CALGARY, Alberta, Nov. 12, 2018 (GLOBE NEWSWIRE) -- GRANITE OIL CORP. (“Granite” or the “Company”) (TSX: GXO) (OTCQX: GXOCF) is pleased to report its operating and unaudited financial results for the three months and nine months ended September 30, 2018.
FINANCIAL AND OPERATING HIGHLIGHTS
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
| 2018 | 2017 | 2018 | 2017 | ||||
| (000s, except per share amounts) | ($) | ($) | ($) | ($) | |||
| FINANCIAL | |||||||
| Oil and natural gas revenues | 12,724 | 12,676 | 37,493 | 40,915 | |||
| Funds from operations (1) | 3,071 | 6,218 | 9,871 | 19,521 | |||
| Per share – basic | 0.09 | 0.18 | 0.29 | 0.58 | |||
| Per share – diluted (2) | 0.09 | 0.18 | 0.28 | 0.57 | |||
| Net income (loss) | 637 | (2,996 | ) | (3,077 | ) | (612 | ) |
| Per share – basic | 0.02 | (0.09 | ) | (0.09 | ) | (0.02 | ) |
| Per share – diluted (2) | 0.02 | (0.09 | ) | (0.09 | ) | (0.02 | ) |
| Capital expenditures (3) | 703 | 3,531 | 10,005 | 14,168 | |||
| Net debt (4) | 47,069 | 36,893 | 47,069 | 36,893 | |||
| Shareholders’ equity | 189,441 | 207,266 | 189,441 | 207,266 | |||
| (000s) | (#) | (#) | (#) | (#) | |||
| SHARE DATA | |||||||
| At period-end | 34,191 | 34,191 | 34,191 | 34,191 | |||
| Weighted average – basic | 34,191 | 34,171 | 34,191 | 33,723 | |||
| Weighted average – diluted | 35,166 | 34,443 | 35,185 | 34,083 | |||
| OPERATING (5) | |||||||
| Production | |||||||
| Natural gas (mcf/d) | – | 499 | 137 | 558 | |||
| Crude oil (bbls/d) | 1,951 | 2,579 | 2,100 | 2,749 | |||
| Total (boe/d) | 1,951 | 2,662 | 2,123 | 2,842 | |||
| Average wellhead prices | |||||||
| Natural gas ($/mcf) | – | 2.95 | 1.73 | 2.81 | |||
| Crude oil and NGLs ($/bbl) | 70.90 | 52.85 | 65.26 | 53.95 | |||
| Combined average ($/boe) (6) | 70.90 | 51.76 | 64.69 | 52.74 | |||
| Netbacks | |||||||
| Operating netback ($/boe) (7) | 26.38 | 29.53 | 25.09 | 29.21 | |||
| Gross (net) wells drilled | |||||||
| Oil (#) | – (–) | 2 (2.0) | 3 (3.0) | 8 (8.0) | |||
| Total (#) | – (–) | 2 (2.0) | 3 (3.0) | 8 (8.0) | |||
| Average working interest (%) | N/A | 100 | 100 | 100 | |||
(1) Funds from operations and funds from operations per share are not recognized measures under International Financial Reporting Standards (IFRS). Refer to the commentary in the Reader Advisories under “Non-GAAP Measurements” for further discussion.
(2) The Company uses the weighted average common shares (basic) when there is a net loss for the period and the weighted average common shares (diluted) when there is net income in the period to calculate net income (loss) per share diluted. The Company uses the weighted average common shares (diluted) to calculate the funds from operations diluted.
(3) Total capital expenditures, excluding acquisitions and excluding non-cash transactions. Refer to commentary in the Q3 2018 Management’s Discussion and Analysis under “Capital Expenditures and Acquisitions” for further information.
(4) Net debt, which is calculated as current liabilities (excluding derivative financial instruments) and bank debt less current assets (excluding derivative financial instruments), is not a recognized measure under IFRS. Please refer to the Reader Advisories under “Non-GAAP Measurements” for further discussion.
(5) For a description of the boe conversion ratio, refer to the commentary in the Management’s Discussion and Analysis under “Other Measurements”.
(6) Combined average realized prices includes all oil, gas and NGL sales revenue, excluding other income.
(7) Operating netback, which is calculated by deducting royalties, operating expenses and transportation expenses from oil and gas revenue and adjusting for any realized hedging on financial instruments, is not a recognized measure under IFRS. Please refer to Reader Advisories under “Non-GAAP Measurements” for further discussion.
Outlook
The Canadian energy industry continues to experience significant pricing pressure related to limited takeaway capacity and lack of access to international markets. During such times, Granite retains a strategic advantage over its peers with some of the lowest operating expenses in the basin and an established enhanced oil recovery (‘EOR’) scheme that can be used to actively improve reservoir pressures and associated productivity. Currently, Granite is leveraging this advantage by shutting in producing wells in areas of lower pressure and directing gas injection to these areas to increase reservoir pressure. These wells will be returned to production when prices warrant, at which time, Granite will benefit from higher production and improved netbacks. In adopting this strategy, Granite is not only retaining the value of its product and its reserves, but also improving the efficiency of its asset in a manner that requires no incremental capital input. As a means to further enhance the value of its product, Granite has taken steps to improve the price it receives for its oil by trucking directly to a Montana refinery (please refer to the Company’s news release dated October 30, 2018). The Company continues to put significant energy into pursuing additional opportunities for increased pricing.
Hedging has impacted the Company’s 2018 cash flow, with losses totaling approximately $2.0 million in the quarter and $5.3 million through the first nine months of 2018. Granite is looking forward to the completion of these contracts in December 2018, at which time the Company’s 2019 hedges come into effect at significantly higher prices.
Granite’s 2019 hedges are as follows: First Quarter - 800 bbl/d (100 bbl/d at $65.72 USD and 700 bbl/d at $85.86 CAD); Second Quarter - 600 bbl/d at $85.48 CAD; Third Quarter - 400 bbl/d (100 bbl/d at $69.20 USD and 300 bbl/d at $86.53 CAD).
Balance sheet protection is critical at this time. As demonstrated in the third quarter, Granite is minimizing capital spending and will continue to do so until market conditions improve. In the current environment, the Company is focusing on debt reduction, improved liquidity, and maximizing capital efficiency. The Company will continue to evolve and adapt its strategy to effectively weather the current price challenges and provide long-term value for shareholders.
Contact Information
For further information, please contact Michael Kabanuk, President & CEO, by telephone at (587) 349-9123, Devon Griffiths, COO, by telephone at (587) 349-9120, or Tyler Klatt, V.P. Exploration, by telephone at (587) 349-9125.
Reader Advisories
Forward-Looking Statements. Certain statements contained in this news release may constitute forward-looking statements or information (collectively, “forward-looking statements” or “statements”). These statements relate to future events or Granite’s future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. Statements relating to "reserves" are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future. These statements involve 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 statements. In particular, this news release contains forward-looking statements, pertaining to the following: forecasted capital expenditures and plans, drilling and development plans, Granite’s financial strength, anticipated production rates, projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, oil and natural gas production levels, the success of the enhanced oil recovery (‘EOR’) scheme, expectations regarding Granite’s credit facility, treatment under governmental regulatory and taxation regimes and expectations regarding Granite’s ability to raise capital and to continually add to reserves through acquisitions and development.
Granite believes the expectations reflected in such forward-looking statements and the assumptions upon which such forward-looking statements are based, to be reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon by investors. These statements speak only as of the date of this news release and are expressly qualified, in their entirety, by this cautionary statement. Granite’s actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; general economic conditions, stock market volatility and ability to access sufficient capital from internal and external sources, uncertainties associated with estimating reserves; uncertainties associated with Granite’s ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel. Readers are cautioned that the foregoing list of factors is not exhaustive. Management has included the above summary of assumptions and risks related to forward-looking information provided in this news release in order to provide security holders with a more complete perspective on Granite’s future operations and such information may not be appropriate for other purposes. Additional information on these and other factors that could affect Granite's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
With respect to forward-looking statements contained in this news release, Granite has made assumptions regarding, among other things: prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; the legislative and regulatory environments of the jurisdictions where Granite carries on business or has operations; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to market oil and natural gas successfully and Granite’s ability to obtain additional financing on satisfactory terms.
The forward-looking statements represent Granite’s views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. Granite has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking statements will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.
Non-GAAP Measurements. This news release contains the terms "funds from operations" and "funds from operations per share", which should not be considered an alternative to or more meaningful than cash flow from (used in) operating activities as determined in accordance with IFRS. These terms do not have any standardized meaning under IFRS. Granite's determination of funds from operations and funds from operations per share may not be comparable to that reported by other companies. Management uses funds from operations to analyze operating performance and leverage, and considers funds from operations to be a key measure as it demonstrates the Company's ability to generate cash necessary to fund future capital investments and to repay debt, if applicable. Funds from operations is calculated using cash flow from operating activities as presented in the statement of cash flows, before changes in noncash working capital. Granite presents funds from operations per share whereby per share amounts are calculated using weighted-average shares outstanding, consistent with the calculation of earnings per share.
The Company considers corporate netbacks to be a key measure as they demonstrate Granite's profitability relative to current commodity prices. Corporate netbacks are comprised of operating and funds flow netbacks. Operating netback is calculated as the average sales price of the Company's commodities, less royalties, operating costs and transportation expenses. Funds flow netback starts with the operating netback and further deducts general and administrative costs, finance expense and unrealized gains on financial instruments, and then adds any finance income and realized gains on financial instruments, if applicable. No IFRS measure is reasonably comparable to netbacks. See "Netbacks (per unit)" in the Company's management's discussion and analysis for the year ended December 31, 2017 filed on www.sedar.com for the netback calculations.
Net debt, which represent current assets less current liabilities, excluding current derivative financial instruments, is used to assess efficiency, liquidity and the Company's general financial strength. No IFRS measure is reasonably comparable to working capital deficit.
BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy 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 as compared to natural gas 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.