Symbol DEE-T
DEE-T Target: $1.55 6mth target
Shares Issued79,067,158
79,067,158Close 2009-07-22C$ 1.01
C$ 1.01 2009-07-22 19:15 ET - News Release
Mr. David Reid reports
DELPHI REPORTS NINTH QUARTER OF PRODUCTION GROWTH AND INCREASES CASH FLOW AND FINANCIAL FLEXIBILITY
Delphi Energy Corp. has released its financial and operational results for the second quarter ended June 30, 2009.
Second quarter 2009 highlights:
* Achieved record production of 6,809 barrels of oil equivalent per day (boed) in the second quarter of 2009, marking the ninth consecutive quarter of production growth;
* Generated funds from operations of $12.4-million (16 cents per basic share) in the quarter, up from $10.0-million (13 cents per basic share) in the first quarter of 2009;
* Reduced net debt to $104.1-million at the end of the second quarter of 2009, down $9.1-million from $113.2-million at the end of the first quarter, increasing total credit availability to $35.9-million;
* Drilled one well with a success rate of 100 per cent on a net capital program of $3.3-million in the quarter. For the first six months, the net capital program totalled $17.3-million, approximately 77 per cent of the first half cash flow;
* The company's natural gas hedge position extends as far as Dec. 31, 2010, at an average price of $7.34 per million cubic feet and $6.88 per million cubic feet for the remainder of 2009 and 2010, respectively;
* Renewed the company's total credit facilities at $140.0-million, consisting of a revolving production facility of $125.0-million and an acquisition/development facility of $15.0-million.
FINANCIAL HIGHLIGHTS
(thousands of dollars except per-unit amounts)
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
Petroleum and natural
gas sales 23,229 38,569 47,434 70,781
Per boe 37.49 68.33 38.62 63.45
Funds from operations 12,371 19,965 22,388 37,024
Per boe 19.97 35.37 18.23 33.18
Per share -- basic 0.16 0.29 0.28 0.54
Per share -- diluted 0.16 0.28 0.28 0.53
Net earnings (loss) (2,817) 49 (6,137) (690)
Per boe (4.54) 0.09 (4.99) (0.62)
Per share -- basic (0.04) - (0.08) (0.01)
Per share -- diluted (0.04) - (0.08) (0.01)
Capital invested 3,602 7,489 17,694 33,987
Disposition of
properties (74) (2,950) (225) (2,950)
------ ------ ------ ------
Net capital invested 3,528 4,539 17,469 31,037
Acquisition of
properties (218) 3,850 (218) 3,850
------ ------ ------ ------
Total capital 3,310 8,389 17,251 34,887
Message to shareholders
Despite the 30-per-cent drop in the AECO natural gas price in the second quarter as compared with the first quarter of 2009, Delphi accomplished modest growth in average quarterly production volumes, stronger cash flow than in the first quarter and in combination with a minimal capital program, achieved significant net debt reduction during the quarter. At the end of the second quarter, the company had increased its financial flexibility with $35.9-million of available credit lines. The company believes it is well positioned for sustainable long-term, organic growth in any business environment. The global recession continues with commodity prices remaining under pressure, however, Delphi believes it can operate effectively in these challenging times and is in a position of relative strength to many of its peer group.
During the second quarter, the company's field operations were limited due to spring breakup. The company was, however, able to begin its summer capital program by mid-June with the completion of drilling operations on a well (1.0 net) at Hythe, Alta., by the end of the second quarter and undertook several recompletions. Fracture stimulation and tie-in operations of the drilled well will be completed in the third quarter. The focus of the summer capital program will continue to be directed toward the Hythe and Bigstone properties to take advantage of the multizone nature of these assets, low operating costs and quick on-stream capability associated with owned gathering and processing infrastructure. Total net capital expenditures for the second quarter were $3.3-million.
Production during the second quarter of 2009 averaged 6,809 boed, an increase of 10 per cent compared with 6,202 boed in the second quarter of 2008 and 1 per cent greater than the first quarter in 2009 of 6,762 boed. Second quarter production represented Delphi's ninth consecutive quarter of production growth. New production from the company's successful first quarter capital program contributed significantly to this modest growth in second quarter production despite significant turnarounds at Bigstone and the company's northeast British Columbia operations during the quarter.
Delphi's production continues to receive a premium to the price at AECO due to marketing arrangements, heating content and natural gas hedges. Approximately 53 per cent of the company's natural gas production was hedged at an average price of $7.38 per million cubic feet in the second quarter, resulting in a gain on natural gas contracts of $7.0-million. Delphi's realized natural gas price of $5.81 per million cubic feet in the second quarter represented a premium of 67 per cent to the average AECO price in the quarter.
Funds from operations in the second quarter of 2009 were $12.4-million (16 cents per basic share) compared with $20.0-million (29 cents per basic share) in the second quarter of 2008, primarily as a result of significantly lower average oil and natural gas prices being partially offset by increased production volumes, reduced royalty rates and an 8-per-cent reduction in cash operating costs per barrel of oil.
At June 30, 2009, the company had net debt of $104.1-million, a $5.1-million decrease from $109.2-million at Dec. 31, 2008. The decrease in net debt during the first six months of 2009 resulted from Delphi's successful capital program totalling only $17.3-million or 77 per cent of the cash flow generated in the first six months of 2009. The company's debt-to-cash-flow ratio on an annualized 2009 cash-flow basis was reduced to 2.3:1 at the end of the second quarter from 2.8:1 at the end of the first quarter. Net debt includes bank debt plus working capital deficiency excluding the risk management asset and the related current future income taxes liability.
The annual credit review by the company's lenders was completed in the second quarter. The company's lenders continue to be National Bank of Canada and Bank of Nova Scotia. The total credit facilities were renewed at $140.0-million comprising a revolving $125.0-million production credit facility and a non-revolving $15.0-million acquisition/development credit facility. At the same time, the pricing on the facilities had been adjusted to reflect current market rates for credit facilities of this nature. All other terms of the credit facilities remain unchanged from the previous arrangements.
Northwest Alberta
During the second quarter, Delphi achieved record production volumes as a result of the successful first quarter drilling, workover and optimization program primarily focused in the Hythe and Bigstone areas. Operations during the second quarter were limited in scope due to spring breakup which typically restricts the ability to conduct drilling and workover operations until late in the quarter. Operational activities in the second quarter were focused on moving forward projects that would build upon the successes in the first quarter and position the company to exploit its predictable, repeatable and capital efficient opportunities.
Hythe
At Hythe, the company drilled and cased one vertical gas well (1.0 net) during the second quarter. Completion operations have been initiated and a total of six zones will be completed based on log analysis. This well offsets other Delphi producers that have initial three-month average production rates ranging from 250 to 600 boed. As a follow-up to the Doe Creek light oil discovery first announced in Stockwatch in September, 2008, Delphi has recompleted a 100-per-cent-working-interest well which offsets the discovery well. The recompletion was successful and the well tested at rates in excess of 225 barrels of oil per day (bbls/d) over a 48-hour flow period. The well has been tied in to Delphi's infrastructure and has been placed on production at a stabilized rate of 160 bbls/d. A horizontal well offsetting the successful oil recompletion has been licensed and will spud prior to the end of July to calibrate the productivity enhancement and increased reserve recovery associated with a multistage fracture completion. In reservoirs of this nature, initial production rates and reserve recoveries for horizontal wells are typically two to three times that of vertical wells.
The company is continuing to move drilling, recompletion and optimization projects forward by obtaining the regulatory and partner approvals necessary for project execution. Timing of the individual projects will be dependent upon commodity pricing and results from completed operations. The second half capital program at Hythe was generated from a project list that exceeds $48.0-million allowing for operational flexibility in regards to project selection. Delphi currently has eight vertical wells and four horizontal wells licensed or in the process of being licensed for the contemplated remaining 2009 capital program.
Technical and operational activities are continuing in an effort to unlock the large volumes of gas in place associated with the Nikanassin formation. One of the vertical wells drilled in the first quarter was successfully completed in the Nikanassin and was mechanically isolated during the second quarter while a prolific uphole Cretaceous sand was production tested. The company is now in the process of commingling the Nikanassin with several uphole Cretaceous sands with a completion design that will allow for long-term performance monitoring of the Nikanassin formation. Pressure transient analysis indicates this well has experienced only minimal pressure depletion even though it is located 775 metres from an offset Nikanassin completion that has cumulative production of 2.2 billion cubic feet. The pressure and production data support the volumetric calculations of 15 billion cubic feet per spacing unit in this part of the Hythe field. A regional study has been initiated to characterize the porosity and permeability relationships, define geologic depositional models and understand the effects of various drilling and completion practices. The outcome of this study will allow Delphi to optimize development of the Nikanassin resource in relation to deliverability and reserve recovery. Toward that end, the company has identified multiple Nikanassin recompletion opportunities to be pursued in the second half of the year.
Delphi continues to take advantage of attractive opportunities resulting from the current business environment through the acquisition of undeveloped land. During the second quarter, the company successfully participated in several Crown land sales acquiring 1,280 gross acres at a working interest of 100 per cent.
Bigstone
At Bigstone, the company has licensed and built a location in preparation for drilling an offset to a successful first quarter well that averaged 650 boed gross over the first three months of production. In addition, Delphi is continuing to evaluate performance results from several Cardium oil pools on the Bigstone lands and is monitoring industry activity along trend in the Cardium formation. Delphi currently has identified six potential Cardium horizontal oil wells of which two are in the process of being licensed for the contemplated remaining 2009 capital program.
Outlook
Natural gas prices have continued to weaken throughout the first part of the year and are at risk of further reduction as a result of natural gas supply in excess of demand, particularly due to reduced industrial demand from the lower economic activity in North America. Delphi will manage its capital spending prudently in light of the fact that potential lower natural gas prices may prevail for the remainder of 2009. As in prior years, the company's risk management program provides stability to the company's cash flow for the remainder of the year allowing a minimum level of capital to be incurred.
The company will continue to be disciplined in its capital spending, focusing on the lowest-risk development projects in its core areas of Bigstone and Hythe. Drilling to develop the resource potential in the Bluesky, Dunvegan or Nikanassin formations from the Hythe property will be considered as part of the second-half capital program. Operational risk, capital required and overall capital efficiencies will be the driving factors in pursuing the resource-type plays in the current and expected low natural gas price environment. The board of directors has approved a second-half capital program of $18.0-million to $23.0-million for a total capital program of $35.0-million to $40.0-million in 2009.
Cash flow for 2009 is forecast to be between $38.0-million and $43.0-million on an average natural gas price for AECO of approximately $4.25 per million cubic feet. The company has hedged approximately 51 per cent of its natural gas production at $7.34 per million cubic feet for the remainder of 2009 to achieve this forecasted cash flow. Over the year and based on its current capital program, Delphi expects an overall reduction in net debt of approximately $2.0-million to $4.0-million from the amount outstanding at Dec. 31, 2008.
Delphi remains confident in its ability to achieve continued per-share growth during these challenging times. The company's expanding inventory of drilling locations gives rise to continued optimism for growth beyond 2009.
On behalf of the board of directors and all the employees of Delphi, the company would like to thank its shareholders for their continued support and patience in these very difficult and uncertain economic times. Delphi's team effort remains focused on sustainable economic growth while maintaining the financial strength and flexibility to take advantage of strategic opportunities which may arise in the coming year.
Conference call
A conference call is scheduled for 9 a.m. (Mountain Time) (11 a.m. Eastern Time) on Thursday, July 23, 2009. The conference call number is 800-565-0813 or 416-695-6616. A brief presentation by David Reid, president and chief executive officer, and Brian Kohlhammer, vice-president, finance and chief financial officer, will be followed by a question-and-answer period.
If you are unable to participate in the conference call, a taped broadcast will be available until Aug. 6, 2009. To access the replay, dial 800-408-3053 or 416-695-5800. The passcode is 3752405. Delphi's second quarter 2009 financial statements and management's discussion and analysis are available on Delphi's website and will be available on SEDAR within 24 hours.
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