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UNITED STATES OF AMERICA./
TSX Venture Exchange: VHO
CALGARY, May 22, 2015 /CNW/ - Virginia Hills Oil
Corp. ("Virginia Hills" or
the "Company") announces that it has filed on SEDAR its
financial statements and related management's discussion and
analysis ("MD&A") for the three months ended
March 31, 2015. The financial
statements and MD&A are available for review at www.sedar.com
or www.virginiahillsoil.com.
Financial and Operating Results for Q1, 2015
|
|
March
31
|
Three months
ended
|
|
2015(4)
|
2014(4)
|
FINANCIAL
|
|
|
Petroleum and natural
gas sales
|
7,149
|
18,229
|
|
|
|
Funds flow from
operations (1)
|
32
|
7,237
|
|
Per share -
basic
|
$0.00
|
$0.03
|
|
Per share -
diluted
|
$0.00
|
$0.03
|
|
|
|
|
Net income
(loss)
|
(4,233)
|
290
|
|
Per share -
basic
|
$(0.02)
|
$0.00
|
|
Per share -
diluted
|
$(0.02)
|
$0.00
|
|
|
|
|
Capital
expenditures
|
981
|
1,008
|
Net
debt(1) (2)
|
116,562
|
121,405
|
Common Shares
Outstanding
|
|
|
|
Weighted average ā
basic
|
217,212
|
217,212
|
|
Weighted average ā
diluted
|
217,212
|
222,027
|
OPERATING
|
|
|
Number of
days
|
90
|
90
|
Production
|
|
|
|
Crude oil
(bbls/d)
|
1,556
|
2,033
|
|
Natural gas
(mcf/d)
|
261
|
366
|
|
NGL
(bbls/d)
|
51
|
49
|
|
Barrels of oil
equivalent (boe/dā6:1)
|
1,650
|
2,143
|
Average realized
price (3)
|
|
|
|
Crude oil
($/bbl)
|
50.65
|
99.16
|
|
Natural gas
($/mcf)
|
0.43
|
0.43
|
|
NGL
($/bbl)
|
10.50
|
16.58
|
Netback per boe
($)(1)
|
|
|
|
Petroleum and natural
gas sales
|
48.15
|
94.51
|
|
Royalties
|
(6.51)
|
(14.41)
|
|
Transportation and
production expenses
|
(24.88)
|
(27.72)
|
|
Field
netback
|
16.76
|
52.38
|
|
Realized loss on
derivative financial instruments
|
-
|
(2.64)
|
|
Operating
netback
|
16.76
|
49.74
|
(1)
|
Non-GAAP measures.
See "Non-GAAP Measures" below.
|
(2)
|
Net debt is
defined as current assets minus current liabilities, plus
outstanding bank debt.
|
(3)
|
Before the effects of
derivative financial instruments.
|
(4)
|
On April 15, 2015,
the Company completed a corporate reorganization pursuant to a plan
of arrangement under the Business Corporations Act (Alberta) (the
"Arrangement"). Under the terms of the Arrangement, 90% of the oil
and natural gas assets previously owned and operated by Pinecrest
Energy Inc. ("Pinecrest") were transferred to the Company and all
of the outstanding shares of Pinecrest were sold to a third party
together with approximately 10% of Pinecrest's oil and natural gas
assets for aggregate consideration of $23.5 million, subject to
certain adjustments. The financial and operating results noted
above and the financial statements and MD&A filed on SEDAR
represent 100% of Pinecrest's oil and natural gas assets as the
Arrangement did not close prior to March 31, 2015.
|
Operational Results
Production for the first quarter of 2015 averaged 1,650 boe per
day (97% light oil and NGL's) representing a 23% decline from first
quarter 2014 levels due to reduced capital investment in the
Company's core Red Earth area.
No new wells have been drilled since the first quarter of 2014.
Operating revenue decreased in the first quarter of 2015 to
approximately $7.1 million from
$18.2 million realized in the first
quarter of 2014 due to average production rate declines and a 49%
decrease in realized oil prices. Royalties were approximately 13.5%
of operating revenue, and decreased on a per unit basis by 55% on a
year over year basis to approximately $6.51 per boe due to the significant decrease in
realized commodity prices and lower production rates.
Production costs were $3.3 million
($21.91 per boe) for the first
quarter and were lower by 32% on a total basis and 12% on a per
unit basis, compared to the same period in 2014. The decrease
in production costs was directly related to reduced service pricing
as a result of lower overall industry activity levels.
Transportation costs were $0.5
million ($2.97 per boe) in the
first quarter and remained relatively static as compared to the
first quarter of 2014. Operating netbacks in the quarter were
$16.76 per boe or 66% lower than 2014
levels due to the significant drop in light oil prices partially
off-set by lower royalty and operating costs.
2015 Guidance
Virginia Hills is pleased to
provide operational guidance for the remainder of 2015. Early in
the second quarter, the Company successfully completed both the
Arrangement, pursuant to which it acquired 90% of the producing
assets of Pinecrest and the acquisition of Dolomite Energy Inc.,
through its wholly owned subsidiary. Collectively,
Virginia Hills has an asset base,
which is currently producing approximately 1,550 boe per day, and
is materially weighted to low decline, light oil production,
focused on the Slave Point formation in the greater Red Earth area of Alberta.
The Company is concentrating its efforts and capital investments
for the remainder of 2015 on improving its operating cost
structure, optimizing its existing water floods and implementing
acid fracturing techniques into a drilling program of up to 4.0
gross (4.0 net) light oil Slave point horizontal wells. The Company
anticipates completing and bringing on production 2.0 gross (2.0
net) of the horizontal light oil wells in 2015.
The Company's board of directors has approved a capital budget
of $9.3 million for the remainder of
2015 to be funded by operating cash flow, debt, proceeds from a
completed private placement and the exercise of the arrangement
rights issued under the Arrangement. The Company anticipates
spending $7.5 million on drilling up
to 4.0 gross (4.0 net) horizontal light oil wells with 2.0 gross
(2.0 net) wells being completed and brought on production by year
end 2015, with the balance of the wells scheduled to be completed
in 2016. Virginia Hills will direct $1.8 million in capital expenditures to
optimizing existing water flood projects and various operational
initiatives designed to reduce the operating cost structure, which
includes; rental equipment buy outs, electrification of pumping oil
wells and the installation of pump off controllers.
Virginia Hills is forecasting
average production for the remainder of 2015 to be approximately
1,635 boe per day (95% light oil and NGLs) with fourth quarter exit
production of approximately 1,640 boe per day (95% light oil and
NGLs). The Company intends to implement various optimization
projects on its existing water flood projects however it is not
anticipating any material production gains from these projects
until 2016.
The Company's 2015 forecast is based on the following
assumptions:
|
|
Average daily
production (boe/d)
|
1,635
|
|
|
Revenues (Cdn
$/boe)
|
54.00
|
Royalties (Cdn
$/boe)
|
(11.00)
|
Operating Costs
(Cdn $/boe)
|
(23.00)
|
Operating
Netback (Cdn $/boe)
|
20.00
|
To back stop its cash flow expectations for the remainder of
2015, Virginia Hills has entered
into a physical sales agreement covering approximately 1,116 bbl
per day of oil (70% of its forecast average oil production), at an
average price of approximately $65.50
per bbl (US to Cdn dollar conversion at 0.82).
Virginia Hills has aggregate
lending facilities of $108.0 million
that are not due to be reviewed until September 2016. Currently, there is an
aggregate of approximately $100.4
million drawn on these facilities.
The board of directors of Virginia Hills approved the grant of
an aggregate of 1,927,047 options under the Company's stock option
plan to certain directors, officers, employees and key service
providers of the Company with an exercise price equal to the
closing price of the common shares on May
25, 2015. The options have a term of five years and vest
equally on each of the first, second and third anniversary dates of
the grant. Currently, Virginia
Hills has a total of 19,724,155 common shares
outstanding. On a fully diluted basis, before giving effect
to the options, there are a total of 49,645,171 outstanding shares
and warrants.
FORWARD LOOKING STATEMENTS: This news release contains
forward-looking statements. More particularly, this news release
contains statements concerning Virginia
Hills' expectations regarding improvement to the Company's
cost structure, the implementation and timing of effect of
optimization projects including water flooding and acid fracturing;
the implementation of a four well drilling program and the
completion of two wells in 2015; the sources of capital the Company
will use to funds its 2015 capital program; the average production
for 2015 and 2015 exit production rate; future oil prices,
operating costs, royalties, transportation costs and operating
netbacks for the remainder of 2015. In addition, the use of any of
the words "guidance", "initial, "scheduled", "can", "will", "prior
to", "estimate", "anticipate", "believe", "potential", "should",
"unaudited", "forecast", "future", "continue", "may", "expect",
"project", and similar expressions are intended to identify
forward-looking statements.
The forward-looking statements contained herein are based on
certain key expectations and assumptions made by the Company,
including but not limited to expectations and assumptions
concerning the success of optimization and efficiency improvement
projects, including the water flood projects discussed herein, the
availability of capital, current legislation, receipt of required
regulatory approval, the success of future drilling and development
activities, the performance of existing wells, the performance of
new wells, general economic conditions, availability of required
equipment and services and prevailing commodity prices. Although
the Company 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 the Company 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 (including, operational risks in development,
exploration and production; delays or changes in plans with respect
to exploration or development projects or capital expenditures; as
the uncertainty of reserve estimates; the uncertainty of estimates
and projections relating to production, costs and expenses, and
health, safety and environmental risks), commodity price and
exchange rate fluctuations, changes in legislation affecting the
oil and gas industry and uncertainties resulting from potential
delays or changes in plans with respect to exploration or
development projects or capital expenditures.
The forward-looking statements contained in this news release
are made as of the date hereof and the Company undertakes no
obligation to update publicly or revise any forward-looking
statements or information, whether as a result of new information,
future events or otherwise, unless so required by applicable
securities laws.
NON-GAAP MEASURES: This news release contains the terms
"funds flow from operations", "net debt", "field netback" and
"operating netback" which do not have a standardized meaning
prescribed by Canadian generally accepted accounting principles
("GAAP") and therefore may not be comparable with the calculation
of similar measures by other companies. Management uses funds flow
from operations to analyze operating performance and leverage.
Management believes "net debt" is a useful supplemental measure of
the total amount of current and long-term debt of the Company.
Mark-to-market risk management contracts are excluded from the net
debt calculation. Management believes "field netback" and
"operating netback" are useful supplemental measures of the amount
of revenues received after royalties and production and
transportation costs, and the amount of revenues received after
royalties, operating, transportation costs and realized gain (loss)
on derivatives. Additional information relating to certain of
these non-GAAP measures, including the reconciliation between funds
flow from operations and cash flow from operating activities can be
found in the MD&A.
BOE ADVISORY: 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.
Neither the TSX Venture Exchange nor its Regulation
Services Provider (as that term is defined in the policies of the
TSX Venture Exchange) accepts responsibility for the adequacy or
accuracy of this news release.
SOURCE Virginia Hills Oil Corp.