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Bellatrix Focused on Spirit River, $30 MM in Q2

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Bellatrix Exploration Ltd. has announced its financial and operating results for the three months ended March 31, 2015.

President's Message

First quarter 2015 activity was focused on three principal initiatives: 

• Firstly, the Company efficaciously executed on several critical path items on construction of Phase 1 of the Bellatrix O'Chiese Nees-Ohpawganu'ck deep-cut gas plant in the Alder Flats area of Alberta and the plant remains firmly on schedule to meet our previous guidance for start-up on or before July 1 , 2015. 
• Secondly, drilling and completion activity was directed toward high rate of return wells, including a greater focus on our high impact and low finding cost Spirit River opportunities which will attract the majority of drilling and completion capital in 2015. 
• Finally, Bellatrix remains committed to maintaining its position as a low cost finder and operator, continuing our emphatic approach to reduce costs and improve our full cycle corporate profitability.
• Capital spending on exploration and development activities of $81.3 million included $54.7 million on facilities and equipment, which represented the highest forecast capital spending quarter of 2015 as we near completion of the Bellatrix Alder Flats Plant. 
• Net capital spending in the second quarter is forecast at approximately $30 million. Bellatrix remains highly focused on key business objectives of maintaining financial strength and optimizing capital investments which it seeks to attain through a disciplined approach to capital spending, a flexible investment program, and financial stewardship. 
• Bellatrix is actively engaged in exploring several capital funding alternatives designed to sustain or reduce year-end net debt in 2015 when compared to 2014 year-end net debt of $638 million, while maintaining delivery of the 2015 full year average production guidance of 43,000 to 44,000 boe/d, representing 14% year over year average production growth. 
• Bellatrix will revisit its capital budget on a continuous basis, will strategically review all sources and costs of capital available to the Company including monetization of assets, and will further curtail capital spending, if necessary, in order to preserve its balance sheet until commodity prices firmly recover. In the first quarter of 2015, Bellatrix proactively obtained amendments to certain of the financial covenants governing the existing bank credit facilities thereby providing Bellatrix enhanced flexibility to successfully navigate through 2015 and optimize its capital decisions. The Company remains committed to preserving the long term strategic value of its assets through this challenging commodity price environment for the benefit of all shareholders.

Operations Highlights

• Production in the quarter averaged 44,408 boe/d (72% natural gas weighted) solidly at the top end of our full year average guidance range of 43,000 to 44,000 boe/d. The first quarter 2015 production increased 27% from an average of 35,049 boe/d realized in the first quarter of 2014.
• Capital spending on exploration and development activities of $81.3 million included $54.7 million on facilities and equipment as we near completion of the construction of Phase 1 of the Bellatrix Alder Flats Plant.
• During the first quarter of 2015, Bellatrix drilled and/or participated in 6 gross (3.2 net) wells, consisting of 3 gross (1.2 net) Cardium oil wells and 3 gross (2.0 net) Spirit River liquids-rich gas wells.
• As at March 31, 2015 , Bellatrix had approximately 379,165 net undeveloped acres of land in Alberta , British Columbia , and Saskatchewan .

Phase 1 of the Bellatrix Alder Flats Deep-Cut Gas Plant

• Significant activity and critical path items were completed on Phase 1 of the Bellatrix Alder Flats Plant during the first quarter of 2015. All major components were delivered and installed in January. All pipe welding and installation was completed by the end of the quarter. Additionally, electrical power supply to the site is completed and energized. Subsequent to the end of the first quarter, pressure testing of pipe was materially completed as was electrical commissioning.
• The Company completed three major bores for pipelines associated with the deep cut plant including a successful 2.4 kilometre bore under the North Saskatchewan River to accommodate three pipelines (a 16" pipe, an 8" pipe, and a 4" pipe). The total length of major pipeline installed was 13.5 kilometres of 16" natural gas lines, 20 kilometres of 8" fuel gas lines, and 13.5 kilometres of 4" condensate lines.
• Completion of Phase 1 of the Bellatrix Alder Flats Plant remains firmly on budget and on schedule for start-up on or before July 1 , 2015.

Expected Capital Efficiency Improvement Following Large Scale Infrastructure Build-Out

• Bellatrix has invested over $245 million in facilities and infrastructure over the past two calendar years with approximately $70 million additional spending planned in 2015. The investment in the Bellatrix Alder Flats Plant, pipelines, compressor stations, and oil batteries provides significant competitive advantages within our greater Ferrier region. From a long term perspective, these strategic infrastructure assets anchor a reduced operating cost profile. Additionally these fixed assets are expected to improve operational reliability given enhanced flexibility and access to multiple processing facilities in addition to key receipt points along the Canadian mainline gas transmission system.
• Upon completion of Phase 1 of the Bellatrix Alder Flats Plant, Bellatrix will have unfettered processing capacity to grow production volumes to approximately 60,000 boe/d without the need for material spending on infrastructure. Beginning in 2014, infrastructure spending has averaged between 35% to 40% of total capital spending, however starting in the second half of 2015 we anticipate infrastructure related spending will decline to approximately 20% or less of total capital spending going forward. Reduced infrastructure investment is expected to drive improved corporate capital efficiency metrics, finding and development costs, and result in enhanced corporate profitability.

Service Cost Deflation and Overall Cost Reduction Initiatives

• The entrepreneurial spirit of our team and consistent focus on improving results and reducing costs remain core competencies within the Bellatrix culture. During the first quarter of 2015 the Company remained steadfast in its approach to reduce costs within all aspects of its operations. Reduced industry activity and improved efficiencies has enabled Bellatrix to work with its drilling and completion vendors to obtain average costs savings of up to 15%. These cost savings initiatives have meaningfully impacted year to date activity highlighted by our first quarter Spirit River drilling and completion program which came in 20% lower than our original cost projections.
• Additional cost saving initiatives captured in the first quarter included a renegotiation of all major compressor rental agreements, providing an estimated cost savings annually of $3.5 million . The Company has also initiated a multitude of cost saving strategies to reduce general and administrative costs that will be realized throughout 2015. We anticipate further cost savings from our corporate initiatives across our business as we progress through this year.

Plan to Access Up to $85 MM in Joint Venture Partner Capital in 2015

• Bellatrix intends on accessing up to $85 million in joint venture capital in 2015 principally sourced from our JV partnership with Grafton Energy Co I Ltd. Pursuant to the JV terms, Grafton contributes 82% of the drill, complete, equip and tie-in costs to earn 54% of Bellatrix's working interest before payout, reverting to a 33% working interest after payout (convertible to a 17.5% gross overriding royalty). Access to JV capital in 2015 provides significant benefits to Bellatrix including insulation against weak commodity prices given enhanced rate of return expectations, and improved capital efficiencies on wells drilled.

Financial Highlights

• Net loss for the three months ended March 31, 2015 was $12.7 million . The reduction in earnings in the first quarter 2015 compared to the fourth quarter of 2014 was primarily due to the continued weak commodity price environment which has resulted from the over-supply in the market. Realized prices in the first quarter 2015 decreased by 31% in crude oil and condensate, 42% in NGL and 25% in natural gas from fourth quarter 2014.
• Total revenue decreased by 45% to $90.2 million for the three months ended March 31, 2015 , compared to $163.6 million realized in the first quarter of 2014. Total crude oil, condensate, and NGL revenues contributed 41% of total revenue realized in the first quarter of 2015, compared to 55% in the first quarter of 2014.
• Funds flow from operations generated in the three months ended March 31, 2015 was $24.9 million ( $0.13 per basic share), a decrease of 68% from $77.6 million ( $0.45 per basic share) in the first quarter of 2014.
• Production expenses totaled $34.2 million ( $8.56 /boe) for the three months ended March 31, 2015 , compared to $25.6 million ( $8.12 /boe) in the first quarter of 2014. Production expenses increased on a per boe basis between the first quarters of 2015 and 2014 due to one-time adjustments related to prior periods of $0.62 /boe primarily attributable to third party realized facility equalizations. Excluding these one-time adjustments, production expenses per boe for the three months ended March 31, 2015 were $7.94 /boe.
• Increased commodity price risk management contracts during the first quarter 2015. The risk management program for the April 1, 2015 through October 31, 2015 period represents approximately 90% of forecast natural gas volumes (before royalties) over the duration of the contract period, compared with the midpoint of full year 2015 average production guidance range.
• Announced amendments to the financial covenants governing the existing bank credit facilities thereby providing Bellatrix enhanced flexibility to successfully navigate through the current challenging commodity price environment.
• As at March 31, 2015 , Bellatrix had $101.6 million undrawn on its total $725 million credit facilities.
• Total net debt as of March 31, 2015 was $696.4 million .
• At March 31, 2015 , Bellatrix had approximately $1.70 billion in tax pools available for deduction against future income.

Outlook

As we near completion on Phase 1 of the Bellatrix Alder Flats Plant, it is important to reflect on the strategic drivers behind our decision to construct the facility.

• The first and arguably most important consideration is control. The Bellatrix Alder Flats Plant provides control over the ability and timing of production growth, reliability of processing capacity, and firm service processing capacity. 
• Furthermore, the enhanced natural gas liquids recovery at the Bellatrix Alder Flats Plant provides an estimated 14% uplift in revenue from the same gas stream currently processed through third party plants. 
• Finally, the operating cost savings are significant as we forecast a 55% reduction in unit operating costs attributed to natural gas volumes processed through the plant relative to third party processed volumes currently. The contribution of the deep-cut plant is expected to anchor an overall reduction in average 2015 corporate operating costs.

In conjunction with our decision to construct the plant, Bellatrix secured firm takeaway capacity on the Canadian mainline gas transmission system to align with the incremental gross sales capacity of both Phase 1 and Phase 2 of our Bellatrix Alder Flats Plant.

Bellatrix's firm takeaway capacity on the mainline system will grow from approximately 220 mmcf/d currently, to approximately 330 mmcf/d upon completion of Phase 1 of our plant, with subsequent growth to 430 mmcf/d upon completion of Phase 2. Current takeaway constraints have placed pressure on many producers across the Basin as interruptible capacity has been significantly reduced, and at times restricted completely. Bellatrix also put in place long term firm transportation and fractionation agreements with an established midstream company ensuring takeaway, processing and marketing of all NGL and condensate products produced at the plant. Bellatrix's foresight to build, control, and secure additional firm takeaway capacity has put the Company in an enviable position to be able to profitably grow production in the years ahead with significantly reduced infrastructure constraints.