Bonavista Energy Corporation Announces 2014 Second Quarter Results

Bonavista Energy Corporation Announces 2014 Second Quarter Results 
CALGARY, ALBERTA -- (Marketwired) -- 07/31/14 --   Bonavista Energy
Corporation ("Bonavista") (TSX: BNP) is pleased to report to
shareholders its condensed consolidated interim financial and
operating results for the three and six months ended June 30, 2014.
The unaudited financial statements and notes, as well as management's
discussion and analysis, are available on the System for Electronic
Document Analysis and Retrieval ("SEDAR") at www.sedar.com and on
Bonavista's website at www.bonavistaenergy.com. 


 
 
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Highlights                                                                  
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                  Three months ended June                                   
                            30,                Six months ended June 30,    
                                         %                               %  
                    2014     2013   Change        2014        2013  Change  
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Financial                                                                   
($ thousands,                                                               
 except per                                                                 
 share)                                                                     
Production                                                                  
 revenues        287,529  244,940       17%    602,562     472,433      28% 
Funds from                                                                  
 operations(1)   135,392  123,074       10%    296,186     233,082      27% 
  Per share(1)                                                              
   (2)              0.67     0.63        6%       1.47        1.19      24% 
Dividends                                                                   
 declared(3)      39,813   
38,015        5%     79,388      75,685       5% 
  Per share         0.21     0.21        -%       0.42        0.42       -% 
Net income        86,576   23,107      275%     41,639      19,888     109% 
  Per share(4)      0.43     0.12      258%       0.21        0.10     110% 
Adjusted net                                                                
 income (5)       55,706    9,032      517%     76,485      25,646     198% 
  Per share(4)      0.28     0.05      460%       0.38        0.13     192% 
Total assets                                 4,192,020   4,192,157       -% 
Long-term debt,                                                             
 net of working                                                             
 capital                                     1,126,873   1,081,191       4% 
Long-term debt,                                                             
 net of adjusted                                                            
 working                                                                    
 capital(6)                                  1,050,140   1,073,180      (2)%
Shareholders'                                                               
 equity                                      2,274,594   2,275,326       -% 
Capital                                                                     
 expenditures:                                                              
  Exploration                                                               
   and                                                                      
   development   121,866  103,493       18%    298,501     219,295      36% 
  Acquisitions,                                                             
   net of                                                                   
   dispositions  (51,701)  (8,633)     499%   (151,169)     27,335    (653)%
Weighted average                                                            
 outstanding                                                                
 equivalent                                                                 
 shares:                                                                    
 (thousands)(4)                                                             
  Basic          202,329  195,995        3%    201,710     195,451       3% 
  Diluted        205,443  198,295        4%    204,598     197,588       4% 
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Operating                                                                   
(boe conversion                                                             
 - 6:1 basis)                                                               
Production:                                                                 
  Natural gas                                                               
   (mmcf/day)        300      271       11%        293         272       8% 
  Natural gas                                                               
   liquids                                                                  
   (bbls/day)     15,349   15,212        1%     15,207      14,980       2% 
  Oil                                                                       
   (bbls/day)(7)   8,960   12,257      (27)%    10,033      12,171     (18)%
    Total oil                                                               
     equivalent                                                             
     (boe/day)    74,273   72,554        2%     74,105      72,444       2% 
Product                                                                     
 prices:(8)                                                                 
  Natural gas                                                               
   ($/mcf)          4.29     3.64       18%       4.67        3.45      35% 
  Natural gas                                                               
   liquids                                                                  
   ($/bbl)         52.85    43.91       20%      56.67       46.23      23% 
  Oil ($/bbl)(7)   79.34    80.42       (1)%     79.53       77.77       2% 
Operating                                                                   
 expenses                                                                   
 ($/boe)            8.31     8.92       (7)%      8.78        9.04      (3)%
General and                                                                 
 administrative                                                             
 expenses                                                                   
 ($/boe)            1.19     1.15        3%       1.18        1.13       4% 
Cash costs                                                                  
 ($/boe)(9)        12.38    12.98       (5)%     12.88       13.11      (2)%
Operating                                                                   
 netback                                                                    
 ($/boe)(10)       22.83    21.40        7%      24.90       20.45      22% 
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NOTES:                                                                      
 
(1) Management uses funds from operations to analyze operating performance, 
dividend coverage and leverage. Funds from operations as presented do not   
have any standardized meaning prescribed by IFRS and therefore it may not be
comparable with the calculations 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. Funds from operations per
share is calculated based on the weighted average number of shares          
outstanding consistent with the calculation of net income per share.        
(2) Basic funds from operations per share calculations include exchangeable 
shares which are convertible into common shares on certain terms and        
conditions.                                                                 
(3) Dividends declared include both cash dividends and common shares issued 
pursuant to Bonavista's dividend reinvestment plan ("DRIP") and Bonavista's 
stock dividend program ("SDP"). For the three months ended June 30, 2014    
approximately 647,000 (June 30, 2013 - 894,000) common shares were issued   
under the DRIP and SDP with an approximate value of $10.3 million (June 30, 
2013 - $13.0 million). For the six months ended June 30, 2014, approximately
1.7 million (June 30, 2013 - 2.2 million) common shares were issued under   
the DRIP and SDP with an approximate value of $26.1 million (June 30, 2013 -
$30.3 million).                                                             
(4) Basic net income per share calculations include exchangeable shares     
which are convertible into common shares on certain terms and conditions.   
(5) Amounts have been adjusted to exclude unrealized gains and losses on    
financial instrument commodity contracts, net of tax.                       
(6) Amounts have been adjusted to exclude associated assets or liabilities  
from financial instrument commodity contracts and decommissioning           
liabilities.                                                                
(7) Oil includes light, medium and heavy oil.                               
(8) Product prices include realized gains and losses on financial instrument
commodity contracts.                                                        
(9) Cash costs equal the total of operating, transportation, general and    
administrative, and financing expenses.                                     
(10) Operating netback equals production revenues including realized gains  
and losses on financial instrument commodity contracts, less royalties,     
operating and transportation expenses, calculated on a boe basis.           
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                                             Three months ended             
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                                  June 30,  March 31,    December  September
Share Trading Statistics              2014       2014    31, 2013   30, 2013
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($ per share, except volume)                                                
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High                                 17.85      16.22       14.04      14.37
Low                                  15.79      13.46       11.25      12.70
Close                                16.37      16.17       13.92      12.93
Average Daily Volume - Shares      545,585    566,650   1,000,966    620,864
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MESSAGE TO SHAREHOLDERS 
Bonavista has completed another successful quarter in repositioning
the business for efficient growth and maximizing total shareholder
return. We remain committed to progressing as one of the most
efficient energy operators in western Canada as we strive to find
better ways to deliver value to our shareholders, while adapting to
an ever-changing commodity price environment. 
In the second quarter of 2014, we completed the disposition of our
mature heavy oil assets, producing approximately 2,350 boe per day
for $83 million, while acquiring approximately 1,000 boe per day of
low cost liquids-rich natural gas production in the heart of our
Hoadley Glauconite trend for $23 million. Additionally, we announced
the intention to acquire our partner's interest in the prolific
Wilrich play at Ansell in the Deep Basin Core Area, which closed on
July 7, 2014. Concentrating our asset portfolio through acquisition
and divestiture activities has been a key element of our strategy
over the past few years. 
Our exploration and development ("E&D") program during the second
quarter has been purposefully focused in our core areas spending
$121.9 million, drilling 25 (22.5 net) wells and producing 74,273 boe
per day for the quarter. Our strategy to concentrate operations has
delivered significant improvements in operational efficiencies,
evidenced by a ten percent reduction in operating costs and a seven
percent reduction in cash costs when compared to the previous
quarter. Current production is approximately 76,500 boe per day,
which is consistent with our 2014 budget, and precisely aligned with
our five year forecast. 
Operational and financial accomplishments in the second quarter of
2014 include: 


 
 
--  Increased production to 74,273 boe per day, representing a 2% increase
    from second quarter 2013 levels of 72,554 boe per day, despite net
    dispositions of 2,700 boe per day due to divestiture and acquisition
    activity over the past 12 months;  
 
--  Invested $121.9 million in E&D activities, drilling 25 (22.5 net) wells
    with an overall success rate of 100%. Consistent with our strategy to
    concentrate our asset portfolio, 23 (20.6 net) of the wells were drilled
    within our West Central and Deep Basin Core Areas; 
 
--  Generated production revenues of $287.5 million, representing a 17%
    increase when compared to the second quarter of 2013; 
 
--  Realized funds from operations of $135.4 million ($0.67 per share)
    representing a 10% increase from the second quarter of 2013 and a 6%
    increase on a per share basis; 
 
--  Achieved a 7% reduction in operating costs to $8.31 per boe and a 5%
    reduction in cash costs to $12.38 per boe when compared to the second
    quarter of 2013, resulting in operating netbacks of $22.83 per boe
    representing a 7% improvement from the second quarter of 2013; 
 
--  Added approximately 90 mmcf per day of compression capacity in our key
    development plays in the first half of 2014 to accommoda
te our
    forecasted growth over the next 18 months; 
 
--  Managed our exposure to fluctuating commodity prices resulting in
    approximately 70% of our forecasted natural gas revenues (net of
    royalties) hedged at an average floor price of $3.41 per gj at AECO for
    2014 and approximately 48% at an average floor price of $3.63 per gj for
    2015; and 
 
--  Delivered cumulative dividends of over $2.6 billion or $27.45 per common
    share since 2003, when Bonavista introduced a dividend component to our
    shareholder return. 

Second quarter acquisition and divestiture highlights: 


 
 
--  Divested of our non-core, mature heavy oil assets producing
    approximately 2,350 boe per day for proceeds of $83 million; and 
 
--  Acquired liquids-rich natural gas assets producing approximately 1,000
    boe per day for $23 million, further concentrating our assets in our
    West Central Core Area and strengthening our position in the Hoadley
    Glauconite play. 

Subsequent to the second quarter: 


 
 
--  Acquired the remaining 49% interest being approximately 1,600 boe per
    day in our Wilrich play at Ansell in our Deep Basin Core Area for a
    purchase price of approximately $141 million; and 
 
--  Completed the bought deal equity financing of 12.1 million common shares
    for net proceeds of approximately $192 million. 

2014 YEAR-TO-DATE CORE AREA HIGHLIGHTS 
WEST CENTRAL CORE AREA 
With access to over 1.7 million acres, containing approximately 740
of our future drilling locations, our West Central Core Area is our
largest area of operations. This core area offers liquids-rich
natural gas and light oil resources in multiple perspective horizons,
year round accessibility and extensive infrastructure including over
2,800 kilometers of operated pipelines and 37 facilities, the
majority of which are operated by Bonavista. 
In 2014, we will spend between $350 and $360 million on E&D
activities in the West Central Core Area drilling between 95 and 100
horizontal wells. During the first half of 2014, our E&D capital
spending in this area totaled approximately $181 million, involving
up to eight rigs, drilling 47 (39.3 net) wells. This represents a
230% increase in E&D spending relative to the first half of 2013.
Specific to the second quarter, 90% of the wells drilled were in this
core area. 
Our West Central Core Area averaged 45,270 boe per day in the first
half of 2014 representing a seven percent increase over the same
period in 2013. Our Hoadley Glauconite play continues to be the
engine of growth representing a forecasted 65% of the total
expenditures in this core area for 2014 and delivering excellent
economics at current prices. 
During the quarter, we renegotiated the freehold royalty rate on
lands within our West Central Core Area. This reduced royalty rate
applies to all existing and future production and specific to the
Glauconite represents approximately 40% of our remaining horizontal
drilling locations, resulting in a material impact on the value of
our future development in the play. 
Hoadley Glauconite Liquids Rich Natural Gas: 
Bonavista drilled an additional 16 (15.0 net) horizontal Glauconite
wells in the second quarter bringing total activity in the first half
of 2014 to 30 (27.1 net) horizontal wells. This represents a 25%
increase in drilling activity when compared to 24 (20.4 net)
horizontal wells drilled in the first half of 2013. 
Current horizontal Glauconite production volumes are approximately
22,500 boe per day, which is modestly ahead of our five year
forecast. The continued growth in our Glauconite play has warranted
additional infrastructure including the commissioning of a
transmission line designed for 120 mmcf per day of natural gas
transportation and a 30 mmcf per day compressor station. The final
phase of this compressor station was commissioned late in July with
current throughput of approximately 28 mmcf per day. These
infrastructure additions will provide incremental takeaway capacity
from the area, supporting our future growth plans. 
The average cost reduction of 11% per well realized to date in our
extended reach horizontal program is compelling, when compared to the
cost to access the equivalent reservoir from two separate horizontal
wells. Year-to-date, Bonavista has drilled five extended reach
horizontals with three of these wells drilled in the second quarter.
Well performance is meeting our expectations. 
During the quarter we completed the previously announced acquisition
of liquids-rich natural gas assets producing approximately 1,000 boe
per day for $23 million, further concentrating our assets and
strengthening our position in the Hoadley Glauconite play. 
Ellerslie Liquids Rich Natural Gas: 
Bonavista drilled two additional 100% working interest horizontal
Ellerslie wells in the second quarter of 2014. Both wells are in
varying stages of completion and evaluation. We continue to believe
in the long-term potential of this play given the size and quality of
the resource. We look forward to building additional confidence as we
work through the operational challenges we've faced developing this
scalable resource. 
Our inventory of 135 sections of land and approximately 200
horizontal drilling locations make the Ellerslie an exciting
component of future upside within the organization. 
Cardium Light Oil: 
Bonavista drilled two 100% working interest horizontal Cardium wells
in the Willesden Green area during the second quarter. We are pleased
with the results of these wells with combined average rates of
approximately 400 boe per day during the first 60 days of production. 
At Lochend, our production from our first quarter drilling program of
five (3.7 net) wells has been consistent with our expectations
delivering average production rates of approximately 260 boe per day
over the first four months of production. Our Lochend program for
2014 consists of 12 wells, seven of which will be drilled in the
second half of the year. To accommodate this program, Bonavista has
recently constructed and commissioned a 5,000 bbl per day multi-well
oil battery at Lochend. 
Collectively, this brings our Cardium activity in the first half of
2014 to ten (6.4 net) horizontal wells serving to maintain our
corporate Cardium production at 5,500 boe per day which is consistent
with our five year forecast. 
DEEP BASIN CORE AREA 
In 2014, we plan to spend between $190 and $200 million on E&D
activities in the Deep Basin, drilling up to 32 wells. Seasonality
has limited Bonavista's accessibility and activity in this area in
the second quarter. Bonavista has spent $96 million on E&D activities
drilling 13 (8.8 net) wells and building our Ansell infrastructure in
the first half of 2014. This has resulted in production rates of
16,300 boe per day on average for the first six months of 2014 which
represents an 18% increase relative to the same period in 2013. 
Facility projects are responsible for 18% of our total E&D spending
in this core area, as 
we prepare the infrastructure for future
growth. Our focus throughout the first half of the year has been on
compression and transportation capacity in our Wilrich play at
Ansell. This compression and sales line constructed in the first
quarter supports our growing processing capacity in the Deep Basin
Core Area which is approximately 230 mmcf per day. 
Since our expansion into the Deep Basin Core Area in 2010, we have
assembled approximately 295,000 net acres and 300 future horizontal
locations. With compelling production performance, the Wilrich play
provides strong economics at current natural gas pricing, resulting
in an attractive recycle ratio and timely payout. In addition, the
natural gas liquids content of our Bluesky play translates into solid
rates of return supported by strong initial production rates and
shallower decline profiles. 
The results of a three dimensional seismic program, completed in the
first quarter, on our Ansell property revealed extensive Falher and
Notikewan channels deposited above the Wilrich reservoir. Consistent
with our strategy, these multi-zone targets will continue to enhance
the capital and operational efficiencies of the area and optimize the
utilization of infrastructure being established.  
Wilrich Natural Gas: 
In the Wilrich, seven wells (5.3 net) were drilled during the first
half of 2014, five of which were on our Ansell property. Subsequent
to the quarter, we closed an acquisition of the remaining 49%
interest in the Bonavista operated Wilrich play at Ansell. This
acquisition brings our Wilrich drilling inventory to 150 net
horizontal wells, 97 of which are on our Ansell property.
Furthermore, this transaction makes Bonavista the sole owner of 120
mmcf per day of pipeline capacity and 30 mmcf per day of compression
capacity in our Ansell field. 
Second quarter horizontal Wilrich production was approximately 5,900
boe per day representing an 80% increase from the same period a year
ago. Our 2014 drilling program consists of 21 Wilrich wells in Ansell
and Marlboro which will establish a solid foundation for future
growth in 2015. 
Bluesky Liquids Rich Natural Gas: 
Our three Bluesky wells drilled in the first quarter continue
performing above expectations at a three month average production
rate of 625 boe per day. In the second quarter, one non-operated well
was drilled in the Pine Creek area and is awaiting tie-in. From a
rate of return perspective, the individual well economics of the
Bluesky formation rank among the best of our liquids-rich natural gas
plays. We continue to pursue Bluesky opportunities in our Pine Creek
area. During the quarter, we completed two complementary acquisitions
which will add additional development opportunities in the Bluesky
and Falher. 
EMERGING OPPORTUNITIES 
Following up on a successful Falher horizontal well at Morningside in
the first quarter, Bonavista drilled an additional Falher well during
the second quarter which has averaged 830 boe per day inclusive of 50
bbls per mmcf of natural gas liquids in the first month. We remain
optimistic with our Falher opportunities and plan to drill an
additional four horizontal wells in 2014 to further delineate the
reservoir. To support our Falher drilling program at Morningside,
Bonavista has commenced construction of a 15 mmcf per day compressor
station which is scheduled to be operational in September of 2014. 
In the first half of 2014, we drilled one horizontal well, with an
additional horizontal well drilled subsequent to the second quarter,
in our Blueberry Montney field. On strategy, the purpose of our 2014
Montney program is to further delineate and retain our 55 section
land position for future development of the substantial resource in
place. We plan to complete both of these wells in August to further
enhance our understanding of this extensive resource. We continue to
improve our understanding of the characteristics of the reservoir and
the techniques required to optimize recovery most efficiently. Our
results coupled with the pace of industry development and future
commodity prices will dictate the pace of our development of this
play. 
STRENGTHS OF BONAVISTA ENERGY CORPORATION 
Throughout our seventeen year history, from an initial restructuring
in 1997 to create a high growth junior exploration company, through
the energy trust phase between July 2003 and December 2010, and since
January 2011 as a dividend paying corporation, Bonavista has remained
committed to the same operating philosophies despite the endless
commodity price volatility and uncertainty inherent in the energy
sector. We have consistently maintained a high level of investment
activity on our asset base resulting in an increase in corporate
production by approximately 120% since converting to an energy trust
in July 2003. These results stem from the expertise of our people and
their entrepreneurial approach to consistently generating profitable
development projects in an unpredictable commodity price environment.
Our experienced technical teams have a thorough understanding of our
assets and the reservoirs within the Western Canadian Sedimentary
Basin as they exercise the discipline and commitment required to
deliver long-term value to our shareholders. The core operating and
financial principles that guide our people have been with our
organization from the beginning and remain solidly intact today. 
Our production is approximately 68% weighted towards natural gas and
is geographically focused in multi-zone regions, primarily in
Alberta. We actively participate in undeveloped land purchases,
property acquisitions and farm-in opportunities, which have all
enhanced the quantity and quality of our extensive drilling
inventory. Specifically over the past five years, technology coupled
with North American natural gas supply/demand fundamentals has led to
numerous opportunities to reposition the asset portfolio and
drastically improve the quality of our development projects. These
activities have led to low cost reserve additions and a production
base that continues to grow at a steady pace. Today, the predictable
production performance and cost structure of our asset base ensures
operating netbacks that compete favorably in most operating
environments. Furthermore, our assets are predominantly operated by
Bonavista, providing control over the pace of operations and a direct
influence over our operating and capital cost efficiencies. 
Our team brings a successful track record of executing low to medium
risk scalable development programs with consistency and with
precision. We continually strive for balance sheet flexibility and
remain focused on prudent 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 underpinned with a set of consistent and reliable
operating and financial principles. Directors, management and
employees also own approximately 11% of the equity of Bonavista,
aligning our interests with those of external shareholders. 
OUTLOOK 
Following a cold winter where natural gas prices strengthened as
inventories declined to lower than normal levels, the North American
supply response in the second quarter of 2014 has exceeded
expectations resulting in continued price volatility. Despite this
price uncertainty, we continue to adapt to this commodity price
environment as we remain focused on progressing as one the most
efficient operators in the Western Canadian Sedimentary Basin. We
have demonstrated continued improvements in efficiency over the past
six quarters by repositioning and concentrating our asset portfolio
into two core areas. These core areas are characterized by
significant remaining resources in multi-zone horizons, accessible to
existing infrastructure, and currently account for approximately 86%
of our production. Our asset concentration strategy has been
demonstrated by the disposition of 4,850 boe per day of high cost,
non-core assets, while acquiring 2,500 boe per day of low cost,
opportunity-rich assets in the heart of these two core areas. These
transactions have complemented our 93% E&D spending year-to-date in
these two core areas. The success of this concentration strategy is
evidenced by a 10% reduction in operating costs over the previous
quarter and recent capital efficiency improvements. 
Our goal of maximizing total shareholder return and per share
performance was demonstrated by the suspension of our dividend
reinvestment and stock dividend plans in June 2014. This suspension
illustrates our conviction in the quality of our assets and the
confidence in our capital program for 2014, which will see spending
of between $580 and $600 million and the drilling of between 115 and
120 net wells. As a result of our recent Ansell acquisition, capital
spending will be focused on our Wilrich play in the second half of
2014. Significant scheduled turnaround activity wil
l curtail third
quarter production by approximately 4,000 boe per day, however
volumes will be restored in the fourth quarter with expected exit
production growth of approximately 12%, ranging between 84,000 and
86,000 boe per day. This will translate into annual production growth
of approximately five percent, ranging between 76,000 and 78,000 boe
per day for 2014. The revised 2014 capital program is aligned with
our business plan to consistently deliver a balance of profitable
growth and sustainable income to our shareholders. 
We thank our employees for their continued dedication and our
shareholders for their unwavering support. We strongly believe we
have the asset base and the team necessary to continue to create
long-term value for our shareholders. 
FORWARD LOOKING INFORMATION 
Corporate information provided herein contains forward-looking
information. The reader is cautioned that assumptions used in the
preparation of such information, particularly those pertaining to
cash dividends, production volumes, commodity prices, operating costs
and drilling results, which are considered reasonable by Bonavista at
the time of preparation, may be proven to be incorrect. Actual
results achieved during the forecast period will vary from the
information provided herein and the variations may be material. There
is no representation by Bonavista that actual results achieved during
the forecast period will be the same in whole or in part as those
forecast. 
Bonavista is a mid-sized energy corporation committed to maintaining
its emphasis on operating high quality oil and natural gas
properties, providing moderate growth and delivering consistent
dividends to its shareholders and ensuring financial strength and
sustainability. 
Contacts:
Bonavista Energy Corporation
Keith A. MacPhail
Executive Chairman
(403) 213-4300 
Jason E. Skehar
President & CEO
(403) 213-4300 
Glenn A. Hamilton
Senior Vice President & CFO
(403) 213-4300
www.bonavistaenergy.com
 
 
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