Bellatrix Exploration Ltd. (“Bellatrix”, “we”, “our” or the
“Company”) (TSX:BXE) (NYSE:BXE) announces the start-up of the Phase
2 expansion project at the Bellatrix O’Chiese Nees-Ohpawganu’ck
deep-cut gas plant at Alder Flats (the “Alder Flats Plant”), an
update of commodity risk management contracts, and revised 2018
corporate guidance.
Bellatrix Alder Flats Plant Phase 2
Fully Commissioned in March, Ahead of Schedule and Under
Budget
The Phase 2 expansion project of the Alder Flats
Plant was fully commissioned mid-March and began selling volumes
March 19, 2018. The project more than doubles throughput
capacity at the Alder Flats Plant to 230 MMcf/d (from 110 MMcf/d),
was brought on-stream safely ahead of schedule, and was delivered
approximately 5% under budget. The Alder Flats Plant has
successfully tested inlet volumes of approximately 210 MMcf/d
(combined between both Phase 1 and 2), and is performing in-line
with expectations. The turbo expander is operational on Phase
2, which was designed with a colder process, thereby enhancing
natural gas liquid (“NGL”) extraction capabilities. Combined
NGL recovery at the Alder Flats Plant increases to approximately 55
to 60 bbl/MMcf, from approximately 45 bbl/MMcf under Phase 1; this
is in addition to an expected condensate yield of an additional 10
bbl/MMcf.
Completion of Phase 2 adds an incremental 30
MMcf/d ownership capacity net to Bellatrix's 25% working
interest. Bellatrix has redirected approximately 65 MMcf/d of
gross natural gas volumes from third party processing plants to
theAlder Flats Plant to optimally process under its ownership and
processing volume commitments. Operating costs for natural gas
processed through Bellatrix’s ownership interest in the Alder Flats
Plant are approximately $0.16/mcf, providing significant cost
benefits for the Company. The redirection of natural gas
volumes from more expensive third-party plants are anticipated to
deliver reductions in production expenditures in 2018 to a range of
$7.65/boe to $8.00/boe, based on the Company’s updated production
volume guidance discussed below. The completion of Phase 2 is
anticipated to drive improved revenue generation through additional
higher margin NGL extraction of approximately 10 to 35 bbl/MMcf
over third party plants, resulting in an average corporate liquid
weighting of approximately 26% in 2018, which we expect to, in
turn, drive enhanced corporate profit margins and cash flow.
The Phase 2 expansion project represents the
last stage of our multi-year infrastructure build out. With
our long term infrastructure build out complete, Bellatrix expects
the majority of capital investment to be utilized directly in
drilling, completion and production addition activities with
minimal capital required for facilities and infrastructure projects
over the near term. Management expects that its existing
facilities and processing capacity provide the capability to grow
production volumes beyond 60,000 boe/d, with minimal future
facility related capital.
Updated Commodity Price Risk Management
Protection and Market Diversification Initiatives
During the first quarter of 2018, Bellatrix
added to its commodity price risk management protection to further
reduce the impact of price volatility on our business.
Specifically, Bellatrix has added AECO natural gas fixed price swap
contracts in the summer 2018 and summer 2019 months to insulate
against potential seasonal weakness in local spot natural gas
prices.
Including the new price risk management
contracts, Bellatrix has approximately 70.7 MMcf/d of 2018 natural
gas volumes hedged at an average fixed price of approximately
$2.96/mcf, representing approximately 45% of forecast 2018 natural
gas volumes. Bellatrix has also diversified its natural gas price
exposure through physical sales contracts that give the Company
exposure to the Dawn, Chicago, and Malin natural gas pricing hubs.
This long-term diversification strategy reduces Bellatrix’s
exposure to AECO pricing on approximately 26% of the Company’s
forecast 2018 natural gas volumes.
In combination, the market diversification sales
and fixed price hedges cover approximately 2/3 of natural gas
volumes in 2018 and 55% in 2019 (based on the mid-point of 2018
average production guidance). A summary of Bellatrix’s 2018
through 2020 commodity price risk management contracts as at March
31, 2018 include:
Product |
Financial Contract |
Period |
Volume |
Average Price (1) |
Natural gas |
Fixed
price swap |
January 1, 2018 to December 31, 2018 |
66.1
MMcf/d |
$3.06/mcf |
Natural gas |
Fixed
price swap |
April
1, 2018 to October 31, 2018 |
7.9
MMcf/d |
$1.74/mcf |
Natural gas |
Fixed
price swap |
April
1, 2019 to October 31, 2019 |
17.6
MMcf/d |
$2.03/mcf |
Natural gas |
AECO/NYMEX basis
swap |
April
1, 2018 to October 31, 2018 |
10,000 MMBtu/d |
-US$1.24/MMBtu |
Natural gas |
AECO/NYMEX basis
swap |
April
1, 2019 to October 31, 2020 |
10,000 MMBtu/d |
-US$1.24/MMBtu |
Propane |
Fixed price
differential |
January 1, 2018 to December 31, 2018 |
1,000
bbl/d |
47% of NYMEX WTI |
Crude
oil |
Sold C$WTI call |
April
1, 2018 to December 31, 2018 |
1,500
bbl/d |
$80.00/bbl |
Crude
oil |
Sold C$WTI call |
January 1, 2019 to December 31, 2019 |
2,000
bbl/d |
$80.00/bbl |
Crude oil |
Fixed
price swap |
January 1, 2018 to December 31, 2018 |
1,000 bbl/d |
$70.14/bbl |
(1) Prices for natural gas fixed price swap contracts assume a
conversion of $/GJ to $/mcf based on an average corporate heat
content rate of 40.3Mj/m3.
Bellatrix’s market diversification contracts as
at March 31, 2018 include:
Product |
Market |
Start Date |
End Date |
Volume |
Natural gas |
Chicago |
February 1, 2018 |
October 31, 2020 |
15,000 MMBtu/d |
Natural gas |
Chicago |
November 1, 2018 |
October 31, 2020 |
15,000 MMBtu/d |
Natural gas |
Dawn |
February 1, 2018 |
October 31, 2020 |
15,000 MMBtu/d |
Natural gas |
Dawn |
November 1, 2018 |
October 31, 2020 |
15,000 MMBtu/d |
Natural gas |
Malin |
February 1, 2018 |
October 31, 2020 |
15,000 MMBtu/d |
Updated 2018 Guidance
Bellatrix’s management believes that preserving
balance sheet strength and liquidity, while optimizing production
levels is a prudent strategy given current commodity prices.
Bellatrix is therefore reducing its expected capital expenditure
budget to a range of $55 to $60 million (down from a range of $65
million to $80 million) which reduces annual average production
guidance by 1,000 to 1,500 boe/d.
Bellatrix plans to fund the reduced capital
budget through adjusted funds flow while reducing the potential for
additional debt or bank line utilization through the end of
2018. The 2018 capital program will remain flexible and
focused on optimizing forecast return on invested capital through
focused development of the Spirit River liquids rich natural gas
play and higher liquids weighted opportunities in the Cardium
play.
|
|
Revised 2018 Annual Guidance (April 3, 2018) |
Previously Set 2018 Annual Guidance (December 14,
2017) |
|
Production (boe/d) |
|
|
|
|
2018
Average daily production |
34,000
– 35,500 |
35,000
– 37,000 |
|
Production Mix (%) |
|
|
|
|
Natural
gas |
74 |
74 |
|
|
Crude oil,
condensate and NGLs |
26 |
26 |
|
Net
Capital Expenditures ($000)(1) |
|
|
|
|
Total net
capital expenditures |
55,000
– 65,000 |
65,000
– 80,000 |
|
Expenses |
|
|
|
|
Production
expense ($/boe)(2) |
7.65 –
8.00 |
7.50 –
7.90 |
|
|
|
|
|
|
(1) Net
capital spending includes exploration and development capital
projects and corporate assets, and excludes property acquisitions
and dispositions. Net capital spending also excludes the previously
received prepayment portion of Bellatrix's partner’s 35% share of
the cost of construction of Phase 2 of the Alder Flats Plant during
calendar 2018. (2) Production expenses before net processing
revenue/fees. |
|
Reader Advisories:
BARRELS OF OIL EQUIVALENT: The term barrels of
oil equivalent ("boe") may be misleading, particularly if used in
isolation. A boe conversion ratio of six thousand cubic feet of
natural gas to one barrel of oil equivalent (6 mcf/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. All boe conversions in this press release are derived
from converting gas to oil in the ratio of six thousand cubic feet
of gas to one barrel of oil. 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.
CAPITAL PERFORMANCE MEASURES: This press
release contains the term "adjusted funds flow " which should not
be considered an alternative to, or more meaningful than "cash flow
from operating activities" as determined in accordance with
Canadian generally accepted accounting principles as an indicator
of the Company's performance. Therefore reference to adjusted funds
flow or adjusted funds flow per share may not be comparable with
the calculation of similar measures for other entities. Management
uses adjusted funds flow to analyze operating performance and
leverage and considers adjusted funds flow to be a key measure as
it demonstrates the Company's ability to generate the cash
necessary to fund future capital investments and to repay debt. The
reconciliation between cash flow from operating activities and
adjusted funds flow can be found in the Company's most recent
management's discussion and analysis, which may be accessed through
the SEDAR website (www.sedar.com). Adjusted funds flow per share is
calculated using the weighted average number of shares for the
period.
FORWARD LOOKING STATEMENTS: This press release
contains forward-looking statements within the meaning of
applicable securities laws. More particularly and without
limitation, this press release contains forward-looking statements
pertaining to: the Company's updated 2018 capital budget, including
the strategic objectives of such budget and the details of the
expenditures and expected timing of such expenditures relating to
such budget; updated 2018 guidance, including expected capital
expenditures, future production volumes, production mix, and
production expenses; Bellatrix's strategic objectives for the
Company's planned 2018 development activity, the intent that the
2018 drilling program will be focused on Spirit River liquids rich
natural gas investment opportunities and higher liquids weighted
opportunities in the Cardium play, the expectation that Bellatrix
will be able to accelerate or decelerate capital expenditures
throughout the year, the expectation that the Company may enhance
adjusted funds flow in 2018 through optimal delivery of production
volumes during periods of stronger commodity prices by leveraging
Bellatrix’s controlled infrastructure and firm service delivery
capacity, expectations regarding outstanding bank debt and
available liquidity; expectations regarding future commodity
prices; the percent of forecast future crude oil and natural gas
volumes hedged, the percent of forecast natural gas volumes subject
to AECO pricing, the percent of forecast crude oil and natural gas
production volumes subject to hedges or market diversification, the
expectation that the Company's risk management strategy provides
reduced price volatility and greater assurance over future revenue
and operating funds flow, the expected capacity of the Alder Flats
Plant upon completion of Phase 2, expected benefits of completion
of the Alder Flats Plant including reductions in production
expenditures, increased liquids extraction and expected
improvements in corporate profit margins and cash flow, the
expectation that after completion of Phase 2 of the Alder Flats
Plant the majority of Bellatrix's 2018 capital investment will be
utilized directly in drilling, completion and production addition
activities with minimal capital required for facilities and
infrastructure projects over the near term, and the expectation
that completion of Phase 2 of the Alder Flats Plant will provide
the facilities and processing capacity to grow net production
volumes beyond 60,000 boe/d with minimal future facility related
capital. To the extent that any forward-looking information
contained herein constitute a financial outlook, they were approved
by management on the date hereof and are included herein to provide
readers with an understanding of the anticipated funds available to
Bellatrix to fund its operations and readers are cautioned that the
information may not be appropriate for other purposes.
Forward-looking statements necessarily involve risks, including,
without limitation, risks associated with oil and gas exploration,
development, exploitation, production, marketing and
transportation, loss of markets, volatility of commodity prices,
currency fluctuations, imprecision of reserve estimates,
environmental risks, competition from other producers, inability to
retain drilling rigs and other services, incorrect assessment of
the value of acquisitions, failure to realize the anticipated
benefits of acquisitions and dispositions, delays resulting from or
inability to obtain required regulatory approvals, actions taken by
the Company's lenders that reduce the Company's available credit
and ability to access sufficient capital from internal and external
sources. Events or circumstances may cause actual results to differ
materially from those predicted, as a result of the risk factors
set out and other known and unknown risks, uncertainties, and other
factors, many of which are beyond the control of Bellatrix. In
addition, forward looking statements or information are based on a
number of factors and assumptions which have been used to develop
such statements and information but which may prove to be incorrect
and which have been used to develop such statements and information
in order to provide shareholders with a more complete perspective
on Bellatrix's future operations. Such information may prove to be
incorrect and readers are cautioned that the information may not be
appropriate for other purposes. Although the Company believes that
the expectations reflected in such forward looking statements or
information are reasonable, undue reliance should not be placed on
forward looking statements because the Company can give no
assurance that such expectations will prove to be correct. In
addition to other factors and assumptions which may be identified
herein, assumptions have been made regarding, among other things:
the impact of increasing competition; the general stability of the
economic and political environment in which the Company operates;
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 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; field production rates and decline rates; the
ability to replace and expand oil and natural gas reserves through
acquisition, development of exploration; the timing and costs of
pipeline, storage and facility construction and expansion and the
ability of the Company to secure adequate product transportation;
future commodity prices; currency, exchange and interest rates; the
regulatory framework regarding royalties, taxes and environmental
matters in the jurisdictions in which the Company operates; and the
ability of the Company to successfully market its oil and natural
gas products. Readers are cautioned that the foregoing list is not
exhaustive of all factors and assumptions which have been used. As
a consequence, actual results may differ materially from those
anticipated in the forward-looking statements. Additional
information on these and other factors that could affect
Bellatrix's operations and financial results are included in
reports, including under the heading "Risk Factors" in the
Company's annual information form for the year ended December 31,
2017, on file with Canadian and United States securities regulatory
authorities and may be accessed through the SEDAR website
(www.sedar.com), through the SEC website (www.sec.gov), and at
Bellatrix's website (www.bxe.com). Furthermore, the forward looking
statements contained herein are made as at the date hereof and
Bellatrix does not undertake any obligation to update publicly or
to revise any of the included forward looking statements, whether
as a result of new information, future events or otherwise, except
as may be required by applicable securities laws.
Bellatrix Exploration Ltd. is a publicly traded
Western Canadian based growth oriented oil and gas company engaged
in the exploration for, and the acquisition, development and
production of oil and natural gas reserves, with highly
concentrated operations in west central Alberta, principally
focused on profitable development of the Spirit River liquids rich
natural gas play.
For further information, please
contact:
Steve Toth, CFA, Vice President, Investor
Relations & Corporate Development (403) 750-1270
Bellatrix Exploration Ltd.1920,
800 – 5th Avenue SWCalgary, Alberta, Canada T2P 3T6Phone: (403)
266-8670Fax: (403) 264-8163www.bxe.com