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Chinook Energy Increases Spending in 2015

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   |    Thursday,November 13,2014

Chinook Energy Inc. has announce its third quarter financial and operating results.

Jill Angevine has been appointed to the Board of Directors.

Ms. Angevine is a Vice President and Portfolio Manager at Matco Financial Inc. with over 20 years of investment and research experience. She is a member of Matco Financial's Investment Committee and chairs the Canadian Equity Working Group. Prior to joining Matco Financial, Ms. Angevine was Vice President and Director, Institutional Research at FirstEnergy Capital Corp. Ms. Angevine graduated from the University of Calgary in 1989, having earned a Bachelor of Commerce and has earned the Chartered Accountant (CA), the Chartered Financial Analyst (CFA), and the Institute of Corporate Directors (ICD.D) designations.

Highlights for the three and nine months ended September 30, 2014

• Completed the disposition of our Tunisian operations, effective January 1, 2014, for gross proceeds of US$128.5 million on August 19, 2014.
• Repaid all outstanding balances drawn on our Canadian revolving credit facility and exited the quarter with $47.5 million cash-on-hand.
• Spent $56.9 million on capital expenditures in the nine months ended September 30, 2014, including $13.9 million to acquire 19 additional sections of prospective Montney lands in British Columbia.
• Drilled and completed our second Montney horizontal well at Birley/Umbach where we now hold 54 gross (45 net) contiguous sections of Montney lands.
• Cash flow for the nine months ended September 30, 2014 was $42.1 million, up 30% over the same period in 2013.
• Increased our operating netback by 18% in the third quarter of 2014 over the same period of 2013 and by 55% in the nine months ended September 30, 2014 compared to the same period of 2013.

Third Quarter 2014 Financial Results

• Upon completing the disposition of our Tunisia operations on August 19, 2014, our continuing operations are focused on resource growth opportunities in western Canada. The following financial and operational highlights relate to only our continuing operations.
• Production in the third quarter of 2014 averaged 7,339 boe/d, down 12% from the same period in 2013 and down 7% from the second quarter of 2014. Production was negatively impacted by third party turnarounds and pipeline maintenance as well as natural reservoir declines which have not yet been offset by new production which is expected to come on stream in the fourth quarter of 2014. Despite the decrease in volumes from the comparative 2013 period, revenue was up over 5% from the third quarter of 2013 as a result of increased commodity prices and our increased proportion of crude oil production. Our third quarter 2014 realized oil price was lower than the comparative period in 2013 and the second quarter of 2014, as our realized oil price followed the benchmark pricing of Edmonton par and world oil prices. Our realized natural gas and NGL prices in the third quarter 2014, while higher than the comparative period in 2013, also decreased from the second quarter of 2014 as benchmark prices softened during the summer season.
• Our operating netback increased by 18% in the third quarter to $21.03/boe from $17.80/boe in the third quarter 2013 and by 55% in the nine months ended September 30, 2014 to $27.73/boe compared to $17.91/boe in the same period of 2013, principally as a result of stronger overall commodity prices in 2014 as compared to 2013.
• Cash flow for the quarter decreased by 21% to $9.7 million compared to the same quarter in 2013 as a result of lower production volumes, higher royalties, G&A expenses and higher realized derivative losses. However, as a result of higher commodity prices, our cash flow for the nine months ended September 30, 2014 was 30% higher than the same period in 2013. Subsequent to the completion of the disposition of our Tunisian operations and the repatriation of the sale proceeds from that transaction, we ended the third quarter with an undrawn credit facility and a cash balance to fund our expanded 2014 capital program and ongoing operations.

Third Quarter 2014 Operational Results

• We drilled and/or participated in four (2.38 net) wells during the third quarter, including our second Montney natural gas well (0.75 net) on our Birley/Umbach lands and two (1.26 net) Dunvegan wells, one (1.0 net) on our Albright property and the second well (0.26 net) on our non-operated Karr property.
• At Birley/Umbach, we have drilled two (1.5 net) successful horizontal wells in 2014 which have delineated the Montney potential over a large portion of our 54 (45 net) sections of contiguous lands. Our most recent well at d-A83-H/94-H-3 was completed and tested in October with on stream production expected by mid- November. An expansion of our facility in the area is underway to increase capacity to 10 mmcf/d and an additional expansion of the facility is planned in the first quarter of 2015 to increase capacity to 35 mmcf/d by July, 2015. We have identified 216 potential Upper Montney drilling locations across our lands and we are closely monitoring nearby drilling and completion operations in the mid and lower Montney intervals by other operators which could significantly increase the number of potential Montney drilling locations on our lands.
• At Gold Creek, during the quarter, we completed the facility construction and pipeline tie-in for our first horizontal well (0.37 net) drilled in the first quarter of 2014. As previously noted, the well tested over a 320 hour period at rates of up to 500 barrels of oil per day and 6 mmcf/d of natural gas (total 1,500 boe/d. We have over 50 (35 net) sections of prospective Montney acreage in the Gold Creek area.
• In the Grande Prairie area, we have ownership in six established Dunvegan oil pools. During the quarter, we drilled one (1.0 net) successful oil well on our Albright property, participated in the drilling of one well (0.26 net) at our non-operated Karr property and re-drilled the horizontal section of a well drilled in the first quarter of 2014. We have identified an additional 79 (48 net) horizontal drilling locations on our Dunvegan lands in the area with drilling activity on just two of six properties over the last two years.

Outlook

• As previously announced, our Board of Directors has approved a $135 million capital program for 2015 focusing on the development of liquids rich natural gas at Birley/Umbach, British Columbia and light oil at Grande Prairie, Alberta. In 2015, we intend to move towards full scale development and facility expansion at Birley/Umbach, further delineation at Gold Creek and continue with our Dunvegan oil development program. Approximately 55% of the capital program will be spent in the first half of 2015. In order to protect a strong balance sheet entering into 2015, and maintain a debt to trailing cash flow ratio of less than one, we have built our 2015 capital program with the flexibility to increase or decrease our capital expenditures should commodity prices be above or below our 2015 pricing assumptions. Please see our news release dated October 29, 2014 for a description of our 2015 capital program.
• Further to our news release dated October 29, 2014, we have acquired, effective September 1, 2014, approximately 1,200 boe/d (86% natural gas) of production near our Birley/Umbach operations along with operatorship of strategic infrastructure that will provide us flexibility with respect to our gas processing and transportation options as we continue to develop this area. The purchase price of the acquisition was $17 million in cash plus 3.5 net sections of non-core lands in the Wapiti area of Alberta.
• In our October 29, 2014 news release, we updated our 2014 guidance in light of the foregoing acquisition, lower forecasted fourth quarter commodity prices, timing delays in the on stream date of our first Gold Creek Montney well and the closing of the disposition of our Tunisian operations. We also provided guidance for 2015. Both are set forth below: