Quarterly / Earnings Reports | Second Quarter (2Q) Update | Production Rates | Forecast - Production | Hedging | Capital Markets | Capital Expenditure | Drilling Program | Private Equity Activity

Highly Hedged Long Run's Capex Weighted to H2 in 2015

Email    |    Print    |    Bookmark

You Need to login first

   |    Thursday,July 30,2015

Long Run Exploration has announced financial and operational results for the second quarter of 2015.

• Commodity prices have continued to demonstrate weakness through the second quarter of 2015, however Long Run is committed to our disciplined capital spending plan. Based on our financial and operational results over the first half of the year, we remain on track to meet our 2015 capital budget, production and funds flow targets. Our team is focused on cost savings initiatives in an effort to reduce capital and operating costs and improve project returns in this challenging commodity price environment.
• Long Run continues to examine strategic and financial means to improve the capital structure of the Company. We believe in the value of our diversified asset base and are diligently working towards a balance between improved financial strength and operational momentum.

Q2 2015 Highlights

• Generated funds flow from operations of $45.9 million ($0.24/share) compared to $73.4 million ($0.54/share) in 2014, reflecting lower commodity prices and lower oil production partially offset by higher natural gas and NGLs production, a gain on financial derivatives and lower royalties. Funds flow from operations in the first half of 2015 totaled $85.9 million ($0.44/share).
• strong>Averaged 34,457 Boe/d of production, an increase of 6,855 Boe/d from 27,602 Boe/d in 2014. The production increase resulted primarily from the liquids-rich natural gas weighted Deep Basin acquisitions in 2014. Production averaged 35,026 Boe/d over the first six months of 2015.
• Reduced capital expenditures to $8.8 million compared to $57.3 million in 2014. Capital expenditures of $54.1 million were incurred over the first six months of 2015, in line with our planned expenditures of $50 - $55 million. Expenditures were focused on our Deep Basin Cardium and Peace River Montney core areas.
• Executed on $10.1 million of non-core dispositions with proceeds being directed towards debt repayment.
• strong>Reduced net debt at June 30, 2015 by $30.4 million from December 31, 2014, on track with our debt reduction goal of $100 million for 2015. The reduction in net debt was a result of disposition proceeds and funds flow from operations exceeding capital expenditures. As at June 30, 2015, Long Run's net debt was $709.2 million and we were in compliance with all covenants, obligations and conditions of our credit agreement.
• Recorded a net loss of $50.1 million compared to net earnings of $20.8 million in 2014, primarily as a result of lower funds flow from operations and higher unrealized losses on financial derivatives. Over the first six months of 2015, a net loss of $73.0 million was recorded.
• Completed the semi-annual review of the Company's credit facilities with our bank syndicate on May 29, 2015. Total credit facilities were maintained at $695 million. The amended credit facilities consist of a $410 million revolving syndicated facility, a $40 million revolving operating facility and a $245 million non-revolving syndicated facility.

Q2 2015 Update

• As planned, capital expenditures of $8.8 million were incurred in the quarter with no new wells drilled. Long Run executed on $10.1 million in non-core dispositions relating to a pipeline sale and minor properties producing approximately 50 Boe/d. Proceeds from these dispositions have been directed towards debt repayment.
• Second quarter 2015 production averaged 34,457 Boe/d (41% oil and NGLs), including Deep Basin production of 13,072 Boe/d (31% oil and NGLs), Peace River Montney production of 8,767 Boe/d (55% oil and NGLs) and Redwater Viking production of 3,295 Boe/d (87% oil and NGLs).
• Realized oil prices in the second quarter of 2015, including derivatives, averaged $72.03/Bbl compared to $89.59/Bbl in 2014. The decrease was a result of lower West Texas Intermediate benchmark prices partially offset by an increase in the U.S. dollar exchange rate and a gain on oil financial derivatives. Long Run's average NGLs price decreased to $24.48/Bbl from $72.76/Bbl in 2014 reflecting lower market prices as well as the change in our NGLs product mix following the Deep Basin acquisitions in 2014. Average natural gas prices, including derivatives, of $3.30/Mcf decreased from $4.61/Mcf in 2014, reflecting weaker AECO benchmark prices partially offset by a gain on natural gas financial derivatives.
• Long Run's realized prices in the second quarter of 2015 benefitted significantly from our ongoing risk management program. Our financial derivatives contributed $13.70/Bbl to our realized oil price and $0.41/Mcf to our realized natural gas price. In total, Long Run recognized a $16.4 million gain on financial derivatives, comprised of $11.8 million from oil contracts and $4.6 million from natural gas contracts.
• In the second quarter of 2015, the Company's operating netback of $19.92/Boe and corporate netback of $14.64/Boe reflected lower commodity prices partially offset by lower royalties, lower operating costs and a realized gain on financial derivatives. Long Run's average operating costs were $11.55/Boe impacted by the addition of the lower cost Deep Basin assets and lower utilities, fuel and chemical costs. Royalty rates averaged 7% reflecting the low commodity price environment. Long Run's general and administration expense averaged $2.53/Boe. Annual operating costs and general and administration expense are expected to average $13.25/Boe and $2.50/Boe, respectively for 2015. We continue to forecast average royalty rates of 10 - 11% for the year.

Outlook 

• strong>For 2015, Long Run is targeting $100 million of debt reduction through disposition proceeds and funds flow from operations in excess of our annual capital spending. We continue to expect annual funds flow from operations of between $120 - $135 million to exceed our planned capital spending of $100 million. The Company plans to repay the remaining $145 million on the non-revolving syndicated facility due by May 29, 2016 through further strategic and financial means, which may include asset dispositions and alternative debt refinancing.
• strong>Second half of 2015 capital spending is expected to be $45 million, with a focus on our Redwater Viking and Deep Basin Edson properties. After reviewing expected cost structures and factoring in forecast commodity prices, we have reallocated capital spending. 
• strong>We anticipate drilling 12.0 net Redwater Viking wells in the second half of 2015, in place of the previously planned 4.0 Kakwa/Elmworth Cardium wells. We continue to plan for 3.0 Edson wells to be drilled in the fourth quarter. Our annual production guidance of 32,000 - 33,000 Boe/d (43% oil and NGLs) remains unchanged. Long Run's current production is approximately 31,500 Boe/d (41% oil and NGLs).
• Our on-going risk management program continues to be an important part of our strategy to mitigate commodity price risk. For the second half of 2015, Long Run has hedged approximately 60% of our oil production (40% with an average floor price of WTI US$95.00/Bbl and 20% with an average floor price of C$74.50/Bbl) and 70% of our natural gas production (average floor price of $3.30/GJ). For 2016, we have hedged approximately 10% of our oil production with an average WTI price of C$77.53/Bbl and approximately 45% of our natural gas production with an average AECO price of $3.01/GJ. We continue to look for additional opportunities to add financial hedges into 2016 in order to protect funds flow from continued commodity price volatility.