 2012. Such date may be extended by the lender in its sole discretion. The Company is not in a position to make the requested payment on August 13, 2012; however, the Company is in discussions with several alternative capital providers and will continue to work diligently with its lender to determine an optimal solution.
Skope spent $1.1 million on its assets during the quarter ended June 30, 2012 largely comprised of lease rentals, production equipment and pipelines. In light of current commodity and financial market conditions, Skope will continue to minimize capital spending on its assets. This includes postponing not only drilling and recompletions, but also turnarounds and swabbing activities, both of which can be reactivated quickly as commodity prices recover. Any future drilling will be dependent on future natural gas prices. Skope–s capital budget for the calendar year 2012 is approximately $3 million. This budget is designed to minimize expenditures but maintain reserve integrity. Skope has identified approximately 135 horizontal drilling locations in inventory at Pendor for future development when the commodity prices improve.
Production for the three months ended June 30, 2012 averaged 22,930 mcf per day (3,822 boe per day) representing a 8% decline from the same period in 2011 and a 7% decline from the previous quarter ended March 31, 2012. The reduction is due to normal decline and the impact of reduced capital spending.
As at June 30, 2012, Skope had commodity contracts hedging approximately 29% of anticipated average net production from now until March 2013 at a price of approximately $4.10 per mcf. During the quarter, average AECO prices reached a low of C$1.55/gj (approximately $1.64/mcf). Natural gas prices have improved to current levels of approximately $2.40 per gj (approximately $2.54 per mcf). Continued improvements in natural gas prices will be a function of weather, continued lower drilling activity and improvements in industrial demand driven by recovery in the US economy.
Skope continues to be one of the lowest cost natural gas producing companies in Canada with first quarter operating costs of approximately $1.46 per mcf and general and administrative (“G&A”) costs of approximately $0.26 per mcf ($1.56 per boe). At current spot AECO gas prices of approximately $2.45 per gj ($2.60 per mcf). Skope is generating sufficient netbacks to cover all of its G&A, interest and capital expenditure commitments. This low cost structure makes the Company well positioned to benefit from higher natural gas prices as they develop.
CHANGE OF YEAR END
Skope has made the decision to change its fiscal year end from March 31st to December 31st in order to remain consistent with its operating partner Spur Resources Ltd. (“Spur”) which has recently made the decision to change its fiscal year end from March 31st to December 31st.
The following table sets forth the length and ending date of the periods, including comparative periods of each interim financial report and the annual financial statements to be filed for Skope–s transition year and its new financial year.
Filing deadlines for the interim and annual financial statements for the reporting issuer–s transition year are:
On behalf of the Board of Directors,
Henry Cohen, President and Chief Executive Officer
FORWARD LOOKING STATEMENTS
This news release contains forward looking statements. These statements relate to future events or the Company–s future performance. All information and statements contained herein that are not clearly historical in nature constitute forward looking statements, and the words “may”, “will”, “should”, “could”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “propose”, “predict”, “potential”, “continue”, or the negative of these terms or other comparable terminology are generally intended to identify forward looking statements. These statements involve known or unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. Undue reliance should not be placed on these forward looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur.
In particular, this news release contains forward-looking statements relating, but not limited to:
These forward-looking statements are based on certain assumptions and are subject to a number of risks concerning anticipated financial performance, business prospects, strategies, regulatory developments, current and future commodity prices and exchange rates, applicable royalty rates, tax laws, future well production rates and reserve volumes, future operating costs, the performance of existing wells, the success of its exploration and development activities, the sufficiency and timing of budgeted capital expenditures in carrying out planned activities, the availability and cost of labor and services, the impact of increasing competition, conditions in general economic and financial markets, availability of drilling and related equipment, effects of regulation by governmental agencies, and the ability to obtain adequate financing on acceptable terms all of which are subject to change based on a variety of factors.
Investors are cautioned that such information, although considered reasonable by the Company, may prove to be incorrect. Actual results achieved will vary from the information provided in this news release as a result of numerous known and unknown risks and uncertainties certain of which are beyond Skope–s control. Skope–s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Skope will derive therefrom.
Such risks and uncertainties include, without limitation: risks associated with Skope–s ability to continue to receive the support of its lender, Skope–s ability to obtain additional financing on acceptable terms and on the timing contemplated; the impact of general economic and credit conditions; continued volatility in commodity prices, and the impact of continued low and/or declining natural gas prices on Skope–s cash flow and financial position; the uncertainty of estimates and projections relating to test rates, reserves, production, costs and expenses; general economic, market and business conditions, volatility in market prices for crude oil and natural gas and hedging activities related thereto, limited, unfavourable, or a lack of access to external sources of capital, risks associated with the oil and gas industry in general such as operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to test rates, reserves, production, costs and expenses; health, safety and environmental risks; competition; and changes in legislation, including but not limited to tax laws, royalties and environmental regulations.
Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statement disclosure contained in this news release is expressly qualified by this cautionary statement. These forward-looking statements are made as of the date of this news release and the Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.
Additional information regarding Skope is available under the Company–s profile on SEDAR at or on the Company–s website at .
NON-IFRS FINANCIAL MEASURES
Skope uses the following terms for measurement within this press release that do not have a standardized prescribed meaning under International Financial Reporting Standards (“IFRS”) and these measurements may not be comparable with the calculation of similar measurements of other entities.
The terms “funds from operations”, “operating netback” and “operating netback per mcf” in this press release are not recognized measures under IFRS Management believes that these terms are useful supplemental measures to evaluate operating performance and assess leverage. Users are cautioned however, that these measures should not be construed as an alternative to net earnings or cash flow from operating activities determined in accordance with IFRS as an indication of Skope–s performance.
Skope considers funds from operations to be an important measure of its ability to generate the funds necessary to finance capital expenditures and repay debt. All references to funds from operations throughout this press release are based on cash provided by operating activities before the change in non-cash working capital and actual asset retirement expenditures since Skope believes the timing of collection, payment or incurrence of these items involves a high degree of discretion and as such may not be useful for evaluating Skope–s operating performance. Skope–s method of calculating funds from operations may differ from that of other companies and, accordingly, may not be comparable to measures used by other companies.
Readers may refer to a reconciliation of funds from operations to cash provided by operating activities in Skope–s Management–s Discussion and Analysis dated August 10, 2012 which has been has been filed under Skope–s SEDAR profile at and on Skope–s website at .
FREQUENTLY USED TERMS
In this press release, the following terms are defined as follows:
51-101 ADVISORY
In conformity with National Instrument 51-101 – “Standards of Disclosure for Oil and Gas Activities” (“NI 51-101”) a Boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 Bbl) and a Mcfe conversion ratio of one barrel of oil equivalent to six thousand cubic feet of natural gas (1 Bbl: 6 Mcf) has been used to convert volumes of natural gas and barrels of oil. A conversion ratio of 6 mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Readers are cautioned that the term “boe” may be misleading, particularly if used in isolation. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, conversion on a 6:1 basis may be misleading as an indication of value.
FILINGS
Skope has filed with Canadian securities regulatory authorities its unaudited financial statements for the quarter ended June 30, 2012 and the accompanying Managements– Discussion and Analysis (“MD&A”). These filings are available under Skope–s SEDAR profile at . Full pdf versions of the financial statements and the accompanying MD&A are available on our website at .
ABOUT SKOPE ENERGY INC.
Skope is in the business of oil and natural gas exploration, development and production in Western Canada with a focus on shallow natural gas. Skope owns an 80% working interest in a package of high quality, long-term, low decline producing shallow gas assets, located in southeast Alberta and southwest Saskatchewan.
Skope–s common shares are listed on the Toronto Stock Exchange under the symbol “SKL”.
Contacts:
Skope Energy Inc.
Henry Cohen
President and Chief Executive Officer
416 850 0193
Skope Energy Inc.
Viren Wong
Executive Vice-President and Chief Operating Officer
416 850 0193
Skope Energy Inc.
Daniel Belot
Vice President, Finance and Chief Financial Officer
403 538 8018