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RMP Keeps Activity Low; Taps Advisers for Strategic Alternatives Process

Share Print Bookmark    |    Wednesday,August 17,2016

RMP Energy Inc. announces for the three months ended June 30, 2016 funds from operations of $7.4 million ($0.05 per basic share) on revenue of $20.3 million and average daily production of 8,425 barrels of oil equivalent. 

Key Points:

• RMP has engaged FirstEnergy Capital Corp. and Scotia Waterous Inc. to aid in helping the company maximize its large Montney resource base

Second Quarter 2016 Highlights:

• Second quarter production was 8,425 boe/d (as previously-announced), with a relatively balanced oil-gas production profile weighted 43% light oil and NGLs. In addition to pared-back drilling activity over the last six months and natural field declines, second quarter production was impacted by an unscheduled outage of a mid-stream-operated gas plant in the Kaybob area due to an infrastructure mechanical issue. As a result, on May 25, 2016 the Company's Kaybob Montney gas field was shut-in through to June 29, 2016, which impacted and reduced the Company's second quarter production levels by approximately 425 boe/d for the quarter. At the time of shut-in, Kaybob production was approximately 1,100 boe/d. Had this mid-stream outage not occurred, RMP estimates second quarter 2016 corporate production would have approximated 8,850 boe/d. 
  
  
• Second quarter petroleum and natural gas revenue amounted to $20.3 million (79% from crude oil and NGL sales), as compared to $49.3 million (72% of crude oil and NGL sales) in the second quarter of 2015 and $21.6 million (70% of crude oil and NGL sales) in the preceding first quarter of 2016.
  
  
• Second quarter petroleum and natural gas royalties amounted to $3.7 million (18% of petroleum and natural gas revenue, excluding realized amounts on risk management commodity contracts), as compared to $6.0 million (12% of petroleum and natural gas sales) in the second quarter of 2015 and $2.3 million (11% of petroleum and natural gas sales) in the preceding first quarter of 2016. A non-recurring Crown royalty adjustment charge of $940 thousand, resulting from the annual recalculation of the Crown's gas cost allowance, increased the Company's effective royalty rate for the second quarter. This royalty charge increased RMP's second quarter 2016 royalty rate by 4.6%. On January 29, 2016, the Government of Alberta introduced a new royalty framework for the province's oil and gas industry, the Modernized Royalty Framework, which will take effect on January 1, 2017. Preliminary analysis of the financial impact on the Company's Montney light oil drilling inventory, as a result of the new MRF, indicates a significant, positive impact on RMP's well economics. 
  
  
• Second quarter field operating expenses on a per-unit basis were $5.27/boe, reflecting the Company's ongoing optimization and cost discipline of its operating cost structure in addition to industry cost deflation resulting from prolonged low commodity prices. RMP realizes cost savings resulting from ownership and operatorship of extensive field infrastructure and also provides the Company with the future opportunity to realize operating cost recoveries through third-party utilization. The second quarter transportation cost of $3.58/boe was in-line with the $3.43/boe recognized for the comparative second quarter of 2015, however, the transportation cost was higher than the preceding first quarter 2016 cost of $2.66/boe due to lower gas production volumes covering the fixed component of its firm service gas transportation charges. Second quarter general and administrative expenses of $1.4 million decreased 21% when compared to the $1.8 million for the second quarter of 2015 and decreased 13% from the $1.6 million G&A expense in the preceding first quarter 2016. 
  
  
• Second quarter funds from operations amounted to $7.4 million ($0.05 per basic share). The Company's field operating netback was $12.78/boe for the second quarter (as previously-announced). Low controllable cash costs (operating expenses, G&A expenses and bank interest) of $8.36/boe for the second quarter, continues to foster RMP's cash flow generating capabilities. 
  
  
• In the second quarter, RMP incurred $17.5 million in property, plant and equipment and exploration and evaluation capital expenditures (as previously-announced), including $10.0 million invested in the Gold Creek asset purchase. In the quarter, drilling and completions operations consisted of the drilling of three (3.0 net) Montney horizontal oil wells, one located at Ante Creek and two at Waskahigan. Frac oil-based completion operations were undertaken on the Ante Creek well in the second quarter of 2016, which was brought on-production in July 2016. A hybrid slick water fracture stimulation on the first Waskahigan well was completed in the second quarter. The Company also invested $2.4 million in Crown undeveloped land purchases at Gold Creek in the quarter. On June 27, 2016, the Company closed the purchase of assets in the Gold Creek area of West Central Alberta. The purchase price was funded from RMP's available bank credit facility. The Gold Creek acquisition was included within the Company's fiscal 2016 capital budget of approximately $50 million. 
  
  
• As at June 30, 2016, the Company's net debt amounted to $104.5 million (as previously-announced), an 11% decrease from the year-end 2015 net debt of $118.0 million. Bank interest expense in the second quarter was $939 thousand or $1.22/boe. On August 3, 2016, the borrowing base re-determination of RMP's bank credit facility was completed. The maximum conforming borrowing limit under the Credit Facility has been set at $120.0 million and is available to October 31, 2016, with a scheduled step-down to $100.0 million thereafter on a fully revolving basis until July 22,

Strategic Discussion

On August 4, 2016 RMP announced that it has initiated a process to review strategic alternatives with a view to maximizing the value of the Company's large Montney resource base. The current macroeconomic commodity price environment continues to beleaguer the North American oil and gas sector. The downturn in commodity prices over the last two years has challenged the ability of growth-oriented oil and gas producers such as RMP to finance exploration and development capital investment. RMP has established an extensive portfolio of Montney opportunities at Waskahigan, Ante Creek and Kaybob, as well as a highly prospective land position at Gold Creek, however, the capital requirements necessary to fully exploit these opportunities exceed the Company's current capital structure.

RMP has engaged FirstEnergy Capital Corp. and Scotia Waterous Inc. as co-advisors to assist the Company to evaluate, develop and recommend one or more strategic initiatives necessary to maximize shareholder value and 'unlock' the intrinsic value of RMP's assets. This may include, among other alternatives, the addition of capital to further develop the potential of the assets, the sale of the Company or a portion of the Company's assets, a merger, farm-in or joint venture, or other such options as may be determined by the Company's Board of Directors to be in the best interests of the Company and its shareholders. FirstEnergy will coordinate and lead the process.