Madalena Announces First Quarter 2015 Financial and Operational Results
HIGHLIGHTS
($CDN unless otherwise specified)
Highlights for the three months ended March 31, 2015 included:
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In Q1–2015, Madalena's average realized prices in Argentina for crude oil and NGLs was $90.43/bbl and for natural gas was $5.30/mcf;
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Oil and gas production increased 215% to 3,586 boe/d compared to 1,141 boe/d in Q1-2014;
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Current production is approximately 4,000 boe/d (79% oil and NGLs);
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Realized a 22% increase in oil and gas revenue per boe to $74.78/boe compared to $61.38/boe in Q1-2014;
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Corporate operating netbacks increased 12% to $33.18/boe compared to $29.62/boe in Q1-2014;
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Argentina operating netbacks averaged $37.16/boe in Q1-2015;
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Funds flow from operations increased 68% and 27% to $6.0 million compared to $3.6 million and $4.4 million in Q1-2014 and Q4 – 2014, respectively;
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Drilled, completed and placed on production Madalena's fourth Sierras Blancas horizontal well at Coiron Amargo (35% WI);
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Successfully drilled a Loma Montosa light oil horizontal well (100% WI) and completed with a 12 stage frac setting up a scaleable resource play for development; and
- Entered into a three year evaluation phase contract at Coiron Amargo Sur (southern portion of the Coiron Amargo block), securing key unconventional Vaca Muerta shale acreage.
SUMMARY FINANCIAL AND OPERATIONAL RESULTS
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Three months ended |
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2015 |
2014 |
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Financial - Canadian $000s, except per share amounts |
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Oil and gas revenue |
24,135 |
6,306 |
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Funds flow from operations(1) |
6,006 |
3,569 |
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Per share - basic & diluted(1) |
0.01 |
0.01 |
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Net income (loss) |
(1,771) |
297 |
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Per share – basic and diluted |
(0.00) |
0.00 |
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Capital expenditures |
14,568 |
12,548 |
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Working capital |
3,187 |
19,463 |
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Equity outstanding – 000s |
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Common shares |
540,316 |
396,886 |
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Stock options |
24,165 |
19,530 |
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Operating |
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Average Daily Sales |
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Crude oil and Ngls – Bbls/d |
2,801 |
644 |
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Natural gas – Mcf/d |
4,711 |
2,979 |
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Total - boe /d |
3,586 |
1,141 |
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Average Sales Prices |
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Argentina |
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Crude oil and NGLs – $/bbl |
90.43 |
85.31 |
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Natural gas – $/mcf |
5.30 |
4.60 |
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Total - $/boe |
78.91 |
82.82 |
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Canada |
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Crude oil and NGLs – $/bbl |
35.87 |
78.59 |
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Natural gas – $/mcf |
2.81 |
5.87 |
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Total - $/boe |
26.78 |
53.44 |
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Corporate |
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Crude oil and NGLs – $/bbl |
87.54 |
81.66 |
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Natural gas – $/mcf |
4.87 |
5.84 |
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Total - $/boe |
74.78 |
61.38 |
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Corporate Operating Netbacks(2) |
33.18 |
29.62 |
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(1) |
This table contains the term "funds flow from operations", which is a non-GAAP measure |
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(2) |
Operating netback is a non-GAAP measure calculated as the average per boe of the |
ARGENTINA OPERATIONS UPDATE
Puesto Morales (100% WI) Field – Horizontal Drilling of Loma Montosa Oil Resource Play
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As disclosed in a news release dated April 8, 2015, Madalena successfully drilled and completed a Loma Montosa horizontal well (PMS-1135(h)) with a 12 stage frac. The well tested 860 boe/d and was tied into existing facilities on April 10, 2015. The well is still flowing up 5.5" casing with the first 30 days of production averaging 302 bopd of oil and an estimated 1,600 mcf/d of gas for a total of 570 boe/d.
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Production results continue to exceed the Company's type curve for the Loma Montosa resource play.
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The Company is in the process of installing a production string (tubing) to optimize the flow and to allow for future pumping operations on the well.
- Madalena has a large inventory of horizontal development locations on the Puesto Morales block and the Company is currently taking steps to survey and prepare environmental permit applications for follow-up locations to the recent PMS-1135(h) horizontal success.
Coiron Amargo (35% WI) Block – Block Contract Update & Sierras Blancas Horizontal Exploitation
- The Coiron Amargo block (34,951 net acres) is divided into two regions called Coiron Amargo Norte (northern portion of the block) and Coiron Amargo Sur (southern portion of the block). Coiron Amargo Norte is currently held under a 25 year exploitation (development) concession until 2038 with no further firm commitments remaining on this portion of the block.
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Following a successful block renegotiation process the Company received approval on April 16, 2015, by way of an official decree signed by the Province of Neuquén, for a three year evaluation phase contract on Coiron Amargo Sur (south portion of the block). Coiron Amargo Sur is a key unconventional shale block located in the heart of the oil window for the Vaca Muerta shale and is a core asset within the Company's portfolio. Madalena and its partners have until November 8, 2017 to further evaluate the southern portion of the block. The Company's share of the work commitment is US$17.5 million which is to be incurred by November 8, 2017. Following this three year evaluation phase, Madalena is eligible to enter into a further exploitation (development) concession and/or enter into additional evaluation phase periods to further evaluate Coiron Amargo Sur.
- As disclosed in a news release dated April 8, 2015, the Company's fourth Sierras Blancas horizontal well at Coiron Amargo Norte CAN-16h is now on production. The average production over the first 60 days was 450 bopd of oil (158 bopd WI) and 675 mcf/d (236 mcf/d WI) for a total of 489 boe/d (171 boe/d WI). In early May the choke was opened to 7 mm and production increased to 480 bopd (168 bopd WI) and 1,000 mcf/d (350 mcf/d WI) for a total of 650 boe/d (227 boe/d WI) at a flowing pressure of 1,225 psi.
Regulated Argentina Oil AND GAS Price Market
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In Argentina, oil prices are regulated and set by the Government for product sold into the domestic oil market, which is where Madalena sells the oil from its Argentine operations. When world prices fell sharply in the latter half of 2014 and into 2015, Argentina prices continued to remain relatively stable. The Medanito oil price posting for April and May 2015 has been set at US$76.00/bbl compared to a Q1 2015 average of US$76.30/bbl. Madalena's average discount to this posting for quality and transportation is approximately US$4.00/bbl.
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On February 2, 2015 the Government of Argentina announced a new oil incentive program. The program runs from January 1, 2015 to December 31, 2015 and could be extended for one year. To stimulate production and to provide an additional incentive to producers to invest further, the Government of Argentina has set a US$3.00/bbl royalty free bonus payment on all production for companies of Madalena's size which are able to keep their quarterly production above 95% of its Q4-2014 production levels. For the first quarter of 2015 Madalena believes it has qualified for this incentive and is making the appropriate application to receive this bonus payment on its Argentina production.
- Natural gas prices in Argentina are fixed by the regulator in US$/mmbtu. For Madalena's current producing fields, the Company has recently entered into a contract in Argentina for the winter period between May to September 2015 setting gas prices at US$5.30/mmbtu compared to last winter (2014) at US$5.20/mmbtu during the same period.
CANADA OPERATIONS UPDATE
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As disclosed in a news release dated January 30, 2015, Madalena was advised by Keyera Corp. ("Keyera") that Keyera's Paddle River gas plant would be shut down for a minimum period of two months commencing February 1, 2015 due to current economic conditions and recent commodity price declines in North America. As a result of the gas plant shut-down, Madalena temporarily suspended production of approximately 660 boe/d in Western Canada (40% oil) on February 1, 2015.
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As of March 10, 2015, the Company was successful in restoring 140 boe/d (100% oil) of the suspended production.
- The Company along with Keyera has been evaluating various alternatives to bring the remaining shut-in volumes (estimated 400 boe/d) in the Paddle River area back on-stream. Madalena expects to restore the remainder of the Company's Western Canadian production in the coming months.
CREDIT FACILITIES UPDATE
Argentine Debt Facility
As at March 31, 2015, there were no credit facilities in place in Argentina. With 90% of the Company's conventional oil and gas assets in Argentina and a solid cash flow platform from its operations, Madalena has sufficient assets to leverage its balance sheet. On May 28, 2015, as an initial step in its anticipated broader debt financing strategy, Madalena closed an AR$90 million (ninety million Argentine Pesos or $12.5 million Canadian dollars) loan with Industrial and Commercial Bank of China (Argentina) S.A.
Canadian Debt Facility
Subsequent to the year end, in conjunction with the annual review, Madalena's Canadian credit facility was reduced from $10 million to $7 million, of which the maximum draw is currently limited to $3.5 million. In addition to this credit facility, the Company's acquisition/development demand loan credit facility remains available to a maximum of $3 million. As of March 31, 2015, the Company had utilized $2.5 million of the operating demand loan credit facility and had cash on hand in Canada in the amount of US$2.1 million. The acquisition/development demand loan credit facility was unutilized at March 31, 2015. Both the credit and acquisition/development facilities are subject to a periodic review by the bank and the next review is scheduled on or before June 30, 2015.
2015 OUTLOOK
Madalena's current production is approximately 4,000 boe/d (79% oil and NGLs) with 3,800 boe/d (80 % oil and NGLs) in Argentina and 200 boe/d (55% oil & NGLs) in Canada.
Over the last several months, Madalena has commenced operational planning related to the drilling of four strategic resource plays in Argentina and continued horizontal development of its light oil assets. The four strategic resource plays include the Loma Montosa oil resource play, Vaca Muerta shale, Lower Agrio shale and Mulichinco liquids-rich gas resource play.
At Coiron Amargo Madalena and its partners plan to drill additional horizontal wells into the Sierras Blancas light oil formation later in 2015 and in 2016. To date the Company has drilled, completed and placed on production four successful horizontals in the Sierras Blancas and has an inventory of horizontal development wells identified on four main pools on the northern portion of the block. Madalena and its partners are also planning to execute the first horizontal multi stage frac on the block in the Vaca Muerta shale (oil) and expect this to commence in Q1 2016.
At Curamhuele, Madalena is planning its re-entry and testing program of the Lower Agrio oil resource play. The Lower Agrio is approximately 450 meters thick at Curamhuele the Yapia re-entry location. Concurrently with the Lower Agrio re-entry operation, the Company intends to complete and further evaluate the Mulichinco at Curamhuele. The Mulichinco is a liquids-rich gas resource play (approximately 200 meters thick) comprising the fourth strategic resource the Company intends to evaluate in 2015.
The Company is well positioned to achieve it stated goals and objectives to advance four scalable resource plays in Argentina in 2015. With early success on the Loma Montosa, activity commencing on the Lower Agrio shale and Mulchinco over the next two quarters, and a continued focus on the Company's horizontal development plays, 2015 will be the Company's most active year in Argentina.