Mar-16-2017

Copies of the Company’s audited consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101“) filings for the year ended December 31, 2016 are being filed with Canadian securities regulatory authorities and will be made available under the Company’s profile at www.sedar.com and on the Company’s website at www.crownpointenergy.com. All dollar figures are expressed in United States dollars (“USD“) unless otherwise stated, and “MUS$” means thousands of USD.

In the following discussion, the three months and year ended December 31, 2016 may be referred to as “Q4 2016” and “YE 2016” or “2016”, respectively, the comparative three months and year ended December 31, 2015 referred to as “Q4 2015” and “YE 2015” or “2015”, respectively, and the previous three months ended September 30, 2016 referred to as “Q3 2016”.

Operational update

Tierra del Fuego Concession (“TDF”)

The Company identified a number of older producing and non-producing wells on the Las Violetas concession as candidates for fracture stimulation during 2016. Four wells were selected for treatment in 2016 and all have been fracture stimulated. Of these one well has been returned to production, one well was tied in and placed on stream in late August, one well will undergo further treatment in 2017 to improve inflow and one well has been suspended.

• LV-104, an older producing gas well offsetting LV-112, was successfully fracture stimulated in April 2016 and placed back on production.
• El Monte-2 (EM-2), located immediately to the west of the San Luis Field, was fracture stimulated in March 2016. This well was drilled and cased by YPF and tested gas from the Springhill Formation in the 1970s before being suspended. The well was tied-in to the San Luis field gathering system and placed on production in August 2016.
• LVx-4, a shut in gas well offsetting LV-104 and LV-112, was fracture stimulated in June 2016. On cleanup, only small volumes of gas plus frac fluid were recovered and the well was suspended. A chemical treatment will be carried out in 2017 to remove near wellbore emulsion buildup and improve inflow.
• RCh-6, a shut in oil and gas well located on the eastern flank of the Los Patos pool, was fracture stimulated in early July 2016. On clean up, swabbing operations recovered some frac fluid with oil and gas shows. The well was suspended after subsequent swabbing operations only recovered frac fluid with minor oil and gas shows.

Prospect identification and evaluation to develop additional exploitation, step out and appraisal locations on the Las Violetas Concession is ongoing.

Cerro de Los Leones Exploration

The Company has a 100% working interest in the 100,907 acre area covered by the Cerro de Los Leones (“CLL”) Concession Permit, which is located in the northern portion of the Neuquén Basin in the Province of Mendoza, Argentina.

In late 2015, the Company re-entered two wells in the Vega del Sol area that had been previously drilled by YPF and subsequently abandoned when YPF relinquished the acreage.

• VdS x-3 was re-entered in November 2015 and three additional sand zones within the Neuquén Group were perforated, stimulated and tested. The well was then placed on an 80 hour production test with all perforated zones co-mingled. During the test period, the well flowed gas, oil and water at restricted rates of 665 Mcf per day of gas, 10 bbls per day of oil plus 18 bbls per day of treatment fluid and formation water. Total gross production during the test was 1.75 MMcf of gas and 90 bbls of liquids comprised of 35% oil and 65% treatment fluid and water. A decision to place this well on long-term production test has been delayed until production testing of the VdS x-1 well has been completed.
• VdS x-1 was re-entered in December 2015 to swab test the fractured igneous sill in the Chachao formation. Installation of pump jack, tanks and separator was completed in April 2016 after which the well placed on long-term production test. During June and July 2016, production averaged 12 bbls of fluid per day with a 75% oil cut (9 bbls per day of oil) which dropped to 1.5 bbls of oil per day during Q3 2016 with little or no water cut. The well was shut in during October 2016. The Company is planning to perform a near well bore fracture stimulation to help improve inflow in Q3 or Q4 2017 subject to equipment availability.
• In December 2016, the Company applied for an extension to the Period 2 exploration period which expires on May 21, 2017 to allow time to acquire 234km² of 3-D seismic data and drill one exploration well. The Company expects to receive formal approval from the Mendoza provincial government at the end of March 2017 to extend the deadline to acquire seismic data until January 22, 2018 and extend the commitment to drill one exploration well until 2018.
• The Company is seeking a partner in the CLL concession to share future capital costs and provide capital cost recovery opportunities on existing and previous capital projects.

Outlook

Crown Point estimates a total of $12.3 million of capital expenditures for 2017 comprised of $3.6 million of expenditures on the TDF concessions and $8.7 million of expenditures on the CLL concession. Crown Point expects to meet these obligations, along with its other anticipated expenses, using funds flow from operations, working capital which totaled approximately $0.2 million at the end of Q4 2016 and $1.6 million of expected Petróleo Plus bond proceeds as well as additional debt and/or equity financings and potential joint venture arrangements.

The Company anticipates the following activities to occur during the first half of 2017 at a total estimated cost of $5.7 million:

• Acquisition of 234 km² of 3-D seismic on the CLL concession to fulfill the work commitment for the second exploration period.
• Completion of geological and seismic work to build a drilling inventory on the Rio Chico and Los Flamencos eastern extensions, Puesto Quince and the south flank of the Las Violetas gas pool.
• Recomplete and stimulate one shut-in well in the Las Violetas gas pool and two shut-in wells in the San Luis gas pool.
• Re-enter and chemically treat one gas well in the Las Violetas gas pool.
• Drilling of one exploration well on each of the Rio Cullen and Angostura concessions in TDF.

Developments in Argentina

Political and Economic Developments

Since December 2015, the President of Argentina, Mauricio Macri, has undertaken several measures to stabilize the Argentine economy and rebuild trust and confidence. Some of these measures include: relaxing of currency controls, reaching an agreement with holdout creditors, lifting restrictions to capital inflow/outflow, returning to the international capital markets, removing or reducing export duties, gradually removing import restrictions, correcting exchange rates and subsidies, and reestablishing relations with countries that have traditionally been Argentina’s business and political partners.

Mr. Macri appointed Juan Jose Aranguren, the former CEO of Shell´s Argentine branch, as Minister of Energy and Mines. This appointment underlines the strategic importance of the energy industry to the Macri government. One of the first measures of the Minister of Energy and Mines was the declaration of the state of emergency of Argentina’s electricity sector through an executive decree from President Macri which will last until December 31, 2017. The Company expects the government will implement gradual increases in natural gas and electricity rates until the end of 2019.

Currency controls were relaxed by the Argentine government in December 2015 and the Argentine peso (“ARS“) now freely floats against the USD and Euro. As a portion of the Company’s operating costs at TDF and general and administrative expenses incurred in Argentina are denominated in ARS some of the Company’s operating costs and general and administrative expenses have decreased in USD equivalent terms.

Commodity Price Developments – Crude Oil

In January 2017, at the request of the Government of Argentina, an agreement to converge the Medanito and Escalante oil prices with international Brent pricing over the coming months (the “Pricing Agreement”) was signed by a majority of producers and refiners in Argentina. Under the terms of the Pricing Agreement, local refiners will pay $59.40 per bbl for Medanito crude oil and $48.30 per bbl for Escalante crude oil in January 2017 and the prices will be gradually decreased every month until they reach $55 per bbl and $47 per bbl, respectively, in July 2017. Prices in effect in July 2017 will then be applicable until December 31, 2017, when the terms of the Pricing Agreement are set to expire. The Pricing Agreement will remain in place until December 31, 2017 unless (1) the Brent price falls below $45 per bbl for ten consecutive days or (2) the Argentinian peso depreciates more than 20%, in which case the Pricing Agreement will be renegotiated. Further, the Pricing Agreement outlines that should Brent remain higher than $1.00 above the monthly Medanito floor price for ten consecutive days, the Pricing Agreement will be suspended and the Brent price will be adopted.

Oil from Crown Point’s TDF concessions is sold at a discount to the Medanito crude oil price. Under the terms of the Pricing Agreement and taking the discount into account, the Company expects to receive an average of $49 per bbl for its TDF oil in 2017.

Commodity Price Developments – Natural Gas

On October 6, 2016, the Ministry of Energy and Mines issued Resolution 212/2016 which specified that new prices for residential users would commence on October 7, 2016 with a 300% to 400% increase limit to prices set in the comparative period of the previous year, depending on the type of residential user, and a 500% increase limit for small and medium-sized companies.   Resolution 212/2016 supersedes resolutions issued in March, June and July of 2016 which had mandated higher price increases that were subsequently blocked by class action suits initiated by residential consumers and small business.

SUMMARY OF FINANCIAL INFORMATION

⁽¹⁾ Non-current financial liabilities are comprised of bank debt. The total amount outstanding at December 31, 2016 is $2,376,639 of which $1,948,878 is classified as current and $427,761 is long-term (2015 – $2,416,186; $1,162,717 current and $1,253,469 long-term; 2014 – $4,748,908; $3,297,250 current and $1,451,658 long-term).

⁽²⁾ All per share figures are based on the basic weighted average number of shares outstanding in the period. The effect of options is anti-dilutive in loss periods. Per share amounts may not add due to rounding.

⁽³⁾ “Funds flow from (used by) operations” and “Funds flow per share” are non-IFRS measures. See “Non-IFRS Measures” for a reconciliation of these measures to the nearest comparable IFRS measures.

TDF Operating Netback

The Company’s operating netback was lower in the 2016 periods as compared to the 2015 periods due primarily to a decrease in oil and gas revenue per BOE.

TDF Sales and Production Volumes

During Q4 2016, the Company’s average daily sales volumes were 1,412 BOE per day, up 9% from 1,301 BOE per day in Q3 2016 due mainly to sales of inventoried volumes of oil and comparable to average daily sales of 1,416 BOE per day in Q4 2015.

TDF average daily production volumes for Q4 2016 averaged 1,329 BOE per day, down 3% from 1,376 BOE per day in Q3 2016 and down 7% from 1,431 BOE per day in Q4 2015. The decrease in Q4 2016 daily production volumes is due to the natural decline of wells.

Operating Costs

Operating costs are lower in the 2016 periods as compared to the 2015 periods due in part to the effect of the devaluation of the ARS against the USD. During the year ended December 31, 2015, the ARS declined 53% against the USD and declined a further 22% during 2016. The majority of the devaluation has occurred since December 16, 2015, the date currency controls were lifted. A portion of the Company’s operating costs, including rates for field personnel and trucking, are set and settled in ARS based on the ARS to USD exchange rate at a particular point in time. Rates are subsequently adjusted in the event of significant changes in the ARS to USD exchange rate.

General and Administrative (“G&A”) Expenses

G&A expenses were 18% and 33% lower in Q4 2016 and the YE 2016 period, respectively, than the comparative 2015 periods. The decrease in 2016 G&A expenses is due to a reduction in staffing levels, lower professional fees and other efficiencies and cost savings achieved in the Canadian and Argentina offices combined with the effect of the devaluation of the ARS against the USD which reduced certain ARS denominated expenses.

Exploration and Evaluation Expense

During 2016, the Company recognized $2,527,270 of exploration expense in relation to expenditures on the VdS x-1 and VdS x-3 wells in the CLL concession as the recoverability of the expenditures is dependent on a multi-well program for which there are no current plans or budgeted funds.

Retirement allowances

An officer of the Company retired effective November 9, 2016, and in connection with same, received a retiring allowance pursuant to the terms of the related employment agreement in the aggregate amount of $381,298.

Office lease termination

During 2016, the Company recognized $376,380 of lease termination expenses in connection with the surrender of the Canadian office lease comprised of a $172,257 lease termination fee, $17,455 for the forfeiture of the lease security deposit and $186,668 for the write-off of the carrying amount of leasehold improvements and office furniture at the time of the lease surrender.

RESERVES

Gaffney Cline & Associates Inc. (“Gaffney Cline”), an independent qualified reserves auditor, audited the oil and natural gas reserves attributable to all of Crown Point’s properties as at December 31, 2016 based on forecast prices and costs and in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook. Gaffney Cline’s audit also presents the estimated net present value of future net revenue associated with Crown Point’s reserves. A summary of Crown Point’s crude oil, natural gas and natural gas liquids reserves, as audited by Gaffney Cline, and the associated net present value of future net revenue associated therewith as at December 31, 2016 is summarized below.

Crown Point’s reserves were negatively impacted due to the lack of drilling activity in 2016, by poor production tests of conventional vertical wells drilled and/or completed in 2015 on the eastern flank of the Las Flamencos pool, and by lower domestic oil prices. The Company’s Proved plus Probable (“2P”) reserves (gross) as at December 31, 2016, as audited by Gaffney Cline, were 3,922 MBoe compared to 4,918 MBoe as at December 31, 2015, representing a decrease of approximately 20% primarily attributable to production during the year of 506,100 BOE and net negative 2P reserve revisions of 489,900 BOE. The estimated before tax net present value of the Company’s 2P reserves as at December 31, 2016 (discounted at 10%) was $42.04 million, representing a decrease of approximately 25% from December 31, 2015, due primarily to reserve revisions and a decline in forecasted future oil prices in Argentina.

Approximately 47% of the Company’s before tax net present value of 2P reserves (discounted at 10%) is categorized as Developed Producing and the before tax net present value of future net revenues associated with the Company’s proved reserves (discounted at 10%) represents approximately 84% of the Company’s before tax net present value of future net revenues associated with all of the Company’s 2P reserves. The Company’s before tax net present value of 2P reserves (discounted at 10%) per outstanding share (basic) is approximately $0.26 per share and does not include any value for the Company’s assets at Cerro de Los Leones. Natural gas accounts for approximately 85% of the Company’s 2P reserves (gross) as at December 31, 2016 compared with 87% as at December 31, 2015.

INDEPENDENT RESERVE SUMMARY

SUMMARY OF RESERVES

AS OF DECEMBER 31, 2016 COMPARED TO DECEMBER 31, 2015

(Forecast Prices & Costs)

SUMMARY OF NET PRESENT VALUE OF FUTURE NET REVENUE AS OF DECEMBER 31, 2016 (Forecast Prices & Costs)

“Possible reserves” are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

The estimated net present values of future net revenues disclosed do not represent fair market value.

Further details of the audit of the Company’s reserves as at December 31, 2016 are contained in the Company’s NI 51-101 filings for the year ended December 31, 2016 which will be filed with Canadian securities regulatory authorities and will be made available under the Company’s profile at www.sedar.com and on the Company’s website at www.crownpointenergy.com.

About Crown Point

Crown Point Energy Inc. is an international oil and gas exploration and development company headquartered in Calgary, Canada, incorporated in Canada, trading on the TSX Venture Exchange and operating in South America. Crown Point’s exploration and development activities are focused in two of the largest producing basins in Argentina, the Austral basin in the province of Tierra del Fuego and the Neuquén basin, in the province of Mendoza. Crown Point has a strategy that focuses on establishing a portfolio of producing properties, plus production enhancement and exploration opportunities to provide a basis for future growth.

Advisory

Certain Oil and Gas Disclosures: Barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (6 Mcf) to one barrel (1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil in Argentina as compared to the current price of natural gas in Argentina is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value. “MBOE” means thousands of barrels of oil equivalent. “Mcf” means thousand cubic feet. “Mmcf” means million cubic feet. “bbls” means barrels. “Mbbls” means thousands of barrels. “km” means kilometers. “2-D” means two dimensional. “3-D” means three dimensional. “Q3” means the third quarter. “Q4” means the fourth quarter.

This press release also contains other industry benchmarks and terms, including “operating netbacks” (calculated on a per unit basis as oil, natural gas and natural gas liquid revenues less royalties, transportation and operating costs), which is a non-IFRS measure. Management believes this measure is a useful supplemental measure of the Company’s profitability relative to commodity prices. Readers are cautioned, however, that operating netbacks should not be construed as an alternative to other terms such as net income as determined in accordance with IFRS as measures of performance. Crown Point’s method of calculating this measure may differ from other companies, and accordingly, may not be comparable to similar measures used by other companies.

Non-IFRS Measures: This press release contains the term “funds flow from (used by) operations” which should not be considered an alternative to, or more meaningful than, operating cash flows from (used by) operations as determined in accordance with IFRS as an indicator of the Company’s performance. Funds flow from (used by) operations and funds flow from (used by) operations per share (basic and diluted) do not have any standardized meanings prescribed by IFRS and may not be comparable with the calculation of similar measures used by other entities. Management uses funds flow from (used by) operations to analyze operating performance and considers funds flow from (used by) operations to be a key measure as it demonstrates the Company’s ability to generate cash necessary to fund future capital investment. Funds flow from (used by) operations per share is calculated using the basic and diluted weighted average number of shares for the period consistent with the calculations of earnings per share. A reconciliation of funds flow from (used by) operations to cash flows from (used by) operations is presented in the December 31, 2016 MD&A which will be made available under the Company’s profile at www.sedar.com.

Forward looking information: Certain information set forth in this document is considered forward-looking information, and necessarily involves risks and uncertainties, certain of which are beyond Crown Point’s control, including: under “Operational Update – Tierra del Fuego Concession”, the operations that the Company intends to conduct on certain of its TDF assets and the planned timing thereof and the benefits that the Company expects to derive therefrom; under “Operational Update – Cerro de Los Leones Exploration”, the operations that the Company intends to conduct on certain of its CLL assets and the expected timing thereof and the benefits that the Company expects to derive therefrom and the ongoing effort to seek a partner at CLL and the Company’s expectation that it will receive formal approval from the Mendoza provincial government at the end of March 2017 to extend the deadline applicable to the Period 2 exploration period; under “Outlook”, our estimated capital expenditures for the first half and full year 2017 and the allocation of expenditures between our TDF and CLL concessions, the elements of our capital program for these periods, our estimates of the costs to complete the elements of the program and the timing thereof, and our expectations for how we will fund our capital programs; under “Developments in Argentina – Political and Economic Developments”, our expectations for policies that the Government of Argentina will pursue going forward (including the implementation of gradual increases in natural gas prices) and their potential impact on the oil and gas industry in Argentina generally and the Company in particular; and under “Developments in Argentina – Commodity Price Developments – Crude Oil / Natural Gas”, our expectations regarding the impact that the Argentine government’s evolving energy policies and reforms may have on commodity prices in Argentina, including the Company’s estimates with respect to its realized commodity prices for 2017. In addition, information relating to reserves is deemed to be forward-looking information, as it involves the implied assessment, based on certain estimates and assumptions, that the reserves described can be economically produced in the future. Such risks include but are not limited to: the failure to satisfy work commitments at CLL and the resulting loss of exploration and exploitation rights and obligation to pay the value of such unsatisfied work commitments to the provincial government; risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation; risks associated with operating in Argentina, including risks of changing government regulations (including the adoption of, amendments to, or the cancellation of government incentive programs or other laws and regulations relating to commodity prices, taxation, currency controls and export restrictions, in each case that may adversely impact Crown Point), risks that new government initiatives will not have the consequences the Company believes (including the benefits to be derived therefrom), the risk that the Company may not receive any bonds in consideration of its Petróleo Plus and Gas Plus credits, expropriation/nationalization of assets, price controls on commodity prices, inability to enforce contracts in certain circumstances, the potential for a hyperinflationary economic environment, and other economic and political risks; loss of markets and other economic and industry conditions; volatility of commodity prices; currency fluctuations; imprecision of reserve estimates; environmental risks; competition from other producers; inability to retain drilling services; incorrect assessment of value of acquisitions and failure to realize the benefits therefrom; delays resulting from or inability to obtain required regulatory approvals; the lack of availability of qualified personnel or management; stock market volatility and ability to access sufficient capital from internal and external sources; and economic or industry condition changes. Actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that Crown Point will derive therefrom. With respect to forward-looking information contained herein, the Company has made assumptions regarding: the impact of increasing competition; the general stability of the economic and political environment in Argentina; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the costs of obtaining equipment and personnel to complete the Company’s capital expenditure program; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Company to obtain financing on acceptable terms when and if needed; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration activities; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Company to secure adequate product transportation; future oil and natural gas prices; costs of operational activities in Argentina (including in respect of the operations described herein); currency, exchange and interest rates; the regulatory framework regarding royalties, commodity price controls, import/export matters, taxes and environmental matters in Argentina; and the ability of the Company to successfully market its oil and natural gas products. Additional information on these and other factors that could affect Crown Point are included in reports on file with Canadian securities regulatory authorities, including under the heading “Risk Factors” in the Company’s most recent annual information form, and may be accessed through the SEDAR website (www.sedar.com). Furthermore, the forward-looking information contained in this document are made as of the date of this document, and Crown Point does not undertake any obligation to update publicly or to revise any of the included forward looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities law. 

Well-Flow Test Results and Initial Production Rates

Any references in this document to well-flow test results, swab test rates and/or initial production rates are useful in confirming the presence of hydrocarbons, however, such test results and rates are not determinative of the rates at which such wells will continue production and decline thereafter. While encouraging, readers are cautioned not to place reliance on such test results and rates in calculating the aggregate production for the Company. Well-flow test results, swab test rates and initial production rates may be estimated based on other third party estimates or limited data available at the time. Well-flow test result data should be considered to be preliminary until a pressure transient analysis and/or well-test interpretation has been carried out. In all cases in this document, well-flow test results and initial production results are not necessarily indicative of long-term performance of the relevant well or fields or of ultimate recovery of hydrocarbons.

Analogous Information

Certain information contained herein are considered “analogous information” as defined NI 51-101. Such analogous information has not been prepared in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook and Crown Point is unable to confirm whether such information has been prepared by a qualified reserves evaluator. Such information is not intended to be a projection of future results. Such information is based on independent public data and public information received from other producers and Crown Point has no way of verifying the accuracy of such information. Such information has been presented to help demonstrate the basis for Crown Point’s business plans and strategies. There is no certainty that such results will be achieved by Crown Point and such information should not be construed as an estimate of future reserves or resources or future production levels.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.