NuVista Energy Ltd. Provides First Quarter Operating Results, Reduces 2020 Capital Spending Plans
CALGARY, Alberta , May 05, 2020 (GLOBE NEWSWIRE) -- NuVista Energy Ltd. (“NuVista” or the “Company”) (TSX:NVA) is pleased to announce results for the three months ended March 31, 2020 and provide an update on our future business plans in response to volatile and low oil and liquids pricing induced by the ongoing Covid-19 crisis and the disputes between major oil producing countries.
Financial and Operational Performance
During the quarter ended March 31, 2020, NuVista:
- Produced 52,080 Boe/d, matching well with the midpoint of our prior guidance range of 50,000 – 54,000 Boe/d and 19% higher than the same period in 2019;
- Achieved adjusted funds flow of $50.9 million ($0.23/share, basic);
- Achieved adjusted funds flow netback of $10.73/Boe;
- Executed a successful first quarter capital expenditure program of $129 million including the drilling of 18 (18.0 net) wells in our condensate rich Wapiti Montney play. 15 wells were completed during the quarter and 15 were turned in line during and shortly after the quarter. Due to excellent execution and continuous improvement, this program was completed approximately 10% under budget;
- Realized operating expenses of $10.17/Boe; and
- Achieved net G&A expenses of $0.87/Boe, continuing our long term trend of improvement in this area with a reduction of 19% compared to the same period in 2019.
Strong and Improving Operational Execution
During the first quarter NuVista executed a very busy and successful winter drilling and completions program with costs and timing both outperforming expectations. A total of 15 new wells have been tied-in since the start of the year and 14 additional wells have been drilled but not completed
New wells in the Greater Wapiti Area include a four-well pad at Elmworth, a three-well pad at Gold Creek and two two-well pads at Bilbo. All of these wells have been completed and tied in, with the exception of one two-well pad at Bilbo where the completion was deferred to conserve capital.
At NuVista’s Pipestone South block, a 6-well pad which was drilled in the prior quarter, was completed and turned in line, showing excellent results as indicated in the table below. At Pipestone North, a 12-well pad has finished drilling subsequent to the end of the first quarter. The completion of this pad has been deferred as part of our capital reduction program, with timing to be determined. The pad, once completed, will produce to the new Pipestone North Compressor Station and the new pipeline to the Hythe Gas Plant which are under construction. All major project milestones are currently on budget and on schedule. The capacity for this first phase of the compressor station will be approximately 12,500 Boe/d.
We are extremely pleased with the costs achieved during our winter drilling program as a result of excellent execution by our teams; fast drilling times; and efficient fracture operations. In addition, the water source, storage, and disposal system in which we invested over the prior years is making a tangible difference in driving costs lower. Drill, complete, tie-in and equip costs per well for the 15 new wells averaged $7.9 million per well or $2,800 per horizontal meter, which is 11% below the 2019 average. In addition, the drill costs for the 12 new wells at Pipestone North (drilled, uncompleted) averaged $2.7 million or $820 per horizontal meter which is 45% below our average 2019 drill cost per meter. Our new permanent water handling systems also led to planned ESG benefits including reduced truck traffic, dust, and community noise.
Initial production results for the 15 wells have been impressive, with all wells tested and 8 wells which have reached IP30 as shown below.
|IP30 Milestones||Average Hz. Length||Proppant Intensity||Raw Gas||Condensate||Condensate Gas Ratio||Total|| |
|Bilbo 2-well Pad||2,250||1.3||7,400||810||109||1,930||$6.3|
|Bilbo Historical Avg.||2,070||1.3||5,950||780||140||1,650||$7.9|
|Pipestone South 6-well Pad||2,150||2.3||6,750||630||96||1,600||$5.5|
|Pipestone South Historical Avg.||2,070||1.6||7,450||650||86||1,520||$5.3|
Maintaining a Strong Balance Sheet
At the end of the first quarter, NuVista’s credit facility capacity was $550 million and significant cushion existed as bank drawings totaled $396 million. NuVista has requested and obtained approval from our banking syndicate to extend our borrowing base review deadline from April 30, 2020 to May 29, 2020. This extension was put in place to allow the banking syndicate extra time for assessment in light of the recent extreme market volatility, and to provide additional data on the wells recently brought online. This also allows the banks, and our industry in general, time to assess the still-emerging details of the various liquidity support programs announced by the Federal Government. NuVista expects to continue to have sufficient liquidity cushion once the credit facility redetermination is completed. Additionally, NuVista has $220 million in senior unsecured notes that mature March 2, 2023, providing financial flexibility and certainty with a competitive fixed coupon and remaining 3 year term.
Significant Commodity Price Diversification and Risk Management
NuVista is fortunate that we are very well hedged for 2020. In aggregate, 39% of first quarter run rate liquids production is protected for the rest of 2020, utilizing swaps at a WTI floor price of C$72.11/Bbl and a further 26% has some protection by three way collars. Approximately 72% of first quarter run rate gas production is hedged for April to October 2020 C$1.96/Mcf (hedged and exported volumes converted to an AECO equivalent price). We note the positive revenue impact of the oil and gas hedges, both physical and financial, is approximately $82.5 million for the rest of year 2020 using the April 27 strip prices.
2020 Capital Guidance Reduced, Production Guidance Withdrawn
In light of the current extremely low and volatile oil price environment, NuVista has elected to significantly reduce capital spending for the second time this year. Maintaining liquidity and balance sheet strength must be our top priority during these unprecedented times. Capital spending for 2020 is therefore expected to be in the range of $165 - $175 million; a reduction of almost 50% from the original full year budget and a reduction of approximately 75% for the remaining three quarters of 2020. Capital spending for the second through fourth quarters of 2020 is expected to be in the range of $35 - $45 million. As a result of our strong hedging position, NuVista anticipates being able to maintain bank debt drawings at similar or lesser levels to those at the end of the first quarter, assuming the current strip pricing. There is, however, significant uncertainty in oil price and production level volatility given the current economic environment.
We will also be focused on maximizing the economic value of what we produce. With oil prices very low and volatile, coupled with a currently positive natural gas market, this will be a dynamic exercise. NuVista will be making weekly decisions on many items including the curtailment of production to maximize economic value. NuVista’s production has typically consisted of approximately 60% natural gas, 30% condensate, and 10% NGL’s on a Boe/d basis. Production from high condensate ratio wells could be restricted in favor of other wells during periods of very low oil prices. Well and facility capability has exceeded 60,000 Boe/d, however for the last several weeks we have restricted production to approximately the same levels as the first quarter, 50,000 to 52,000 Boe/d. We have the productive capacity to manage production approximately flat at these levels for the rest of 2020. However, the uncertainty around oil prices and curtailment makes it difficult to accurately predict our planned level of production through the coming quarters. As a result, we are withdrawing our production guidance for the remainder of 2020. We look forward to providing production guidance when markets have stabilized.
Board, Executive, and Staff Compensation Levels Reduced
The low oil price environment and share price compression has caused NuVista to reduce compensation levels at all levels of the organization, and take steps to minimize equity dilution in its long term incentive program (LTIP). The Board of Directors has elected to reduce its fees by 20% while base salaries of the CEO and executive team have been reduced by 15% and 12.5% respectively. The company has also implemented employee base salary reductions ranging from 5% to 10% with ascending seniority. The reductions are all effective May 1, 2020. The Company expects to be eligible, and to apply for, assistance in the approximate amount of $1 million under the Federal Government’s Canadian Emergency Wage Subsidy Program (CEWS). Overall, NuVista expects that our revised G&A costs for 2020 will be approximately 20-25% below the original budget. In order to limit shareholder dilution, a portion of the director DSU program has been suspended, and a cap has been placed on staff long term incentive plan (LTIP) grants to limit the LTIP burn rate to a maximum of 2% per year.
NuVista’s Covid-19 business continuity plan is in place and is operating very well. All essential staff have work-from-home technology capability, and a backup plan is in place to ensure minimum crews for safe field and facility operations in the event the sickness escalates.
As a result of significant and sustained declines in forward commodity prices for condensate and oil, companies in our industry have a duty to test for and to record book value impairment. At the end of the first quarter, NuVista recognized total impairment charges of $909 million and this has been included in the depletion, depreciation, amortization and impairment expense. Impairment tests are completed on a quarterly basis and if commodity prices improve in the future this impairment could be reversed.
NuVista has top quality assets and a management team focused on relentless improvement. Our balance sheet is strong and our liquidity position is sound. We have the necessary foundation to weather this storm. We will continue to adjust to this environment in order to maximize the value of our asset base and ensure the long term sustainability of our business. We would like to thank our staff, contractors, and suppliers for their continued dedication and delivery, and we thank our board of directors and our shareholders for their continued guidance and support. Please note that our corporate presentation is being updated and will be available at www.nuvistaenergy.com on or before May 6, 2020. NuVista’s financial statements, notes to the financial statements and management’s discussion and analysis for the quarter ended March 31, 2020, will be filed on SEDAR (www.sedar.com) under NuVista Energy Ltd. on May 5, 2020 and can also be accessed on NuVista’s website.
|Three months ended March 31|
|($ thousands, except per share and $/Boe)||2020||2019||% Change|
|Petroleum and natural gas revenues||127,152||139,488||(9||)|
|Adjusted funds flow (1) (2)||50,868||71,654||(29||)|
|Per share - basic||0.23||0.32||(28||)|
|Per share - diluted||0.23||0.32||(28||)|
|Per share - basic||(3.50||)||(0.16||)||2,088|
|Per share - diluted||(3.50||)||(0.16||)||2,088|
|Capital expenditures (2)||128,732||96,577||33|
|Net debt (1) (2)||650,277||549,113||18|
|End of period basic common shares outstanding||225,600||225,333||—|
|Natural gas (MMcf/d)||188.8||159.2||19|
|Condensate & oil (Bbls/d)||15,335||12,752||20|
|Condensate, oil & NGLs weighting||40%||39%|
|Condensate & oil weighting||29%||29%|
|Average selling prices (4)|
|Natural gas ($/Mcf)||2.45||3.92||(38||)|
|Condensate & oil ($/Bbl)||57.57||63.86||(10||)|
|NGLs ($/Bbl) (3)||10.07||24.26||(58||)|
|Petroleum and natural gas revenues||26.83||35.36||(24||)|
|Realized gain (loss) on financial derivatives||2.84||0.69||—|
|Operating netback (2)||13.34||21.04||(37||)|
|Corporate netback (2)||10.73||18.17||(41||)|
|SHARE TRADING STATISTICS|
|Average daily volume||1,579,705||1,172,140||35|
- Refer to Note 14 “Capital management” in NuVista's financial statements and to the sections entitled “Adjusted funds flow” and “Liquidity and capital resources” contained in NuVista's MD&A.
- Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. Reference should be made to the section entitled “Non-GAAP measurements”.
- Natural gas liquids (“NGLs”) include butane, propane, ethane and an immaterial amount of sulphur revenue.
- Product prices exclude realized gains/losses on financial derivatives.
Advisories Regarding Oil And Gas Information
BOEs 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. As the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
Any references in this press release to initial production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for NuVista.
Advisory regarding forward-looking information and statements
This news release contains forward-looking statements and forward-looking information (collectively, “forward-looking statements”) within the meaning of applicable securities laws. The use of any of the words “will”, “expects”, “believe”, “plans”, “potential” and similar expressions are intended to identify forward-looking statements. More particularly and without limitation, this news release contains forward looking statements, including management's assessment of: NuVista’s future focus, strategy, plans, opportunities and operations; completion plans and timing; expectations regarding the startup of the new Pipestone North Compressor Station and the new pipeline and Hythe Gas Plant expansion; expected capacity of the Pipestone North Compressor Station; that NuVista will continue to have sufficient liquidity cushion once the credit facility redetermination is completed; the benefits of NuVista's rolling hedging program; year end bank drawings; production and facility capacity; expectations that the Company will be eligible and will apply for, assistance in the approximate amount of $1 million under the Federal Government’s Canadian Emergency Wage Subsidy Program (CEWS); 2020 G&A costs; Covid-19 business continuity plans; plans to continue to adjust to this environment in order to maximize the value of NuVistas asset base and ensure the long term sustainability of its business; 2020 capital expenditures and the timing of the release of our updated corporate presentation.
By their nature, forward-looking statements are based upon certain assumptions and are subject to numerous risks and uncertainties, some of which are beyond NuVista’s control, including the impact (and the duration thereof) that the COVID-19 pandemic will have on the demand for crude oil, NGLs and natural gas, our supply chain, including our ability to obtain the equipment and services we require, and our operations; the impact of general economic conditions, industry conditions, current and future commodity prices, currency and interest rates, anticipated production rates, borrowing, operating and other costs and adjusted funds flow, the timing, allocation and amount of capital expenditures and the results therefrom, anticipated reserves and the imprecision of reserve estimates, the performance of existing wells, the success obtained in drilling new wells, the sufficiency of budgeted capital expenditures in carrying out planned activities, access to infrastructure and markets, competition from other industry participants, availability of qualified personnel or services and drilling and related equipment, stock market volatility, effects of regulation by governmental agencies including changes in environmental regulations, tax laws, production curtailment and royalties; the ability to access sufficient capital from internal sources and bank and equity markets; and including, without limitation, those risks considered under “Risk Factors” in our Annual Information Form. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. NuVista’s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, or if any of them do so, what benefits NuVista will derive therefrom. NuVista has included the forward-looking statements in this news release in order to provide readers with a more complete perspective on NuVista’s future operations and such information may not be appropriate for other purposes. NuVista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Within the news release, references are made to terms commonly used in the oil and natural gas industry. Management uses "adjusted funds flow", "adjusted funds flow per share", “adjusted funds flow netback”, "operating netback", "corporate netback", "capital expenditures" and "net debt” to analyze performance and leverage. These terms do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies where similar terminology is used. For further information refer to the section "Non-GAAP measurements" contained in NuVista's MD&A for the three months ended March 31, 2020.
Basis of presentation
Unless otherwise noted, the financial data presented has been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) also known as International Financial Reporting Standards (“IFRS”). The reporting and measurement currency is the Canadian dollar. Natural gas is converted to a barrel of oil equivalent (“Boe”) using six thousand cubic feet of gas to one barrel of oil. In certain circumstances natural gas liquid volumes have been converted to a thousand cubic feet equivalent (“Mcfe”) on the basis of one barrel of natural gas liquids to six thousand cubic feet of gas. National Instrument 51-101 - “Standards of Disclosure for Oil and Gas Activities” includes condensate within the product type of natural gas liquids. NuVista has disclosed condensate values separate from natural gas liquids herein as NuVista believes it provides a more accurate description of NuVista's operations and results therefrom.
FOR FURTHER INFORMATION CONTACT:
|Jonathan A. Wright||Ross L. Andreachuk||Mike J. Lawford|
|President and CEO||VP, Finance and CFO||Chief Operating Officer|
|(403) 538-8501||(403) 538-8539||(403) 538-1936|