Quarterly / Earnings Reports | Production | Second Quarter (2Q) Update | Financial Results | Capital Markets | Capital Expenditure | Drilling Activity

Bonterra Ramps Up Spending, Activity in Q2

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   |    Thursday,August 18,2016

Bonterra Energy Corp. reported its operating and financial results for the three and six months ended June 30, 2016. 

Key Points:

• With price uncertainty, Bonterra will continue to focus on controlling costs while developing its high-quality Cardium asset base.

• Capital investment activity was increased as oil prices strengthened. Bonterra completed and tied-in two (2.0 net) wells that were drilled in Q1 2016, plus drilled four gross (3.3 net) new wells which were completed and tied-in early in Q3

Q2 2016 Results Summary

During the second quarter of 2016, Bonterra remained focused on the continued execution of its long-term strategy, including ensuring funds flow remains greater than the combination of capital spending and dividends paid. Due to rising oil prices during the period, Bonterra's average Canadian dollar realized price per BOE increased 29 percent quarter over quarter, along with a 75 percent increase in corporate cash netbacks over the same period. Funds flow for the second quarter of 2016 increased 82 percent due to higher cash netbacks and the sale of investments compared to the first quarter 2016.

Production in the second quarter averaged 12,285 BOE per day, which reflects the impact of delays in drilling and completing wells in the second quarter due to a prolonged spring break -up and a lower level of capital spending through the first quarter resulting in only two new wells being brought on production in Q2. For the first six months of 2016, Bonterra averaged 12,584 BOE per day, which is in-line with the Company's annual guidance of 12,500 BOE per day and comparable to the first six months of 2015.

Bonterra increased its capital spending through the second quarter in response to a strengthening benchmark oil price. The Company invested $9.4 million to activities that included the completion and tie-in of two gross (2.0 net) wells drilled in the first quarter, and the drilling of four gross (3.3 net) wells, which were completed and tied-in early in the third quarter. Bonterra also increased its well maintenance program during the period and in early July, approximately half of the 1,100 BOE per day that was shut-in or in need of repair during the first six months of 2016 was successfully reactivated following an improvement in weather conditions and the removal of a portion of previously imposed pipeline restrictions. These improvements, coupled with the combination of new wells coming on, increased Bonterra's production to over 13,000 BOE per day early in the third quarter. The Company constantly monitors and assesses the impact of WTI oil prices and will continue to adjust its capital investment decisions on a monthly basis in response to changing prices.

Bonterra's focus on cost control continued through the second quarter with the Company achieving all-in cash costs per BOE of $18.76. Second quarter 2016 production costs improved three percent relative to the same quarter in 2015 due to field optimizations, more efficient produced water handling and decreased services and chemical costs, but were slightly higher compared to the first quarter due to the increased maintenance activity and reactivated volumes coming back on-stream. Royalties per BOE decreased significantly quarter over quarter due to a 20 percent drop in the Alberta crown reference price for oil used to calculate crown royalties, offset by the impact of a one-time freehold royalty rework that occurred in Q1 2016 related to prior periods.

Following the semi-annual review of its credit facilities mid-quarter, Bonterra's borrowing base was adjusted from $425 million to $380 million, comprised of a $330 million syndicated revolving credit facility, and a $50 million non- syndicated revolving credit facility. The revolving period for both expires on April 30, 2017 with a maturity date of April 30, 2018. As a result of Bonterra's funds flow generated in the second quarter exceeding capital spending and dividends paid, the Company was able to reduce its outstanding debt at June 30, 2016 to $337 million, a 2.3 percent reduction over the outstanding debt of $345 million at March 31, 2016. Bonterra believes that it has sufficient liquidity and financial flexibility to continue executing on its business plan, and remains committed to steadily reducing debt levels over time.

Q2 and the Six Months Ended June 30, 2016 Highlights:

• Production averaged 12,285 BOE per day in Q2 2016, a reduction of five percent compared to Q1 and two percent lower than the same quarter in 2015, but increased to over 13,000 BOE per day subsequent to the end of the Q2. Production for the six months ended June 30, 2016 was 12,584 BOE per day compared to 12,475 BOE per day for the same period in 2015; 
  
  
• Average Canadian dollar realized commodity price per BOE was $36.81 in Q2 2016, an increase of 29 percent compared to $28.59 per BOE generated in Q1 2016, but lower than $49.95 per BOE in the same quarter in 2015. Average Canadian dollar realized commodity price for the six months ended June 30, 2016 was $32.60 per BOE compared to $44.47 for the same period in 2015; 
  
  
• Corporate cash net back per BOE of $18.76 in Q2 2016 compared to $30.22 per BOE in Q2 2015 and $14.62 per BOE for the six months ended June 30, 2016 compared to $25.63 per BOE for the same period in 2015; 
  
  
• Continued to focus on cost reduction initiatives, resulting in production costs of $11.62 per BOE, a modest increase over Q1 2016 of $10.89 per BOE, reflecting increased field maintenance activity, but lower than $12.01 per BOE incurred in Q2 2015. Production costs for the six months ended June 30, 2016 were $11.25 per BOE compared to $11.97 per BOE for the same period in 2015; 
  
  
• Corporate funds flow of $29.8 million ($0.90 per diluted share) increased 82 percent compared to Q1 2016 driven by higher realized prices, continued cost reduction initiatives and sale of investments, but was 31 percent lower than Q2 2015 due to lower commodity prices year over year. Corporate funds flow for the six months ended June 30, 2016 was $46.2 million ($1.39 per diluted share) compared to $65.1 million ($2.03 per diluted share) for the same period in 2015; 
  
  
• Capital investment activity was increased as oil prices strengthened. Bonterra completed and tied-in two (2.0 net) wells that were drilled in Q1 2016, plus drilled four gross (3.3 net) new wells which were completed and tied-in early in Q3; and 
  
  
• Further reduced long-term bank debt during the period as corporate funds flow exceeded capital spending and dividends paid, enabling Bonterra to lower its long-term bank debt to $337 million at June 30, 2016 from $345 million at March 31, 2016.

LMR Update

On June 20, 2016, the Alberta Energy Regulator increased the Liability Management Ratio ("LMR") threshold for license transfers to 2.0. At the time, Bonterra's LMR of assets versus liabilities, as determined by the formula set out in the program, was 1.74. The Company reacted immediately to the regulatory changes and began an internal program to bring the LMR to 2.0.

Without spending any money, the Company has been able to increase the LMR rating to 2.12. The Company does not expect that with its current LMR there will be any impediments to future acquisition opportunities.

Outlook

Bonterra has remained committed to its long-term strategy of building a sustainable, dividend-paying growth Company, despite the commodity price volatility facing the oil and gas industry over the past two years. The Company will continue to closely monitor commodity prices and act swiftly in response to a changing environment, as evidenced by the decision to increase activity and capital spending in Q2 2016.

While commodity prices did improve during the second quarter, price weakness returned through the latter part of July due to ongoing market concerns over supply and demand imbalances of oil and natural gas liquids pricing and an excess supply of natural gas. In response to lower prices, Bonterra is prepared to make capital spending adjustments to ensure investments are directed to the highest value, lowest cost initiatives, such as well work- overs and reactivations. With a very low production decline rate, the Company's maintenance capital requirements to hold production flat are manageable, and Bonterra is confident in its ability to meet the full year annual production target of 12,500 BOE per day.

With price uncertainty, Bonterra will continue to focus on controlling costs while developing its high-quality Cardium asset base. Additional clarity regarding the Government of Alberta's Modernized Royalty Framework ("MRF") were released during the second quarter, and based on currently expected commodity price ranges, the Company does not anticipate the MRF will have a material impact on the results of operations on a go forward basis. Capital spending levels and dividend payments will continue to be actively managed to ensure total outflows remain below incoming funds flow, with any excess funds continuing to be directed to debt reduction.