PetroShale Inc. ("PetroShale" or the "Company") (TSXV:PSH)
(OTCQX:PSHIF) is pleased to announce its financial and operating
results for the three month period ended March 31, 2018.
The Company’s unaudited consolidated financial
statements and corresponding Management’s Discussion and Analysis
(MD&A) for the period will be available on SEDAR at
www.sedar.com, on the OTCQX website at www.otcqx.com, and on
PetroShale’s website at www.petroshaleinc.com. Copies of the
materials can also be obtained upon request without charge by
contacting the Company directly. Please note, currency
figures presented herein are reflected in Canadian dollars, unless
otherwise noted.
During the first quarter of 2018, PetroShale
acquired additional acreage in our core South Berthold area for
US$17.8 million and achieved record quarterly production, revenue
and cash flow as a result of bringing on several new operated wells
that have significantly increased our current average working
interest production to in excess of 6,000 barrels of oil equivalent
per day (“boepd”) compared to 2,121 boepd in the fourth quarter of
2017.
FIRST QUARTER 2018
HIGHLIGHTS
- Production averaged 3,315 boepd (92% liquids) in the first
quarter, a 56% increase from the fourth quarter of 2017. The
increase in production reflects four (3.7 net) new operated wells
which commenced production during February and March of 2018, and
the recommencement of production from our first operated Primus
‘8H’ well, following a workover completed at the end of March.
- Current average working interest production is in excess of
6,000 boepd, reflecting new production from the first quarter
capital program.
- Revenue totaled $19.3 million, an increase of 28% over the same
period of 2017.
- EBITDA increased to $10.9 million, 36% higher than the first
quarter of 2017.
- Operating netback, prior to the impact of hedging, was $42.09
per boe (Company interest, gross of royalty; $52.36 per boe net of
royalty), an increase of 38% over the first quarter of
2017.
- Capital expenditures totaled $53.7 million, including the
acquisition of significant undrilled acreage in our core South
Berthold area for US$17.8 million.
- Closed a strategic financing with a US-based private equity
investor, First Reserve, in January 2018 for US$75 million of
preferred shares with a 5-year term and a 9% coupon rate.
Proceeds were used to repay and terminate the Company’s
subordinated loan facility and repay amounts drawn under the senior
loan.
RESULTS OF OIL AND GAS ACTIVITIES
|
Three months ended |
|
|
March 31, 2018 |
|
March 31, 2017 |
|
Sales volumes |
|
|
Crude Oil
(Bbl/d) |
|
2,779 |
|
|
2,655 |
|
Natural gas (Mcf/d) |
|
1,669 |
|
|
1,658 |
|
NGLs (Bbl/d) |
|
258 |
|
|
282 |
|
Barrel of oil
equivalent (Boe/d) |
|
3,315 |
|
|
3,213 |
|
|
|
|
Operating Netback ($/Boe) (1) |
|
|
Revenue |
$ |
64.59 |
|
$ |
52.08 |
|
Royalties |
|
(12.40 |
) |
|
(10.92 |
) |
Realized
loss on hedge |
|
(3.67 |
) |
|
- |
|
Operating
costs |
|
(4.15 |
) |
|
(5.82 |
) |
Production
taxes |
|
(5.01 |
) |
|
(3.91 |
) |
Transportation expense |
|
(0.94 |
) |
|
(0.98 |
) |
Operating netback(2) |
$ |
38.42 |
|
$ |
30.45 |
|
Operating netback prior to hedging(2) |
$ |
42.09 |
|
$ |
30.45 |
|
Operating
netback, on a net of royalty basis(2) |
$ |
52.36 |
|
$ |
38.48 |
|
(1)
|
See "Oil
and Gas Advisories". |
(2) |
See
“Non-GAAP Measures”. |
MESSAGE FROM THE CEO
The first quarter of 2018 has been a very active
start to the year for PetroShale with production growing 56%
quarter-over-quarter through a successful drilling program, adding
new acreage within our core areas, and enhancing our financial
flexibility through a strategic financing. The significant
production increase reflects volumes from four (3.7 net) new
operated wells and the resumption of production from our first
operated Primus ‘8H’ well following a workover. These wells
have had a significant impact to PetroShale with current average
working interest production increasing to over 6,000 boepd.
Continued strengthening of WTI benchmark prices
and stabilizing Bakken oil price differentials during the first
quarter contributed to strong operating netbacks and EBITDA.
Increased production has led to lower average operating costs,
declining from $5.82 per Boe in the first quarter of 2017 to $4.15
per Boe in the first quarter of 2018.
PetroShale completed an acquisition of
significant undrilled operated acreage in our core South Berthold
area for US$17.8 million, adding a number of new locations to our
high-quality drilling inventory.
PetroShale continued to exploit our non-operated
acreage with the participation in four (1.6 net) non-operated wells
in the South Berthold area which we anticipate will commence
production near the beginning of the third quarter.
In January, we completed a US$75 million
placement of preferred shares to First Reserve, a US-based
energy-focused private equity firm, which continued to enhance our
financial position. Proceeds from this financing were used to
repay all amounts owing under our subordinated and senior credit
facilities. This financing and an anticipated increase in our
borrowing base, following our senior lender’s review of our
December 31, 2017 reserve report, has positioned PetroShale to
increase our operated drilling and acquisition activity.
With our high-quality asset base and increasing
number of operated DSUs, we are excited by the opportunities that
PetroShale has ahead. In the third quarter of this year
we will commence an operated drilling program that will continue
into 2019. As we move forward, we will strive to achieve per
share increases in production, reserves and EBITDA.
As always, I wish to thank all of PetroShale’s
employees, directors and shareholders for your continued support
and look forward to updating you on our progress and achievements
through the balance of 2018.
((signed))
Mike WoodPresident & CEO
AMENDMENTS TO PREFERRED SHARES
The Company also announces that it has amended
the terms of the outstanding preferred shares in its US subsidiary,
PetroShale (US), Inc. ("PetroShale US"), to provide that PetroShale
US may, in certain circumstances and subject to certain limits,
elect to pay certain quarterly dividend amounts "in kind" at a rate
of 12% per annum in lieu of paying a cash dividend for such quarter
at a rate of 9% per annum. First Reserve is the sole holder of such
preferred shares. As a result of such amendments, PetroShale US
will be permitted to exercise its payment in kind election, on or
after the first anniversary of the date of issuance of the
preferred shares (being January 25, 2018), with respect to a
maximum of two fiscal quarters during any consecutive twelve month
period and six fiscal quarters in total. In the event any dividend
is elected to be paid in kind, the dollar amount repayable to First
Reserve at the end of the term of the preferred shares will
increase by the dollar amount represented by the "in kind"
dividend, and, concurrent with any increase, additional special
voting shares of the Company ("Special Voting Shares") will be
issued by the Company to First Reserve. As such, in the event that
PetroShale US elects to pay the maximum number of dividends "in
kind" as described above, PetroShale estimates that up to an
additional 8,349,057 Special Voting Shares may be issuable to First
Reserve. The Company intends to seek shareholder approval, in
accordance with the rules of the TSX Venture Exchange, for First
Reserve as a "control person" of the Company at the Company's
upcoming annual and special meeting of shareholders. A copy
of the terms of the preferred shares, as amended, will be available
for review on the Company's SEDAR profile at www.sedar.com.
About PetroShale
PetroShale is an oil company engaged in the
acquisition, development and consolidation of interests in the
North Dakota Bakken / Three Forks.
For more information, please
contact:
PetroShale Inc.Attention: President and CEOEmail:
Info@PetroShaleInc.comPhone:
+1.303.297.1407www.petroshaleinc.com
or
Cindy Gray5 Quarters Investor Relations, Inc.403.828.0146
or info@5qir.com
Neither the 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 release.
Note Regarding Forward-Looking
Statements and Other Advisories
This press release contains forward-looking
statements and forward-looking information (collectively
"forward-looking information") within the meaning of applicable
securities laws relating to, among other things, available aspects
of management focus, objectives, strategies and business
opportunities. More particularly and without limitation, this press
release contains forward-looking information concerning: the
opportunity to use available and undrawn amounts under the
Company's credit facilities to fund drilling and acquisitions,
PetroShale's position to achieve future growth in production,
reserves and revenue; PetroShale's intention to seek out land
acquisition opportunities; the sufficiency of the Company's
financial flexibility and capital requirements; the Company's
growth and development plans, including anticipated new well
production and related timing; the anticipated benefits to
the Company from certain infrastructure investments on its
properties; the Company's participation in drilling opportunities
and the future prospects for new wells (including with respect to
the Company’s planned 2018 drilling program); anticipated
connection of new wells to gas gathering infrastructure; the impact
of recent pipeline development on future oil price differentials;
anticipated production increases and associated netback increases;
and the general outlook of the Company. PetroShale provided such
forward-looking statements in reliance on certain expectations
and assumptions that it believes are reasonable at the time,
including expectations and assumptions concerning prevailing
commodity prices, liquidity, exchange rates, interest rates,
applicable royalty rates and tax laws; future production rates and
estimates of operating costs; performance of existing and future
wells; reserve volumes; business prospects and opportunities; the
availability and cost of financing, labor and services; the impact
of increasing competition; ability to market oil and natural gas
successfully; and the Company's ability to access capital.
Although the Company believes that the
expectations and assumptions on which such forward-looking
information is based are reasonable, undue reliance should not be
placed on the forward-looking information because the Company can
give no assurance that they will prove to be correct.
Forward-looking information addresses future events and conditions,
which by their very nature involve inherent risks and
uncertainties. The Company's actual results, performance or
achievement could differ materially from those expressed in, or
implied by, the forward-looking information and, accordingly, no
assurance can be given that any of the events anticipated by the
forward-looking information will transpire or occur, or if any of
them do so, what benefits the Company will derive therefrom.
Management has included the above summary of assumptions and risks
related to forward-looking information provided in this press
release in order to provide security holders with a more complete
perspective on the Company's future operations and such information
may not be appropriate for other purposes.
Readers are cautioned that the foregoing lists
of factors are not exhaustive. Additional information on these and
other factors that could affect our operations or financial results
are included in reports on file with applicable securities
regulatory authorities and may be accessed through the SEDAR
website (www.sedar.com). These forward-looking statements are made
as of the date of this press release and the Company disclaims any
intent or obligation to update publicly any forward-looking
information, whether as a result of new information, future events
or results or otherwise, other than as required by applicable
securities laws.
Non-GAAP
Measures:
Within this press release, references are made
to “operating netback”, “operating netback on a net of royalty
basis”, “operating netback prior to hedging” and “EBITDA”, which
are not recognized measures under IFRS and therefore may not be
comparable to performance measures presented by others.
EBITDA means net income (loss) before taxes, depletion and
depreciation expense, any impairments, finance expense, any gain or
loss on property dispositions, foreign exchange gain or loss,
share-based compensation expense and unrealized gain or loss on
financial derivatives. Operating netback means revenue
and realized gain or loss on financial derivatives, less royalties,
production taxes, operating costs and transportation expense and
has been presented on a per Boe basis. Operating netback on a
net of royalty basis represents operating netback divided by
production, net of royalty interest. Operating netback prior
to hedging means operating netback excluding realized gain or loss
on financial derivatives. Management believes that in
addition to net income (loss) and cash flow from (used in)
operating activities, EBITDA and operating netback are useful
supplemental measures as they assist a reader in the determination
of the Company's operating performance, leverage and liquidity.
Readers are cautioned, however, that these measures should
not be construed as an alternative to net income (loss) or cash
flow from (used in) operating activities as determined in
accordance with IFRS as an indication of our performance or
value.
Oil and Gas Advisories:
Where amounts are expressed on a barrel of oil
equivalent (“Boe”) basis, natural gas volumes have been converted
to Boe using a ratio of 6,000 cubic feet of natural gas to one
barrel of oil (6 Mcf: 1 Bbl). This Boe conversion
ratio is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value
equivalency at the wellhead. Given 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 Mcf: 1
Bbl, utilizing a conversion ratio at 6 Mcf: 1 Bbl may be misleading
as an indication of value. In this release, mboe refers to
thousands of barrels of oil equivalent, while mbbls refers to
thousands of barrels of oil, and mmcf refers to millions of cubic
feet of natural gas.
All dollar figures included herein are
presented in Canadian dollars, unless otherwise
noted.
Petroshale (TSXV:PSH)
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