CALGARY, ALBERTA–(Marketwired – March 16, 2017) – Spartan Energy Corp. (“Spartan” or the “Company”) (TSX:SPE) is pleased to report its financial and operating results for the fourth quarter and year ended December 31, 2016. Selected financial and operational information is set out below and should be read in conjunction with Spartan’s December 31, 2016 audited annual financial statements and the related management’s discussion and analysis (“MD&A”). The financial statements and MD&A are available for review at www.sedar.com or on the Company’s website at www.spartanenergy.ca.
FINANCIAL AND OPERATIONAL RESULTS
| Three Months Ended | Year Ended | ||||||||
| (Cdn$000s except per boe and per share amounts) | December 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | |||||
| Average daily production (boe/d) | 15,750 | 9,319 | 11,748 | 8,866 | |||||
| Net realized oil and gas sales price (excluding derivatives) ($/boe) | 51.02 | 43.30 | 43.88 | 47.80 | |||||
| Royalties ($/boe)(1) | 7.68 | 6.44 | 6.59 | 7.39 | |||||
| Production costs ($/boe)(2) | 17.96 | 16.48 | 16.81 | 17.23 | |||||
| Operating netback ($/boe)(3) | 25.27 | 20.38 | 20.43 | 23.18 | |||||
| Net general and administrative expense ($/boe) | 1.23 | 0.71 | 1.69 | 1.72 | |||||
| Interest expense ($/boe) | 1.30 | 0.82 | 0.89 | 0.98 | |||||
| Adjusted funds flow from operations(3)(4) | 32,958 | 16,166 | 76,749 | 66,288 | |||||
| per share – basic | 0.08 | 0.06 | 0.24 | 0.25 | |||||
| per share – diluted | 0.08 | 0.06 | 0.22 | 0.23 | |||||
| Net income (loss) | (3,175) | (26,120) | (18,613) | (77,778) | |||||
| per share – basic | (0.01) | (0.10) | (0.06) | (0.29) | |||||
| per share – diluted | (0.01) | (0.10) | (0.06) | (0.29) | |||||
| Capital expenditures(5) | 30,997 | 17,687 | 75,763 | 66,623 | |||||
| Net debt(3) | 245,685 | 86,328 | 245,685 | 86,328 | |||||
| Net debt exclusive of finance lease obligations(3) | 214,561 | 86,328 | 214,561 | 86,328 | |||||
| Bank Facility | 350,000 | 150,000 | 350,000 | 150,000 | |||||
| Weighted average shares outstanding | |||||||||
| basic | 392,999 | 264,438 | 325,705 | 264,312 | |||||
| diluted | 418,987 | 285,649 | 350,834 | 286,799 | |||||
| Notes: | |||||||||
| (1) Royalties include Saskatchewan resource surcharge. | |||||||||
| (2) Including transportation costs. | |||||||||
| (3) Adjusted funds flow from operations, operating netback, net debt and net debt excluding finance lease obligations are non-IFRS measures. See “Non-IFRS Measures”. | |||||||||
| (4) Excluding transaction costs. | |||||||||
| (5) Excluding acquisitions. | |||||||||
FOURTH QUARTER 2016 HIGHLIGHTS
- Achieved average production of 15,750 boe/d (90% oil and liquids) in the fourth quarter of 2016, representing a 69% increase over the fourth quarter of 2015 and a 27% increase over the third quarter of 2016.
- Completed an acquisition of oil and gas assets in our southeast Saskatchewan operating area, representing approximately 7,500 boe/d of production, 22.5 MMboe of proved developed producing reserves, 39.3 MMboe of proved plus probable reserves and 98,000 net acres of land, for an aggregate purchase price of approximately $691.5 million, net of closing adjustments. The acquired assets carry a low base decline of 12% and added 404 net drilling locations.
- Acquired approximately 18 net sections of land in southeast Saskatchewan prospective for drilling unconventional wells in the Torquay formation; with this acquisition we now have a total of approximately 22 net sections in southeast Saskatchewan prospective for Torquay light oil.
- Completed equity financings of 180.9 million common shares at a price of $3.00 per common share for gross proceeds of approximately $542.6 million.
- Increased the Company’s credit facility from $150 million to $350 million.
- Achieved quarterly adjusted funds flow from operations of $33.0 million ($0.08 per basic and diluted share), representing an increase of 104% over the fourth quarter of 2015 (33% increase on a per share basis).
2016 ANNUAL HIGHLIGHTS
- Spartan completed five consolidating acquisitions in our southeast Saskatchewan operating area in 2016, representing approximately 10,930 boe/d of production, 32.5 MMboe of proved developed producing reserves, 43.3 MMboe of total proved reserves, 63.3 MMboe of proved plus probable reserves and 223,000 net acres of land, for an aggregate purchase price of approximately $864.8 million, net of closing adjustments.
- The five acquisitions added 718 net drilling locations in the Frobisher, Midale, Tilston and Ratcliffe light oil plays in southeast Saskatchewan.
- Completed three equity financings of 246.2 million common shares for gross proceeds of approximately $719.6 million.
- Achieved average production of 11,748 boe/d in 2016 (92% oil and liquids), representing a 33% increase over 2015 (13% per debt adjusted share).
- Drilled 62 (53.7 net) development wells and brought 69 (59.6 net) development wells on production in 2016.
- Delivered well results significantly outperforming internal type curves:
- Spartan drilled 42.9 net open-hole Frobisher wells in 2016 (90% success rate), with initial 90 day oil production rates (“IP 90”) exceeding our type well by over 30%.
- At Alameda, we brought a total of 7 net wells on production in 2016 following the acquisition of Wyatt Oil and Gas Inc. in June 2016. These wells achieved an average IP90 oil rate of 159 bopd, approximately 23% above our frac Midale type curve.
- Continued to reduce drilling costs, with drill, complete and equip (“DC&E”) costs for single leg open-hole horizontal wells drilled after the first quarter of 2016 averaging approximately $600,000.
- The outperformance of our wells and continued costs savings allowed Spartan to deliver organic production growth within cash flow despite depressed commodity prices experienced during the year. Total capital expenditures (excluding acquisitions) of $75.8 million were less than adjusted funds flow from operations of $76.7 million. Excluding amounts spent on land and seismic, total capital expenditures represented approximately 82% of adjusted funds flow from operations.
OPERATIONS UPDATE
Spartan has had an active first quarter in the field, with three rigs operating in southeast Saskatchewan and an additional rig drilling our 2016 Viking program in west central Saskatchewan. First quarter activity levels have been in line with budget, and we anticipate we will drill 16.9 net open hole, 8.0 net frac Midale and 14.5 net Viking wells in the quarter. All wells are scheduled to be on production prior to the end of the quarter, with the exception of 9.5 net Viking wells and 3.0 net frac Midale wells which are scheduled to be completed and brought on production in the second quarter.
Spartan executed a very successful drilling program in 2016, with both open-hole Frobisher wells and frac-Midale wells brought on production during the year exceeding internal type curves. Early results from our first quarter program indicate that this outperformance is continuing, with open-hole wells at Queensdale and Winmore and frac Midale wells at Alameda currently ahead of budgeted type curves.
OUTLOOK
Since our inception in 2013, Spartan has strived to build a high quality, light oil focused asset base characterized by low risk, sustainable growth. The commodity price challenges experienced by the energy industry in 2016 created unique acquisition opportunities, and Spartan was able to capitalize on these opportunities to significantly enhance our asset portfolio. We transformed the Company into an intermediate producer in 2016, adding almost 11,000 boe/d of production, while also significantly adding to our inventory of economic drilling locations, improving the quality of our reserve base, lowering our corporate decline from 30% to 24% and maintaining the strength of our balance sheet. Our business model has never been stronger. The asset base we have assembled is highlighted by a moderate decline profile and a multi-year inventory of high quality drilling locations, and our organic drilling results have exceeded expectations. As a result, Spartan is well positioned to drive long-term value for shareholders through production and reserves growth combined with significant free cash flow generation at current commodity price levels.
Spartan is on track to meet or exceed our 2017 annual average production guidance of 21,080 boe/d, representing 11% annual per share growth. Based on a 2017 average WTI price of US$50, we anticipate free cash flow (in excess of forecast drilling and maintenance capital) of approximately $42 million in 2017. We are budgeting to allocate up to $15 million of our excess cash flow to discretionary investments such as the initiation and expansion of waterflood projects and the acquisition of additional land and seismic data. The remainder of our free cash flow will be used to further strengthen our balance sheet and drive additional growth by pursuing acquisition opportunities in our core operating areas.
READER ADVISORY
BOE Disclosure. The term barrels of oil equivalent (“BOE”) may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel (6mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All BOE conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Forward Looking Statements. Certain information included in this press release constitutes forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “project” or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information in this press release may include, but is not limited to, planned drilling and completion activities, well counts, future production levels and future production growth rates, future acquisition opportunities, capital spending levels, anticipated decline rates and our ability to deliver production growth and reserves growth and generate free cash flow.
The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by Spartan, including expectations and assumptions concerning the success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the availability and performance of facilities and pipelines, the geological characteristics of Spartan’s properties, the successful application of drilling, completion and seismic technology, prevailing weather and break-up conditions, commodity prices, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the availability of capital, labour and services, the creditworthiness of industry partners and our ability to acquire additional assets.
Although Spartan believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Spartan can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), constraint in the availability of services, commodity price and exchange rate fluctuations, adverse weather or break-up conditions and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. These and other risks are set out in more detail in Spartan’s Annual Information Form for the year ended December 31, 2016.
The forward-looking information contained in this press release is made as of the date hereof and Spartan undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward looking information contained in this press release is expressly qualified by this cautionary statement.
Non-IFRS Measures. Certain financial measures referred to in this press release, such as adjusted funds flow from operations, adjusted funds flow from operations per share, net debt and net debt excluding finance lease obligations are not prescribed by IFRS. Adjusted funds flow from operations is calculated based on cash flows from operating activities before changes in non-cash working capital, transaction costs and decommissioning obligation expenditures incurred. Adjusted funds flow from operations per share is calculated using weighted average shares outstanding consistent with the calculation of net income (loss) per share. Spartan uses adjusted funds flow from operations to analyze operating performance and leverage, and considers adjusted funds flow from operations to be a key measure as it demonstrates the Company’s ability to generate cash necessary to fund future capital investments and repay debt. Spartan’s determination of adjusted funds flow from operations, on an absolute and per share basis, may not be comparable to that reported by other companies.
The following table reconciles adjusted funds flow from operations to cash flow from operating activities, which is the most directly comparable measure calculated in accordance with IFRS:
| For the three months ended December 31, | For the year ended December 31, | |||||||||||
| ($ thousands) | 2016 | 2015 | % change | 2016 | 2015 | % change | ||||||
| Cash flow from operating activities | 39,756 | 17,181 | 131 | 59,188 | 70,416 | (16) | ||||||
| Transaction costs | 378 | 10 | 3,680 | 1,109 | 12 | 9,142 | ||||||
| Changes in non-cash working capital | (7,176) | (1,025) | 600 | 16,452 | (4,140) | (497) | ||||||
| Adjusted funds flow from operations | 32,958 | 16,166 | 104 | 76,749 | 66,288 | 16 | ||||||
Net debt is calculated as bank debt plus trade and other liabilities plus finance lease obligations less current assets. The following table reconciles bank debt (an IFRS measure) to net debt (a non-IFRS measure):
| ($ thousands) | December 31, 2016 | December 31, 2015 | ||
| Bank debt | 217,921 | 85,516 | ||
| Trade and other liabilities | 38,546 | 17,864 | ||
| Finance lease obligations | 31,124 | – | ||
| Current assets | (41,906) | (17,052) | ||
| Net debt | 245,685 | 86,328 |
Spartan management considers net debt excluding finance lease obligations to be a meaningful measure of the Company’s leverage and liquidity. The following table reconciles net debt (a non-IFRS measure) to net debt excluding finance lease obligations (a non-IFRS measure):
| ($ thousands) | December 31, 2016 | December 31, 2015 | ||
| Net debt | 245,685 | 86,328 | ||
| Finance lease obligations | (31,124) | – | ||
| Net debt excluding finance lease obligations | 214,561 | 86,328 |
Oil and Gas Advisories
BOE Disclosure. The term barrels of oil equivalent (“BOE”) may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All BOE conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Reserves Disclosure. All reserve references in this press release are “Company share reserves”. Company share reserves are the Company’s total working interest reserves before the deduction of any royalties and including any royalty interests of the Company.
Richard (Rick) McHardy
President and Chief Executive Officer
Spartan Energy Corp.
Tim Sweeney
Manager, Business Development
Spartan Energy Corp.
Suite 500, 850-2nd Street S.W.
Calgary, Alberta T2P 0R8
(403) 355-2779 (FAX)
[email protected]
