Aug-17-2017
TSX-V: CWV: Crown Point Energy Inc. (“Crown Point”, the “Company” or “we“) today announced its operating and financial results for the three and six months ended June 30, 2017. Copies of the Company’s unaudited condensed interim consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) filings for the three and six months ended June 30, 2017 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.
In the following discussion, the three and the six months ended June 30, 2017 may be referred to as “Q2 2017” and “the June 2017 period”, respectively, the comparative three and six months ended June 30, 2016 referred to as “Q2 2016” and “the June 2016 period”, respectively, and the previous three months ended March 31, 2017 referred to as “Q1 2017”.
Operational update
Tierra del Fuego Concession (“TDF”)
The Company and its partners commenced preparation of the two drilling sites (RC x-1002 in Rio Cullen and SM x-1001 in La Angostura) in late December 2016.
SM x-1001 was drilled to a total depth of 2,123 m in Q1 2017 and cased with potential pay in the Tobífera and Springhill formations. The well will be completed and tested during the second half of 2017.
RC x-1002 was drilled to a final depth of 1,740 m in early April 2017 and cased as a potential gas well. Completion operations were carried out during May and June 2017. Two lower intervals in the Tobífera section tested formation water with only traces of gas. The overlying Springhill formation was then perforated, fracture stimulated and flow tested. Two extended flow tests were performed; the first was conducted over seven days, during which the well flowed gas at rates between 1.4 MMcf per day (40,000 m3 per day) and 3.6 MMcf per day (104,000 m3 per day) (while averaging 2.1 MMcf per day or 61,340 m3 per day) with between 145 bbls per day (23 m3 per day) to 530 bbls per day (84 m3 per day) of associated formation water. Flowing well head pressure averaged between 1058 psi and 1147 psi (72 kg/cm2 and 78 kg/cm2). Choke sizes during this test period were 8, 10 and 12 mm. The second test was conducted over five days on 6, 8 and 10 mm choke sizes. The well flowed gas at rates between 24,000 m3 per day and 65,000 m3 per day (while averaging 1.2 MMcf per day or 35,400 m3 per day) with between 290 bbls per day (46 m3 per day) and 844 bbls per day (134 m3 per day) of formation water. Flowing well head pressures during the second test period ranged between 676 psi and 1000 psi (46 kg/cm2 and 68 kg/cm2). Total gross production for the two test periods was 15.1 MMcf (431,800 m3) of gas and 1,985 bbls (315 m3) of formation water. The well was subsequently tied into Company-owned Rio Cullen gas gathering facilities and placed on production on July 19, 2017.
The Company has fulfilled the Rio Cullen and La Angostura concession expenditure commitments and exercised the option to extend the term of each concession to August 2026 by making the minimum cash payment to the Province of TDF. For each concession, the cash payment is a minimum of $32,500 to a maximum of $1.29 million (net to the Company’s interest) and the investment commitment is a minimum of $0.46 million to a maximum of $9.28 million (net to the Company’s interest). The investment commitment for exploration and development work will be determined on a sliding scale based on a proved plus probable reserves range discovered during the initial exploration period of between zero and greater than 18 million BOE. The total cash payment and investment commitment have not yet been determined by the Province of TDF and the Company has not yet received formal approval of the concession extensions.
Cerro de Los Leones Concession
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.
Crown Point has designed a fracture stimulation program at an estimated cost of $0.5 million to improve production rates at VdS x-1. The Company is planning to perform the fracture stimulation on VdS x-1 in Q3 or Q4 2017, subject to equipment availability.
On March 21, 2017, the Company received formal approval from the Mendoza provincial government to extend the deadline to acquire 234km2 of 3-D seismic until January 22, 2018 and informally agreed to extend the commitment to drill one exploration well for an unspecified period following the acquisition of seismic.
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 $8.2 million of capital expenditures for 2017 comprised of $3.7 million of expenditures on the TDF concessions and $4.5 million of expenditures on the CLL concession (which will be reduced if the Company obtains a partner at CLL). Crown Point expects to meet these obligations, along with its other anticipated expenses, using funds flow from operations, cash proceeds received from the disposition of Petróleo Plus bonds, as well as proceeds received under the New Gas Incentive Program and additional debt and/or equity financings and potential joint venture arrangements.
The Company anticipates the following activities to occur during Q3 2017 and Q4 2017 at a total estimated cost of $6.1 million:
- Acquisition of 234km2 of 3-D seismic on the CLL concession to fulfill the work commitment for the second exploration period.
- Fracture stimulation of VdS x-1 on the CLL concession.
- 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.
- Recompletion and stimulation of one shut-in well in the Las Violetas gas pool and two shut-in wells in the San Luis gas pool.
- Completion and testing of the SM x-1001 well on the La Angostura concession in TDF.
Developments in Argentina
Political and Economic Developments
The Argentine economy has undergone a period of stabilization since the 2015 presidential election which resulted in an increase in interest rates by the Central Bank of Argentina to control inflation; a decrease in Argentina’s inflation rate, although it still remains high; and a stabilization of the ARS/USD exchange rate.
Argentina’s primary legislative elections were held on August 13, 2017 and the national legislative elections will take place on October 22, 2017. The Company expects the results of the legislative elections to further improve Argentina’s political and financial conditions.
Commodity Price Developments – Crude Oil
In January 2017, at the request of the Government, 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 $47.85 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. The Company expects to receive an average of $3.94 per mcf for its TDF gas in 2017.
SUMMARY OF FINANCIAL INFORMATION
| (expressed in $, except shares outstanding) |
June 30 2017 |
December 31 2016 |
| Working capital |
(498,095) |
194,679 |
| Exploration and evaluation assets |
8,419,688 |
6,336,658 |
| Property and equipment |
23,220,427 |
26,442,251 |
| Total assets |
37,653,657 |
39,023,203 |
| Non-current financial liabilities (1) |
119,234 |
427,761 |
| Share capital |
116,003,355 |
116,003,355 |
| Total common shares outstanding |
164,515,222 |
164,515,222 |
| (expressed in $, except shares outstanding) | Three months ended | Six months ended | ||
|
June 30 |
June 30 |
|||
|
2017 |
2016 |
2017 |
2016 |
|
| Oil and gas revenue |
4,009,250 |
3,778,045 | 6,782,424 |
7,454,394 |
| Net loss |
(1,038,338) |
(1,829,347) | (1,605,795) |
(3,173,125) |
| Net loss per share (2) |
(0.01) |
(0.01) | (0.01) |
(0.02) |
| Cash flow from (used by) operations |
199,073 |
653,110 | 833,197 |
1,445,972 |
| Cash flow per share – operations (2) |
0.01 |
0.00 | 0.01 |
(0.01) |
| Funds flow from operations (3) |
876,216 |
910,252 | 1,247,247 |
1,741,487 |
| Funds flow per share – operations (2) (3) |
0.01 |
0.00 | 0.01 |
0.01 |
| Weighted average number of shares |
164,515,222 |
164,515,222 | 164,515,222 |
164,515,222 |
(1) Non-current financial liabilities are comprised of bank debt. The total amount outstanding at June 30, 2017 is $2,736,214 of which $2,616,980 is classified as current and $119,214 is long-term (December 31, 2016 – $2,376,639; $1,948,878 current and $427,761 long-term).
(2) All per share figures are based on the basic weighted average number of shares outstanding in the period. The effect of options is anti-dilutive in loss periods. Per share amounts may not add due to rounding.
(3) “Funds flow from operations” and “Funds flow per share” are non-IFRS measures. See “Non-IFRS Measures” in the “Advisory” section of this press release and in the Company’s June 30, 2017 MD&A for a reconciliation of these measures to the nearest comparable IFRS measures.
TDF Operating Netback
The Company’s operating netback was higher in Q2 2017 compared to Q2 2016 due primarily to an increase in oil and gas revenue per BOE. The Company’s operating netback was lower in the June 2017 period compared to the June 2016 period due primarily to an increase in operating costs per BOE.
| Three months ended | Six months ended | |||
|
June 30 |
June 30 |
|||
|
2017 |
2016 | 2017 |
2016 |
|
| Sales Volumes and Revenues | ||||
| Light oil bbls per day |
358 |
243 | 226 |
254 |
| NGL bbls per day |
17 |
33 | 26 |
22 |
| Natural gas Mcf per day |
6,063 |
6,978 | 6,242 |
7,043 |
| BOE per day |
1,385 |
1,439 | 1,293 |
1,450 |
| Per BOE | ||||
| Oil and gas revenue ($) |
31.81 |
28.86 |
28.98 |
28.24 |
| Royalties ($) |
(5.70) |
(5.07) | (5.25) |
(5.10) |
| Operating costs ($) |
(11.86) |
(9.74) | (11.58) |
(10.11) |
| Operating netback ($) |
14.25 |
14.05 | 12.15 |
13.03 |
TDF Sales and Production Volumes
During Q2 2017, the Company’s average daily sales volumes were 1,385 BOE per day, up 15% from 1,200 BOE per day in Q1 2017, due to higher sales of inventoried volumes of oil, and down 4% from 1,439 BOE per day in Q2 2016 due to lower sales of gas volumes in Q2 2017.
TDF average daily production volumes for Q2 2017 averaged 1,211 BOE per day, down 7% from 1,298 BOE per day in Q1 2017 and down 14% from 1,406 BOE per day in Q2 2016. The decrease in Q2 2017 daily production volumes is due to restricted production from some existing wells due to scheduled maintenance of the San Luis gas plant in late April and early May 2017 combined with the natural decline of wells.
Operating Costs
Operating costs are higher in Q2 2017 and the June 2017 period compared to Q2 2016 and the June 2016 period, due mainly to increased contract operator costs caused by increased operating activity, as well as higher costs related to company labor and supervision and access rights.
General and Administrative (“G&A”) Expenses
G&A expenses were 15% lower in Q2 2017 compared to Q2 2016 and 9% lower in the June 2017 period compared to the June 2016 period. The decrease in G&A expenses in the 2017 periods is due to a reduction in staffing levels, the closing of the Calgary office and cost savings achieved in the Argentina offices.
Subsequent Events
In July 2017, $105,000 of the USD denominated letters of credit held as security for certain HSBC Argentina loans was released to the Company and the funds were received on August 4, 2017.
On July 4, 2017, the Company obtained an ARS 6,000,000 ($0.4 million) unsecured loan facility with Trend Capital S.A. at an interest rate of 35% per annum. The loan was repaid on August 1, 2017.
On July 11, 2017, the Company received $1,646,156 of publicly-traded BONAR 2020 bonds as proceeds for outstanding certificates under the cancelled Petróleo Plus Program. The BONAR 2020 bonds have an 8% coupon rate, are denominated and settled in USD and mature in October 2020.
On July 13, 2017, the Company sold $550,000 of BONAR 2020 bonds for net proceeds of $624,800.
On July 20, 2017, the Company repaid the ARS 7,000,000 loan facility with HSBC Argentina. The related $480,000 USD denominated letter of credit held as loan security was released to the Company in July 2017 and the funds were received on August 4, 2017.
On August 10, 2017, the Company received ARS 15,768,465 ($889,341) of cash proceeds under the New Gas Incentive Program related to applications for the period from January 1 to June 30, 2016. The Company recognizes New Gas Incentive Program income when proceeds are received due to uncertainty of the timing of collection.
For inquiries please contact:
Brian Moss Marisa Tormakh
President & CEO Vice-President & CFO
Ph: (403) 232-1150 Ph: (403) 232-1150
Crown Point Energy Inc. Crown Point Energy Inc.
bmoss@crownpointenergy.com mtormakh@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. “Mcf” means thousand cubic feet. “bbls” means barrels. “km” means kilometers. “3-D” means three dimensional. “Q2” means the second quarter. “Q3” means the third 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 June 30, 2017 MD&A which will be made available under the Company’s profile at www.sedar.com.
Forward-looking Information: This press release contains forward-looking information. This information related to future events and the Company’s future performance. All information and statements contained herein that are not clearly historical in nature constitute forward-looking information, and the words “may”, “will”, “should”, “could”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “propose”, “predict”, “potential”, “continue”, “aim”, or the negative of these terms or other comparable terminology are generally intended to identify forward-looking information. Such information represents the Company’s internal projections, estimates, expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. This information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. Crown Point believes that the expectations reflected in this forward-looking information as re reasonable; however, undue reliance should not be placed on this forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. This press release contains forward-looking information concerning, among other things, the following: 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 and the amount of the total cash payment and investment commitment for the exploration and development work in TDF; under “Operational Update – Cerro de Los Leones Concession”, 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 intention to seek a partner at CLL and the anticipated benefits therefrom; under “Outlook”, our estimated capital expenditures for fiscal 2017 and Q3 and Q4 2017, 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 the Companies expectation of the effect of the legislative elections on Argentina’s political and financial conditions; 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. A number of risks and other factors could cause actual results to differ materially from those expressed in the forward-looking information contained in this press release. Such risks include but are not limited to: the failure to satisfy work commitments and the resulting loss of exploration and exploitation rights and, in the case of CLL, the 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 of the value of the BONAR 2020 bonds held by the Company decline; collecting of cash payable to the Company, and collection of and value of bonds issuable to the Company, in each case in consideration of amounts owing under the New Gas Incentive Program, 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.
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.