Quarterly / Earnings Reports | First Quarter (1Q) Update

Bellatrix Exploration Details Q1 2019 Results

Share Print Bookmark    |    Wednesday,May 15,2019

Bellatrix Exploration Ltd. reported its Q1 2019 results.

⁽¹⁾ Basic weighted average shares for the three months ended March 31, 2019 were 80,909,225 (2018: 49,378,026). In computing weighted average diluted profit (loss) per share, weighted average diluted cash flow from operating activities per share, and weighted average diluted adjusted funds flow per share for the three months ended March 31, 2019, a total of nil (2018: nil) common shares were added to the denominator as a consequence of applying the treasury stock method to the Company’s outstanding share options, a total of nil (2018: nil) common shares issuable on conversion of the Company's outstanding 6.75% convertible unsecured subordinated debentures (the "Convertible Debentures") were added to the denominator, and a total of nil (2018: nil) common shares issuable on exercise of the Company's outstanding warrants were added to the denominator for the three month period resulting in diluted weighted average common shares outstanding of 80,909,225 (2018: 49,378,026).

⁽²⁾ The terms “adjusted funds flow”, “adjusted funds flow per share”, “total net debt”, “adjusted working capital deficiency”, "operating netbacks", and "total capital expenditures - net" do not have standard meanings under generally accepted accounting principles (“GAAP”). Refer to "Non-GAAP measures" disclosed at the end of this Press Release.

⁽³⁾ See "Barrels of Oil Equivalent" at the end of this Press Release.

⁽⁴⁾ The Company has entered into various commodity price risk management contracts which are considered to be economic hedges.  Per unit metrics after risk management include only the realized portion of gains or losses on commodity contracts.  The Company does not apply hedge accounting to these contracts.  As such, these contracts are revalued to fair value at the end of each reporting date.  This results in recognition of unrealized gains or losses over the term of these contracts which is reflected each reporting period until these contracts are settled, at which time realized gains or losses are recorded.  These unrealized gains or losses on commodity contracts are not included for purposes of per unit metrics calculations disclosed.

⁽⁵⁾ Fully diluted common shares outstanding for the three months ended March 31, 2019 were 91,122,802 (2018: 57,099,598). This includes 952,532 (2018: 1,548,732) of share options outstanding, 6,172,840 (2018: 6,172,840) of shares issuable on conversion of the Convertible Debentures, and 3,088,205 (2018: nil) of warrants outstanding. Shares issuable on conversion of the Convertible Debentures are calculated by dividing the $50 million principal amount of the Convertible Debentures by the conversion price of $8.10 per share.

⁽⁶⁾ TSX and Other includes the trading statistics for the Toronto Stock Exchange (“TSX”) and other Canadian trading markets.

⁽⁷⁾ Bellatrix voluntarily delisted the Company's common shares from the New York Stock Exchange (the "NYSE") effective February 12, 2019. On May 8, 2019, Bellatrix filed a Form 15F with the United States Securities and Exchange Commission to voluntarily terminate the registration of its securities and its reporting obligations under Section 13(a) and Section 15(d) of the United States Securities Exchange Act of 1934, as amended ("Exchange Act"). Bellatrix’s Exchange Act reporting obligations were immediately suspended upon filing the Form 15F. The termination of Bellatrix’s registration and of its reporting obligations under Section 13(a) and Section 15(d) of the Exchange Act is expected to be effective 90 days after filing. Bellatrix will continue to comply with its Canadian continuous disclosure obligations and its common shares will continue to trade on the TSX.

FINANCIAL & OPERATIONAL HIGHLIGHTS

Bellatrix’s first quarter results were marked by strong operational performance including robust well productivity and continued reductions in operating expenditures.  First quarter 2019 performance included the following operational and financial achievements:

• Production volumes in the first quarter of 2019 averaged 36,991 boe/d (71% natural gas weighted). Average production volumes in the first three months of 2019 represented 6% outperformance compared with the mid-point of Bellatrix’s 2019 full year daily average production guidance range (34,000 to 36,000 boe/d).
• Production expenses in the first quarter of 2019 averaged $5.83/boe, compared with fourth quarter 2018 production expenses of $6.59/boe. First quarter production expenditures of $5.83/boe decreased by $1.67/boe from full year 2018 average production expenditures of $7.50/boe, of which $1.52/boe of lease payments for certain processing and infrastructure fees which were previously recognized as production expenses, are now classified as repayments of lease obligations and finance expense following the Company's adoption of IFRS 16 Leases ("IFRS 16").
• Total net debt at March 31, 2019 of $448.3 million was relatively unchanged from the December 31, 2018 total net debt balance of $443.3 million. At March 31, 2019, borrowings under our syndicated revolving credit facilities (the "Credit Facilities") were $46.8, million providing for approximately $48.2 million of undrawn capacity (approximately 50% undrawn) against total commitments of $95 million, before deducting outstanding letters of credit of $13.6 million that reduce the amount otherwise available to be drawn on the Credit Facilities.
• On March 29, 2019, Bellatrix announced a proposed Recapitalization Transaction (defined below) designed to improve and strengthen the Company's overall financial position.  The Recapitalization Transaction, among other things, would reduce the Company's total outstanding debt by approximately $110 million (approximately 23%), reduce annual cash interest payments by over $12 million annually until December 31, 2021, and address the Company's debt maturities such that the Company would have no maturity dates in respect of any non-revolving debt until 2023.

Bellatrix delivered strong operational performance in the first three months of 2019 relative to 2019 annual guidance expectations as summarized below:

⁽¹⁾ 2019 Annual guidance metrics represent the mid-point of the previously set guidance range (January 15, 2019) where applicable.

⁽²⁾ Excludes corporate asset additions and property acquisitions and dispositions.

FIRST QUARTER 2019 OPERATIONAL ACTIVITIES AND PERFORMANCE

Drilling and completion activities planned for the first half of 2019 are weighted heavily to the first quarter as a result of the seasonal spring break up period that curtails activity in the second quarter.  During the first quarter, Bellatrix drilled five gross (5.0 net) operated wells, including four Spirit River wells and one Cardium well.  The four Spirit River wells were brought on-stream throughout the first quarter of 2019, and the Cardium well was drilled late in the first quarter and brought on-stream in April.  The Company's first quarter 2019 Spirit River drilling program has delivered the following initial production rates:

• 102/04-02-045-11W5 Spirit River well (100% working interest) well IP90: 5.9 MMcf/d
• 100/01-13-044-10W5 Spirit River well (100% working interest) well IP35: 10.5 MMcf/d
• 102/04-35-044-10W5 Spirit River well (100% working interest) well IP50: 7.5 MMcf/d
• 103/02-35-044-10W5 Spirit River well (100% working interest) well IP50: 7.9 MMcf/d

Total natural gas liquid ("NGL") recoveries (including plant condensate) at the Bellatrix O'Chiese Nees-Ohpawganu'ck deep-cut plant at Alder Flats (the "Alder Flats Plant") have increased in the first quarter of 2019, with NGL sales yields of approximately 68 bbl/MMcf, up approximately from first quarter 2018 total sales yields of approximately 54 bbl/MMcf. In the three months ended March 31, 2019, crude oil, condensate and NGL natural production declines were offset by approximately 18% increase in liquid recoveries due to the commissioning of Phase 2 of the Alder Flats Plant in March 2018. Exploration and development capital expenditures invested during the first quarter were $20.5 million. The Company’s capital expenditure plans remain in line with the current annual guidance range of $40 to $50 million for 2019. 

REDUCED SUSTAINING CAPITAL

Bellatrix continues to focus on improving capital efficiencies from its invested capital through the combination of reduced capital costs and improved well performance.  During the first quarter of 2019, all five operated wells were drilled off existing pad sites.  The ability to utilize existing above ground infrastructure, access roads, and gathering systems provides a competitive advantage for the Company as it seeks to maximize long term returns from its development program.  All-in average Spirit River well costs (drill, complete, equip and tie-in) in the first quarter of 2019 have averaged approximately $3.4 million, consistent with the cost performance achieved in 2018. Average well performance from the Company's 2019 Spirit River well program to date have outperformed expected results by approximately 15% on an IP45 basis. Bellatrix has systematically reduced overall sustaining capital requirements for our business over the past two years, including a reduction in the number of wells required to maintain average corporate production volumes.  Based on an assumed average 6.0 Bcf performance curve, the Company requires only 10 to 12 wells per year to maintain corporate production volumes in the mid 30,000 boe/d range.

With the completion of Phase 2 of the Alder Flats Plant in 2018, our long-term infrastructure build out is complete. Bellatrix expects the majority of future capital investment to be utilized directly in drilling, completion and production addition activities, with minimal capital required for facilities and infrastructure projects over the near term.  Management expects that the Company's existing facilities and processing capacity provide the capability to grow production volumes beyond 60,000 boe/d, with minimal future facility related capital.

Commodity Price Risk Management

Bellatrix maintains strong commodity price risk management and market diversification coverage through 2020 which is expected to reduce the impact of commodity price volatility on our business. Bellatrix has approximately 62 MMcf/d of natural gas volumes hedged in the last nine months of 2019, at an average fixed price of approximately $1.77/mcf, representing approximately 50% of 2019 daily average natural gas volumes (based on the mid-point of 2019 full year daily average production guidance). Bellatrix has diversified its natural gas price exposure through physical sales contracts that give the Company exposure to the Dawn, Chicago, and Malin natural gas pricing hubs. This long-term diversification strategy reduces Bellatrix’s exposure to AECO pricing on approximately 50% of the Company’s natural gas volumes.

In combination, market diversification sales and fixed price hedges cover approximately 50% to 60% of natural gas volumes through October 2020 (based on the mid-point of 2019 full year daily average production guidance).  A summary of Bellatrix’s commodity price risk management contracts as at March 31, 2019 include:

⁽¹⁾ Prices for natural gas fixed price swap contracts assume a conversion of $/GJ to $/mcf based on an average corporate heat content rate of 40.0Mj/m3.

⁽²⁾ Net Canadian equivalent price is calculated as the US$ fixed price, less the contracted differential, adjusted to Canadian dollars at an assumed exchange rate of $1.33 USD/CAD.

In summary, Bellatrix’s market diversification contracts include a total of 75,000 MMbtu/d of market exposure as follows:

Proposted Recapitalization Transaction

As announced on March 29, 2019, following Bellatrix’s strategic review efforts, the Company advanced a series of proposed transactions (collectively, the “Recapitalization Transaction”), which would on implementation, among other things, (i) reduce the Company’s total outstanding debt by approximately $110 million (approximately 23%), (ii) reduce annual cash interest payments by over $12 million annually until December 31, 2021, (iii) address certain debt maturities such that the Company would have no maturity dates in respect of any non-revolving debt until 2023; and (iv) improve and strengthen the Company’s overall financial position.

In the event the Recapitalization Transaction is not completed, the Company will need to evaluate all of its options and alternatives related to any future court proceedings or other alternatives to address key liquidity and debt leverage matters which exist today. The value available to stakeholders may be significantly less if the Recapitalization Transaction is not completed and there is a risk that any proceeds available for distribution to stakeholders under other alternatives would be paid in priority to the lenders under the Company's Credit Facilities, the holders of the second lien notes due 2023 ("Second Lien Notes"), the holders of the 8.5% senior unsecured notes due May 15, 2020 (the "Senior Notes"), other general creditors, and the holders of the Convertible Debentures, with the remaining proceeds, if any, paid to the Company's shareholders. There is significant risk that there may be no recovery of any kind, or amount available for, those parties which are lower in the priority waterfall in such circumstances.

Management of Bellatrix and the Board of Directors urge you to give serious attention to the Recapitalization Transaction and to support it in person or by proxy at the applicable meeting(s) to be held on May 23, 2019. We hope that we will receive your support. We encourage you to vote on the matters set out in the Information Circular dated April 18, 2019 by following the voting instructions set out therein by the applicable deadline. We thank you for your continued support of Bellatrix.

Any questions or requests for further information regarding voting at the security holders meetings should be directed to Kingsdale Advisors (Bellatrix’s proxy and information agent) at 1-866-229-8874 or 416-867-2272, or by email at contactus@kingsdaleadvisors.com.

Ops / Financial Summary

• Production volumes in the first quarter of 2019 averaged 36,991 boe/d (71% natural gas weighted), up from fourth quarter 2018 volumes of 35,001 boe/d, reflecting the Company’s first quarter capital program and well performance.  Production volumes in the first quarter 2019 exceeded the high end of Bellatrix’s full year average production guidance range (34,000 to 36,000 boe/d).   
• Adjusted funds flow generated in the three months ended March 31, 2019 was $21.2 million ($0.26 per basic and diluted share) compared to $15.5 million ($0.21 per basic and diluted share) generated in the fourth quarter of 2018.
• Exploration and development capital expenditures were $20.5 million in the first quarter of 2019, down 15% compared with first quarter of 2018 capital expenditures of $24.2 million.  The majority of first quarter of 2019 capital expenditures were allocated to drilling, completion and equipping activity.
• Bellatrix’s borrowings under its Credit Facilities were $46.8 million, and total net debt was $448.3 million at March 31, 2019.  At March 31, 2019, Bellatrix had approximately $48.2 million of undrawn capacity (approximately 50% undrawn) against total commitments of $95 million, before deducting outstanding letters of credit of $13.6 million that reduce the amount otherwise available to be drawn on the Credit Facilities.
• For the quarter ended March 31, 2019, Bellatrix’s Senior Debt to EBITDA (as defined in the MD&A) ratio was 3.17 times, below the financial covenant of 5.0 times as permitted by the agreement governing the Credit Facilities and Bellatrix's First Lien Debt to EBITDA (as defined in the MD&A) ratio was 1.35 times, below the financial covenant of 3.0 times as permitted by the agreement governing the Credit Facilities.
• Total revenue was $68.5 million for the first quarter of 2019, up 20% compared to $56.9 million in the fourth quarter of 2018, as higher oil and natural gas prices and increased sales volumes more than offset lower NGL prices over the comparative periods. 
• The corporate royalty rate in the three months ended March 31, 2019 averaged 12% of sales (after transportation), comparable with the 11% average rate in the fourth quarter of 2018. 
• Production expenses in the first quarter of 2019 averaged $5.83/boe compared with fourth quarter 2018 production expenses of $6.59/boe.  First quarter production expenditures of $5.83/boe decreased by $1.67/boe from full year 2018 average production expenditures of $7.50/boe, of which $1.52/boe of lease payments for certain processing and infrastructure fees were previously recognized as production expenses are now classified as repayments of lease obligations and finance expense following the Company's adoption of IFRS 16.
• Our corporate operating netback (including risk management) realized for the three months ended March 31, 2019 was $11.07/boe, up 12% compared with $9.90/boe realized in the fourth quarter of 2018. This change reflects lower realized hedging gains mitigated by higher average commodity sales prices and volumes over the comparable periods.   
• Net general and administrative (“G&A”) expenses (after capitalized costs and recoveries) for the three months ended March 31, 2019 were $5.1 million ($1.52/boe) compared with the $7.9 million ($2.46/boe) reported in the fourth quarter of 2018.
• Bellatrix recorded a net loss for the three months ended March 31, 2019 of $19.1 million compared to a net loss of $89.8 million for the three months ended December 31, 2018. The decrease in loss period over period is primarily due to the reversal of the deferred tax asset in the fourth quarter of 2018 which resulted in deferred tax expense, with no comparable expense in the first quarter of 2019.
• As at March 31, 2019, Bellatrix had approximately 131,021 net undeveloped acres of land principally in Alberta.
• As at March 31, 2019, Bellatrix had approximately $1.4 billion in tax pools available for deduction against future income.
• Bellatrix maintained a strong Liability Management Rating of 9.03 in Alberta versus an industry average of 4.87 as at April 6, 2019.

Outlook

First quarter 2019 average production volumes of 36,991 boe/d are above the high end of the 2019 full year average daily production guidance range and within management expectations given the front end weighted capital program.  Bellatrix is reiterating its full year 2019 guidance metrics as outlined below.

⁽¹⁾ Excludes property acquisitions and dispositions.

Bellatrix Exploration Ltd. is a publicly traded Western Canadian based growth oriented oil and gas company engaged in the exploration for, and the acquisition, development and production of oil and natural gas reserves, with highly concentrated operations in west central Alberta, principally focused on profitable development of the Spirit River liquids rich natural gas play.

Common shares of Bellatrix trade on the Toronto Stock Exchange under the symbol "BXE".