CALGARY, Nov. 23, 2017 /CNW/ - Ikkuma Resources
Corp. ("Ikkuma" or the "Corporation") (TSXV: IKM) is pleased
to report its financial and operating results for the three and
nine months ended September 30, 2017.
Selected financial and operational information is set out
below and should be read in conjunction with Ikkuma's interim
condensed financial statements and the related management's
discussion and analysis ("MD&A") for the three and nine months
ended September 30, 2017.
Ikkuma's condensed interim financial statements and MD&A
are available for review at www.sedar.com and on the Corporation's
website at www.ikkumarescorp.com.
The Corporation's operating netback in the third quarter of 2017
was eroded by natural gas prices and scheduled seasonal facilities
maintenance that took place in the summer months. Quarterly
results, however, are expected to be transcended in the future
following the previously announced transformational Foothills
Acquisition, which is expected to more than triple the size of the
Corporation's production base and to materially increase cash flow
per share. The purchase price for the Foothills Acquisition
was funded mostly by the sale of existing underutilized facilities
for $20 million, see
"Infrastructure Disposition" below.
ACQUISITION UPDATE
As previously announced, Ikkuma closed in escrow the acquisition
of certain assets (the "Assets") located in the Alberta Foothills
and British Columbia Deep Basin (the "Foothills Acquisition") on
November 14, 2017. The original
purchase price of $34.0 million was
adjusted to $29.7 million after the
exercise of rights of first refusals ("ROFRs").
Notwithstanding the exercise of the ROFRs, the Corporation retained
the majority of the anticipated upside of the Foothills Acquisition
while the 13% reduction in the adjusted purchase price results in
only a 3% decrease in production (approximately 420 BOE/d net),
leaving a more accretive asset.
Asset Summary
(adjusted for exercise of ROFRs)
|
Purchase Price
("PP")
|
($mm)
|
$29.7
|
Production(1)
|
(BOE/d)
|
13,850
|
PDP
Reserves(1,2)
|
(mboe)
|
35,096
|
PDP NPV10%
(BT)(1,2)
|
($mm)
|
$168,206
|
2P
Reserves(1,2)
|
(mboe)
|
41,664
|
2P NPV10% (BT)
(1,2)
|
($mm)
|
$202,503
|
Total Land
|
(acres)
|
396,720
|
Acquisition
Metrics (Unadjusted for $20mm infrastructure sale)
|
PP/BOE/d(1)
|
$2,144
|
PP/ Operating
Netback(3)
|
1.9x
|
PP/PDP
BOE(2)
|
$0.85
|
PP/ PDP NPV10%
(BT)(2)
|
0.2x
|
PP/2P
BOE(2)
|
$0.71
|
PP/acre
|
$74.86
|
(1) Reflects
current production. Approximately 4,400 BOE/d of production
for the Assets was shut-in by the vendor of the Assets (the
"Vendor") in September 2017. These reserves were included in
the PDP volumes at YE2016 (GLJ Report), but the recent production
shut-in will require reassignment of PDP reserves at
YE2017.
|
(2) The Foothills
Acquisition assets are based on the Deloitte Report and the GLJ
Reports for YE2016. Before tax net present value based on a 10%
discount rate and the Deloitte Price Forecast in respect of the
Central Alberta Foothills Assets and the GLJ forecast prices in
respect of the BC and Other Alberta Assets. Reserves have
been subtracted from the Deloitte Report with respect to exercise
of ROFRs.
|
(3) Operating
Netback are non-IFRS measures. See "Non-IFRS Measures".
Operating netback for the Assets is an annualized estimate for the
year ending December 31, 2017, based on recent lease operating
statements provided by the Vendor using an estimated AECO natural
gas price of $2.50/Mcf and assumes a 4% royalty rate, $13.29/BOE
operating expenses (including transportation), and $10 million of
sulphur revenue per year. Operating netback for the Assets
does not include the potential 10-30% field operational cost
savings, which are expected to commence upon closing of the
Foothills Acquisition.
|
The reserves data set forth above are based on an independent
reserves evaluation of certain oil and gas assets in the Foothills
area of Alberta (the "Central
Alberta Foothills Assets"), effective December 31, 2016 (the "Deloitte Report")
prepared by Deloitte LLP ("Deloitte") and independent
reserves assessments on the Assets other than the Central Alberta
Foothills Assets (the "BC and Other Alberta Assets") effective
December 31, 2016 (the "GLJ Reports")
prepared by GLJ Petroleum Consultants Ltd. ("GLJ") for the Vendor.
The Deloitte Report is based on certain factual data supplied
by the Vendor. Deloitte reviewed the land data provided by the
Vendor as it related to any producing wells but accepted the
working interest presented in the well lists as factual with no
further review for the non-producing wells. The GLJ Reports,
as delivered by the Vendor, contain details regarding crude oil,
natural gas liquids and natural gas reserves and the net present
values before income tax of future net revenue using forecast
prices and costs as set out in the GLJ Reports. The GLJ
Reports have been prepared in accordance with definitions,
standards, and procedures contained in the Canadian Oil and Gas
Evaluation Handbook and National Instrument 51-101 – Standards of
Disclosure for Oil and Gas Activities ("NI-51-101"). The GLJ
Reports are based on the GLJ Price Forecast, which is available on
GLJ's website. The Deloitte Report was also prepared in
accordance with NI 51-101; however, Deloitte was instructed to
evaluate proved and probable developed reserves only. No
effort was made by Deloitte to assess proved developed
non-producing or undeveloped reserves. As such, only proved
and probable developed reserves are provided for the Central
Alberta Foothills Assets. The Deloitte Report is based on the
Deloitte Price Forecast, which is available on Deloitte's website.
The information regarding the Assets set forth herein is in
respect of all of the Assets. All of the reserves associated with
the Assets are in Canada and,
specifically, in Alberta and
British Columbia.
INFRASTRUCTURE DISPOSITION
In October 2017, the Corporation
closed its previously announced disposition of 51% of its trunk
line and associated facilities (the "Infrastructure Disposition")
located in the northern Alberta Foothills for cash consideration of
$20.1 million, subject to customary
adjustments. The Infrastructure Disposition has an effective
date of September 1, 2017.
THIRD QUARTER HIGHLIGHTS
- Completed the non-brokered private placement of 15,091,221
flow-through shares at a price of $0.82 per/share for gross proceeds of
$12.5 million (the "Offering").
The Offering consisted of common shares issued on a "flow-through"
basis in respect of Canadian exploration expenses under the
Income Tax Act (Canada)
(the "Flow-Through Shares"). The gross proceeds from the
Offering will be used by Ikkuma to incur eligible Canadian
exploration expenses ("Qualifying Expenditures") prior to
December 31, 2018. Ikkuma will
renounce the Qualifying Expenditures to subscribers of the
Flow-Through Shares for the fiscal year ended December 31, 2017.
- Production for the quarter averaged 5,707 BOE/d reflecting the
impact of planned and unplanned pipeline and facility
outages. Production capacity is at approximately 6,500 to
7,100 BOE/d.
- Funds used in operations totaled $1.1
million in the quarter due to the decrease in natural gas
pricing, transaction costs of $0.7
million and one-time personnel costs of $0.2 million. The Corporation is
proactively managing pricing decisions to gain exposure to natural
gas pricing outside of the volatile daily AECO market.
|
|
|
|
|
|
(Expressed in
thousands of Canadian dollars except per BOE and share amounts;
unaudited)
|
|
Three months
ended September
30,
|
|
Nine months
ended
September
30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
OPERATIONS
|
|
|
|
|
|
|
|
|
Average daily
production
|
|
|
|
|
|
|
|
|
Natural gas
(mcf/d)
|
|
33,208
|
|
34,487
|
|
35,220
|
|
38,009
|
Light oil
(bbls/d)
|
|
52
|
|
-
|
|
53
|
|
-
|
NGL's
(bbl/d)
|
|
120
|
|
118
|
|
121
|
|
91
|
Total equivalent
(BOE/d)
|
|
5,707
|
|
5,866
|
|
6,043
|
|
6,426
|
|
|
|
|
|
|
|
|
|
Average prices and
operating netback
|
|
|
|
|
|
|
|
|
Natural gas
($/mcf)
|
$
|
1.47
|
$
|
2.34
|
$
|
2.36
|
$
|
1.85
|
Light oil
($/bbl)
|
|
53.26
|
|
-
|
|
57.21
|
|
-
|
NGL
($/bbl)
|
|
30.05
|
|
21.81
|
|
33.40
|
|
23.01
|
Revenue
($/BOE)
|
|
9.75
|
|
14.21
|
|
15.02
|
|
11.44
|
Realized gain on
commodity contracts ($/BOE)
|
|
4.43
|
|
3.39
|
|
1.58
|
|
5.29
|
Royalties
($/BOE)
|
|
(0.38)
|
|
0.41
|
|
(0.33)
|
|
(0.04)
|
Operating expenses
($/BOE)
|
|
(9.42)
|
|
(9.01)
|
|
(8.60)
|
|
(8.46)
|
Transportation costs
($/BOE)
|
|
(1.67)
|
|
(1.72)
|
|
(1.91)
|
|
(1.78)
|
Operating netback
(1) ($/BOE)
|
$
|
2.71
|
$
|
7.28
|
$
|
5.76
|
$
|
6.45
|
|
|
|
|
|
|
|
|
|
FINANCIAL
|
|
|
|
|
|
|
|
|
Oil and natural gas
sales
|
$
|
5,120
|
$
|
7,670
|
$
|
24,777
|
$
|
20,142
|
Funds flow from
operations (1,2)
|
$
|
(1,143)
|
$
|
2,563
|
$
|
3,749
|
$
|
7,154
|
|
Per share – basic and
diluted
|
$
|
(0.01)
|
$
|
0.03
|
$
|
0.04
|
$
|
0.08
|
Loss
|
$
|
(3,394)
|
$
|
(1,952)
|
$
|
(1,828)
|
$
|
(8,966)
|
|
Per share – basic and
diluted
|
$
|
(0.03)
|
$
|
(0.02)
|
$
|
(0.02)
|
$
|
(0.10)
|
Capital
expenditures
|
$
|
10,050
|
$
|
4,111
|
$
|
21,207
|
$
|
7,920
|
Property
acquisitions
|
$
|
-
|
$
|
27
|
$
|
-
|
$
|
2,761
|
Debt
(3)
|
$
|
33,406
|
$
|
26,132
|
$
|
33,406
|
$
|
26,132
|
Shares outstanding
(000)
|
|
109,335
|
|
94,244
|
|
109,335
|
|
94,244
|
Weighted average
shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic and diluted
(000)
|
|
97,959
|
|
87,407
|
|
95,496
|
|
87,407
|
(1)
|
Funds flow from
operations and operating netback are non-IFRS measures. See "Non-
IFRS Measures".
|
(2)
|
Funds flow from
operations include transaction costs related to the Foothills
Acquisition and non-recurring G&A expenses for personnel
changes.
|
(3)
|
Debt is defined as
the outstanding principal amounts of Ikkuma's term loan and its
bank loan, plus outstanding letters of credit, less unrestricted
cash.
|
OPERATIONS UPDATE
Two horizontal wells were completed in Q3 2017. Each well
intersected high-quality light oil pools, with one exploration well
expanding the fairway farther west than previously delineated.
The wells were also used to collect reservoir data from the
"Badheart formation", a sandstone reservoir that has proven to be
oil bearing. Initial Cardium reservoir pressure in one of the
wells appears to have lessened following fracture stimulation,
suggesting that stimulated reservoir rock is now in pressure
communication with a low pressure conduit, thought to be a fault,
impeding efforts to recover frac fluid. In the Corporation's
experience, this is an unusual complexity for foothills reservoirs,
but fairly common in the deep basin. The Corporation is
currently collecting pressure information to aid in the future
production of these wells and is working on an alternative
completion design for these wells, found in only 15% of the
Corporation's land base. In contrast, the first well drilled
(8-31-63-11W6) into the mildly structured part of the Narraway
Pool, and known as the "deep basin" play type, has been on
production for more than a year. Production decline of this
well has been significantly lower than expected (about 40%),
typical of unstimulated wells with significant matrix contribution.
The intersection of the deep basin play type, in mildly
structured parts of Narraway subsurface, is generally known to
occur in over 70% of the Corporation's land base. Over these
lands, the Corporation expects that oil production can be improved
significantly with a stimulation redesign, similar to many deep
basin plays. The last play type, "folded Cardium", is
expected to be tested in 2018.
ABOUT IKKUMA
Ikkuma Resources Corp. is a diversified junior public oil and
gas company listed on the TSXV under the symbol "IKM", with
holdings in both conventional and unconventional projects in
Western Canada. The technical team has worked together for
over a decade in the Foothills Region of Western Canada, through two successful,
publicly traded companies. The unique skills and repeat
success at exploiting a complex, potentially prolific play type are
fundamental ingredients for a successful growth-oriented company in
Western Canada. Corporate
information can be found at: www.ikkumarescorp.com.
Forward-Looking Statements and Information and Cautionary
Statements
This press release contains forward‑looking statements and
forward‑looking information within the meaning of applicable
securities laws including, without limitation, those listed under
"Risk Factors" and "Forward-looking Statements" in Ikkuma's Annual
Information Form and in its other filings available on SEDAR at
www.sedar.com. The use of any of the words "expect",
"anticipate", "continue", "estimate", "objective", "ongoing",
"may", "will", "project", "should", "believe", "plans", "intends"
and similar expressions are intended to identify forward‑looking
statements or information. Forward-looking statements and
information in this press release includes, but is not limited to,
the completion of the Foothills Acquisition and the timing thereof;
the use of proceeds of the Offering; the funding of the purchase
price of the Assets; the anticipated benefits to be obtained as a
result of the Foothills Acquisition; the performance
characteristics of the Assets and the anticipated potential of the
Assets; the impact of the Foothills Acquisition on the
Corporation's production, reserves, inventory and financial
condition; and the timing of future well testing. Although
Ikkuma believes that the expectations and assumptions on which the
forward‑looking statements and information are based are
reasonable, undue reliance should not be placed on the
forward‑looking statements and information because Ikkuma cannot
give any assurance that they will prove to be correct. Since
forward‑looking statements and information 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 the risks
associated with the oil and gas industry in general (e.g.,
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 production, costs and expenses; failure to obtain
necessary regulatory approvals for planned operations; health,
safety and environmental risks; uncertainties resulting from
potential delays or changes in plans with respect to exploration or
development projects or capital expenditures; volatility of
commodity prices, currency exchange rate fluctuations; imprecision
of reserve estimates; and competition from other explorers) as well
as general economic conditions, stock market volatility, and the
ability to access sufficient capital. We caution that the
foregoing list of risks and uncertainties is not exhaustive.
In addition, the reader is cautioned that historical results are
not necessarily indicative of future performance. The
forward-looking statements and information contained in this press
release are made as of the date hereof and Ikkuma undertakes no
obligation to update publicly or revise any forward‑looking
statement or information, whether as a result of new information,
future events or otherwise, unless so required by applicable
securities laws.
Certain information set out herein may be considered as
"financial outlook" within the meaning of applicable securities
laws. The purpose of this financial outlook is to provide
readers with disclosure regarding Ikkuma's reasonable expectations
as to the anticipated results of its proposed business activities
for the periods indicated. Readers are cautioned that the
financial outlook may not be appropriate for other purposes.
Non-IFRS Measures
This press release provides certain financial measures that do
not have a standardized meaning prescribed by IFRS. These
non-IFRS financial measures may not be comparable to similar
measures presented by other issuers. Funds flow from
operations and operating netback are not recognized measures under
IFRS. Management believes that in addition to net income (loss),
funds flow from operations and operating netback are useful
supplemental measures that demonstrate the Corporation's ability to
generate the cash necessary to repay debt or fund future capital
investment. Investors are cautioned, however, that these
measures should not be construed as an alternative to net income
(loss), determined in accordance with IFRS, as an indication of
Ikkuma's performance. Funds flow from operations is
calculated by adjusting net income (loss) for depletion and
depreciation, exploration and evaluation expense, impairment, gain
(loss) on sale of petroleum, natural gas and equipment, share-based
payments, unrealized gain (loss) on financial instruments and
accretion. Operating netback equals the total of petroleum
and natural gas sales, realized gains or losses on commodity
contracts, less royalties, transportation and operating
expenses. Reconciliations of operating netback to the most
directly comparable measures specified under IFRS are contained in
the Corporation's MD&A, copies of which are available on
SEDAR.
Oil and Gas Advisory
In this press release, the abbreviation BOE means a barrel of
oil equivalent derived by converting gas to oil in the ratio of 6
Mcf of gas to 1 bbl of oil (6 Mcf:1 bbl). BOE may be
misleading, particularly if used in isolation. A BOE
conversion ratio of 6 Mcf: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. 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 Mcf:1 bbl, utilizing a conversion ratio on a 6 Mcf
of gas to 1 bbl of oil basis may be misleading as an indication of
value.
NEITHER 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 RELEASE.
SOURCE Ikkuma Resources Corp.