Quarterly / Earnings Reports | Second Quarter (2Q) Update

Bellatrix Exploration Reports Q2 2019 Results

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Bellatrix Exploration Ltd. reported its Q2 2019 results.

Highlights:

Bellatrix’s second quarter 2019 operational and financial performance included the following achievements:

• Production volumes in the second quarter of 2019 averaged 35,917 boe/d (71% natural gas weighted). Average production volumes in the first six months of 2019 represented 4% 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 second quarter of 2019 were $22.1 million ($6.75/boe), compared with first quarter 2019 production expenses of $19.4 million ($5.83/boe). Second quarter production expenditures of $22.1 million ($6.75/boe) included $2.3 million ($0.71/boe) of turnaround costs at Bellatrix operated facilities during the quarter.

• Total net debt at June 30, 2019 of $357.6 million declined by $90.7 million from March 31, 2019 balances following the completion of the recapitalization transaction (the "Recapitalization Transaction") on June 4, 2019. At June 30, 2019, borrowings under our syndicated revolving credit facilities (the "Credit Facilities") were $60.5 million, with approximately $29.5 million of undrawn capacity (approximately 33% undrawn) against total commitments of $90 million, before deducting outstanding letters of credit of $13.5 million that reduce the amount otherwise available to be drawn on the Credit Facilities.

In summary, Bellatrix delivered the following operational performance in the first half of 2019 relative to guidance expectations:

1H 2019 Summary

Bellatrix completed the majority of its first half capital program during the first three months of the year, in advance 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.  No wells were drilled during the second quarter of 2019.

Bellatrix continues to focus on improving capital efficiencies from its invested capital through the combination of reduced capital costs and improved well performance.  All five operated wells drilled in 2019 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 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 IP150 basis.

The Company's 2019 Spirit River drilling program has delivered the following initial production rates:

• 102/04-02-045-11W5 Spirit River well (100% working interest) well IP160: 5.2 MMcf/d

• 100/01-13-044-10W5 Spirit River well (100% working interest) well IP115: 8.1 MMcf/d

• 102/04-35-044-10W5 Spirit River well (100% working interest) well IP130: 6.2 MMcf/d

• 103/02-35-044-10W5 Spirit River well (100% working interest) well IP125: 7.2 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") remain strong, with NGL sales yields of approximately 66 bbl/MMcf in the first half of 2019, compared to first half 2018 total sales yields of approximately 55 bbl/MMcf. Given continued strong liquids recoveries, Bellatrix's corporate liquids weighting has averaged 29% year to date, resulting in a commensurate improvement in our 2019 full year average guidance expectation to 29%, up from 28% previously. During the second quarter, Bellatrix completed a planned five-day turnaround at the Alder Flats Plant, which was completed safely, on-time, and on-budget.

Exploration and development capital expenditures invested during the second quarter were $4.9 million. First half 2019 exploration and development capital expenditures were $25.5 million.

Outlook

First half 2019 average production volumes of 36,450 boe/d are in line with the high end of the 2019 full year average daily production guidance range and within management expectations given the front end weighted capital program for the year. Bellatrix is announcing today a minor update to its full year 2019 guidance metrics as outlined below, which relates to a higher average corporate liquids weighting realized to date and anticipated through the back half of the year. The full year weighting for crude oil, condensate and NGLs is expected to average 29% of total corporate volumes, up from a 28% weighting expectation within our initial 2019 announced guidance. The average daily production volume and total net capital expenditure guidance ranges for 2019 remain unchanged.

⁽¹⁾ Excludes property acquisitions and dispositions.

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 65 MMcf/d of natural gas volumes hedged in the last six months of 2019 at an average fixed price of approximately $1.75/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.

Recapitalization Complete

As previously announced, Bellatrix completed a recapitalization transaction (collectively, the "Recapitalization Transaction") on June 4, 2019, designed to improve and strengthen the Company's overall financial position, which included among others, the following key elements:

• Bellatrix's total debt was reduced by approximately $110 million.

• The Company’s previously outstanding 8.5% senior unsecured notes due 2020 (the “Senior Notes”) in the aggregate principal amount of approximately US$145.8 million, plus all accrued and unpaid interest, were exchanged for, (i) US$50 million of new second lien notes due September 2023 (the "Second Lien Notes"), (ii) US$54.9 million of new third lien notes due December 2023 (the "Third Lien Notes") and (iii) new common shares of Bellatrix representing approximately 51% of the common shares of Bellatrix outstanding following the implementation of the Recapitalization Transaction. 

• The Company’s previously outstanding 6.75% Convertible Debentures in the aggregate principal amount of $50 million, plus all accrued and unpaid interest, were exchanged for new common shares of Bellatrix representing approximately 32.5% of the common shares of Bellatrix outstanding following the implementation of the Recapitalization Transaction.

• As a result of the extinguishment of the Senior Notes and Convertible Debentures, the Company has no maturity dates in respect of any non-revolving debt until 2023. The indenture governing the Third Lien Notes provides for a special repayment of principal in the amount of US$4.9 million on December 2, 2019.

• The Company’s common shareholders prior to the implementation of the Recapitalization Transaction retained their common shares, subject to the 12 for 1 Consolidation, with such common shares representing approximately 16.5% of the common shares of Bellatrix outstanding following the implementation of the Recapitalization Transaction.

• In connection with the implementation of the Recapitalization Transaction, Bellatrix extended the revolving period under its Credit Facilities by one year with the term-out period expiring one year after the end of the revolving period, such that the revolving period now expires on May 30, 2020, and is extendible annually thereafter at the option of the Company, subject to lender approval. As part of the renewal of the Credit Facilities, the borrowing base under the Credit Facilities was reconfirmed at $100 million (unchanged), with total commitments set at $90 million. The next semi-annual redetermination is scheduled for November 2019.

• Concurrently with the implementation of the Recapitalization Transaction, Bellatrix continued from the Business Corporations Act(Alberta) to the Canada Business Corporations Act.