Bellatrix Exploration Ltd. Announces First Quarter 2017 Financial and Operating Results, Increased 2017 Guidance and Increased Credit Facilities
Bellatrix Exploration Ltd. ("Bellatrix" or the "Company") (TSX, NYSE: BXE) announces its financial and operating results for the first quarter ended March 31, 2017. This press release contains forward-looking statements. Please refer to our cautionary language on forward-looking statements and the other matters set forth at the end of this press release and the beginning of the Management's Discussion and Analysis (the "MD&A") for the three months ended March 31, 2017 and 2016. Bellatrix's unaudited condensed consolidated financial statements and notes, and the MD&A are available on Bellatrix's website at www.bellatrixexploration.com, and are filed on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.
Execution of our strategic three year development plan previously announced in January 2017 began in earnest during the first quarter of 2017, marking the resumption of Bellatrix's long term profitable growth. The Company delivered on its objectives, exceeding the previously set full year 2017 production guidance target and providing clear line of sight to deliver +/-15% compound annual growth in production volumes over the next three years. First quarter 2017 performance included the following operational and financial achievements:
Bellatrix has built a strong and sustainable business anchored by three pillars that provide the foundation for long term profitable growth: 1) high quality assets and acreage, 2) infrastructure ownership and control and 3) takeaway capacity and market egress.
High quality assets & acreage
Bellatrix is positioned to accelerate profitable growth of our large asset base as evidenced by our first quarter 2017 operational performance. The core foundational assets for the Company reside in a proven area of the Deep Basin in west central Alberta, known for its exceptional geologic and hydrocarbon bearing characteristics.
Bellatrix maintains a dominant core acreage position along the Deep Basin fairway with decades of development ready opportunities anchored by our large inventory of net identified Spirit River and Cardium well locations and the Company retains significant torque to a higher crude oil price environment through its Cardium position.
The Spirit River liquids rich natural gas play represents one of North America's lowest supply cost natural gas plays and delivers strong rates of return at current natural gas prices. Rate of return expectations for the Spirit River continue to rank among the highest within our portfolio of investment opportunities thereby attracting the majority of anticipated capital investment in 2017. Bellatrix has proven itself as a premier operator within the Spirit River play, consistently delivering industry leading well productivity results which drive strong rates of return for every capital dollar invested. To that end, the first two wells completed in early February of Bellatrix's 2017 Spirit River program ranked as two of the best wells in Alberta during the month, followed by the remaining first quarter program wells being completed and placed on stream at or above internal expectations. Our top tier acreage position and material running room provide a key long term competitive advantage for the Company.
Infrastructure ownership and control
Infrastructure ownership, operatorship and control creates significant barriers to competition within our core area thus ensuring operational flexibility and reliability to profitably process our production volumes and extract maximum value from each product stream. Since 2013, Bellatrix has invested approximately $350 million in strategic infrastructure assets within its core west central Alberta area providing above ground control of the region and creating significant barriers to industry competition. The capital build out for our long term growth strategy is nearly complete with investment in the Bellatrix O'Chiese Nees-Ohpawganu'ck deep-cut gas plant at Alder Flats (the "Alder Flats Plant"), ownership in two other major natural gas processing plants, operatorship and control of nine major compressor stations, and direct operatorship in over 1,000 kilometres of strategic gathering systems and pipelines. Bellatrix's historic investment in key strategic infrastructure and facilities provide the processing capacity and capability to grow net Company production volumes beyond 60,000 boe/d, with minimal future facility related capital. With the proportion of capital to facilities projects expected to materially reduce in 2018 and beyond, Bellatrix anticipates directing incremental capital directly to the drill bit, thereby enhancing already industry leading corporate capital efficiency metrics.
Takeaway capacity and market egress
The third pillar that provides a key competitive advantage and underpins the Company's long term profitable growth profile is ensuring ample takeaway capacity and market egress for our production volumes. Bellatrix maintains several long term firm transportation ("FT") agreements, ensuring market egress for current and forecast production, currently representing approximately 120% of current gross operated natural gas volumes at multiple receipt points on the Nova Gas Transmission Ltd. (the "NGTL") system. The NGTL system has experienced, and is expected to experience further curtailments of both interruptible and firm service capacity as the operator continues work through 2017 to expand capacity along the system. With excess FT relative to current production levels, Bellatrix is well positioned to deliver volumes with minimal impacts during periods of system curtailments. Bellatrix previously negotiated additional FT capacity to facilitate increased growth volumes from Phase 2 of its Alder Flats Plant which provides additional strategic long term value for the Company. Bellatrix also maintains firm service contracts through a number of third party processing plants in its greater core Ferrier region to ensure unfettered delivery capability for current and planned production growth, with staggered contract maturity dates to align with the in-service date of Phase 2 of the Alder Flats Plant. Finally, Bellatrix has secured fractionation capacity for its natural gas liquids ("NGL") volumes by way of long term agreements providing 100% coverage for current and forecast NGL volumes from both Phase 1 and Phase 2 of its Alder Flats Plant. The foresight to obtain and control firm transportation along the main transmission system for not only current but also forecast growth volumes provides a key competitive long term advantage for the Company.
ENHANCED OUR ALREADY STRONG RISK MANAGEMENT POSITION
Bellatrix continued to protect its long term strategic plan by adding to its already strong risk management position during the first quarter of 2017. Bellatrix maintains approximately 64% of forecast gross natural gas volumes in 2017 hedged at an average fixed price of approximately $3.36/mcf (based on the mid-point of the updated 2017 average gross production guidance of 34,500 boe/d; 76% natural gas weighted). In addition, the Company has in place material risk management protection in 2018 with a total of 65.6 MMcf/d of 2018 natural gas volumes hedged at an average fixed price of approximately $3.08/mcf; this represents approximately 42% of volumes compared to the mid-point of the updated 2017 full year average guidance. Strong propane prices in the first quarter of 2017 provided an attractive opportunity for Bellatrix to hedge 1,500 bbl/d of propane volumes at an average price of 51% of WTI light oil prices from February through December of 2017, and 1,000 bbl/d of propane volumes at an average price of 47% of WTI light oil prices in 2018, both meaningfully above long term historical averages. Bellatrix's hedging program is part of its overall risk management strategy focused on providing reduced commodity price volatility and greater assurance over future revenue and cash flows which help drive the capital and reinvestment decisions within our business.
STRONG OPERATIONAL PERFORMANCE ACHIEVED IN THE FIRST QUARTER OF 2017
Bellatrix delivered strong operational performance through the first quarter of 2017. First quarter average production of 34,750 boe/d (75% natural gas weighted) surpassed the Company's 2017 prior average annual guidance (mid-point) estimate of 33,500 boe/d. With first quarter objectives solidly met, Bellatrix remains favourably positioned to deliver strong results through 2017 with second quarter production levels currently exceeding management expectations. With strong operational performance and momentum, Bellatrix is increasing its 2017 production guidance target as discussed in the Outlook section of this release.
Our focus on operational execution and delivery of our three year growth strategy was evident by the strong results achieved during the first quarter of 2017. Bellatrix participated in 13 gross (10.6 net) wells in the first quarter which included 8 gross (7.6 net) operated Spirit River wells, 2 gross (2.0 net) operated Cardium wells and also 3 gross (1.0 net) non-operated wells in the Spirit River and Ellerslie formations. Of the ten gross operated wells drilled during the first quarter, eight were brought on-stream during the first three months of the year, with the remaining operated Spirit River well subsequently brought on-stream in early April, and the one remaining Cardium operated well drilled and planned for completion and on-stream delivery in the third quarter of 2017.
Bellatrix completed its planned first quarter capital program with exploration and development expenditures of $44.0 million and an unchanged expectation to spend approximately half of the full year's net capital expenditure budget of $105 million within the first six months of the year.
First quarter production expenses averaged $9.37/boe, representing a marked reduction of $1.20/boe from the $10.57/boe production expenditure level in the fourth quarter of 2016. First quarter production expenditure levels and anticipated production and expense levels position Bellatrix to maintain its full year average production expenditure guidance of approximately $9.00/boe.
With the conclusion of all joint venture drilling in 2016, Bellatrix has demonstrated the flexibility in 2017 to balance infill development drilling and expanded core area development. The Company remains focused on growing production, adding reserves, and increasing our inventory of development drilling locations. Bellatrix's working interest in operated wells drilled in the first quarter of 2017 averaged 96%. Well results from the first quarter program continue to meet and exceed management expectations. To that end, Bellatrix is pleased to provide enhanced transparency for its operated 2017 development program results including the:
Bellatrix completed the majority of its first half program in the first three months of the year (in advance of the seasonal spring break-up period) with exploration and development capital expenditures invested during the first quarter of $44.0 million. The Company's capital expenditure plans remain on target and in line with previously stated guidance levels for $105 million in 2017 with approximately 50% of capital expenditures to be invested within the first half of the year.
ALDER FLATS PHASE 2 EXPANSION NEARING COMPLETION WHICH REPRESENTS THE FINAL STAGE OF THE COMPANY'S LONG TERM STRATEGIC INFRASTRUCTURE BUILD-OUT
The Alder Flats Plant represents a highly strategic asset for the Company as we continue to execute on our three year development plan to profitably grow production, expand netbacks and grow cash flow. Phase 1 of the Alder Flats Plant has been on-stream for 21 continuous months delivering an average 96% capacity utilization rate over that period and firmly establishing the Bellatrix Alder Flats Plant as the most efficient plant in our greater west central Alberta core area.
The Phase 2 expansion project, which will more than double gross throughput capacity at the plant to 230 MMcf/d (from 110 MMcf/d currently) remains on time and on budget for completion in the second quarter of 2018. The Plant expansion is anticipated to drive improved revenue generation through additional higher margin NGL extraction, and provide further reductions to corporate operating costs, driving expanded corporate profit margins and cash flow. Fabrication of all major equipment for Phase 2 is complete including compressors and propane bullets. Fabrication and packaging of other material equipment including the condensate stabilizer, production tanks, heat medium package, and electrical equipment continues to progress according to plan and is expected to arrive on site for installation over the next several quarters. Site construction activity will recommence late in the second quarter with scheduled pile driving activity anticipated to begin in June. Major equipment will begin being delivered to site, with installation activities and mechanical work planned to begin in the third quarter of 2017.
Bellatrix's investment in strategic infrastructure assets within the greater Ferrier and Willesden Green areas of west central Alberta provide the above ground control of the region and create significant barriers to industry competition. The capital build out for our long term growth strategy is nearly complete given prior period investment in the Alder Flats Plant, major compressor stations, and strategic gathering systems and pipelines. Bellatrix forecasts net capital expenditures of approximately $13 million in 2017 and $3 million in 2018 (excluding received partner prepayment) required to complete Phase 2 of the Alder Flats Plant which will solidify our infrastructure control, and provide the facilities and processing capacity to grow net production volumes beyond 60,000 boe/d, with minimal future facility related capital.
Completion of Phase 2 of the Alder Flats Plant, which will add an incremental 30 MMcf/d ownership capacity net to Bellatrix's 25% working interest, is expected to deliver a favourable step change reduction in operating costs down by approximately $1.00/boe relative to current full year 2017 average production expense guidance.
INDUSTRY LEADING WELL RESULTS AND CONTINUED CAPITAL COST SUPPRESSION EFFORTS
Bellatrix has established itself as a premier operator in west central Alberta, continuously delivering top tier well results from its Spirit River development program through the first quarter of 2017, coupled with continued capital cost reductions which in combination delivered another extremely capital efficient quarter. All-in (drill, complete, equip and tie-in) estimated well costs in the first quarter of 2017 averaged $3.8 million, unchanged from average costs of $3.8 million achieved in 2016 despite modest upward pressure on select completion service costs in 2017. Bellatrix continues to supress costs and mitigate inflationary pressure on capital costs, given structural and sustainable improvements achieved within both drilling and completion practices.
ENHANCED LIQUIDITY POSITION WITH BORROWING BASE INCREASED 20%
Subsequent to the end of the first quarter, Bellatrix amended and restated the terms of its syndicated revolving credit facilities (the "Credit Facilities"). Effective May 9, 2017, the total commitments under the Credit Facilities were set at $120 million, comprised of a $25 million operating facility provided by a Canadian bank and a $95 million syndicated facility provided by four financial institutions. Total commitments under the Credit Facilities were increased 20% relative to total commitments at year end 2016. The borrowing base increase provides enhanced liquidity relative to prior levels, while maintaining Bellatrix's financial resources at a level that minimizes standby fees. The Company remains committed to continued fiscal prudence, and achieving near term growth objectives within current capital spending guidance levels.
Other than the $41.5 million outstanding as at March 31, 2017 on the Credit Facilities, the Company has no debt maturities until 2020 and 2021.
Subsequent to the end of the first quarter 2017, Bellatrix completed two separate transactions whereby it monetized its $15 million vendor take back loan receivable and divested its marketable securities for combined net proceeds of approximately $20 million. Bellatrix utilized proceeds from these two transactions to reduce the amount outstanding on its bank credit facilities to approximately $21 million as at April 30, 2017.
OPERATIONAL AND FINANCIAL HIGHLIGHTS
Management's acute focus on operational execution during the first quarter of 2017 resulted in production volume outperformance relative to previously set full year 2017 average guidance levels, enabling management to increase our full year guidance expectations as described below. The majority of our first half capital investment program was completed during the first three months of the year, as capital investment activities are customarily curtailed during the second quarter, given the seasonal spring break-up period. Average second quarter 2017 production levels are anticipated to commensurately meet the revised full year average guidance of 34,500 boe/d given strong well results and strong operational momentum achieved during the first quarter of 2017.
Our capital investment plans for 2017 remain unchanged; Bellatrix plans to expand its drilling efforts across our core west central Alberta acreage including expanded development of the Spirit River formation in the Willesden Green area, following on our success in the Ferrier area. With the completion of joint venture programs in 2016, Bellatrix has strategically reviewed its drilling program to optimize capital investment, forecast rates of return, and long term net asset value and reserve growth potential. Our current 2017 capital expenditure guidance anticipates drilling approximately 19 net wells during the year, of which approximately 10.6 wells were drilled during the first quarter of the year with one operated Cardium well currently uncompleted. Our focused capital investment program is supported by an active risk management program, and will continue to target the low cost and high return Spirit River liquids rich natural gas play which delivers strong rates of return.
INCREASED 2017 PRODUCTION GUIDANCE WITH NO CHANGE TO CAPITAL EXPENDITURES GIVEN STRONG OPERATIONAL PERFORMANCE
Strong first quarter operational results and positive momentum into the second quarter provide visibility to meaningfully outperform prior forecast guidance expectation levels. To that end, Bellatrix is increasing its full year 2017 average production guidance expectation to 34,500 boe/d, an increase of 1,000 boe/d from prior guidance announced on January 5, 2017. Bellatrix has maintained its full year capital expenditure guidance at $105 million despite the increase in average production levels. Bellatrix remains committed to providing sustainable long term growth for shareholders including delivery of our 2017 capital program providing +/-15% forecast production growth.
As the Company embarks on its three year strategic plan outlined in January of 2017, we remain committed to maximizing capital resources, maintaining a laser sharp focus on operational execution, and most importantly delivering on our promises. Bellatrix's three foundational pillars provide the long term competitive advantages required to thrive in the current commodity price environment and deliver profitable growth in production, cash flow, and net asset value. I want to personally thank our employees for their unwavering efforts as we continue to deliver and achieve our business objectives. To our shareholders and stakeholders, we thank you for your long term support and look forward to providing continued updates throughout the year, including enhanced transparency of our operational and financial performance, and delivery of our long term strategy delivering enhanced shareholder value.
During the three months ended March 31, 2017, Bellatrix invested $44.0 million in exploration and development capital projects, excluding property acquisitions and dispositions, compared to $29.0 million in the same period in 2016.
Bellatrix focused its capital activity in the first quarter of 2017 on drilling and completion activity within the Spirit River formation, as well as facilities and equipment expenditures related to the construction of Phase 2 of the Alder Flats Plant. Bellatrix continues to advance the Phase 2 expansion project of the Alder Flats Plant which is expected to more than double the inlet capacity of the Plant from 110 MMcf/d currently to 230 MMcf/d. The project remains on time and budget, and is scheduled for completion in the second quarter 2018.
Subsequent to the first quarter of 2017, Bellatrix closed an agreement to complete the construction of, and transfer to a third party midstream company, certain production facilities and infrastructure in exchange for proceeds of $20 million. Capital expenditures of $5.6 million were incurred in the first quarter 2017 and will be transferred under the agreement to the third party midstream company in the second quarter of 2017. Under the terms of the arrangement, Bellatrix will have exclusive access to, and operatorship of, the infrastructure.
CONFERENCE CALL INFORMATION
A conference call to discuss Bellatrix's first quarter results will be held on May 10, 2017 at 9:00 am MT / 11:00 am ET. To participate, please call toll-free 1-800-319-4610 or 403-351-0324 or 416-915-3239. The call can also be heard live through an internet webcast accessible via the investors section of Bellatrix's website at http://investors.bellatrixexploration.com/webcasts and will be archived on the website for approximately 30 days following the call.
Bellatrix Exploration Ltd. is a 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 in the provinces of Alberta, British Columbia, and Saskatchewan.
Common shares of Bellatrix trade on the Toronto Stock Exchange and on the New York Stock Exchange under the symbol "BXE".
SOURCE: Bellatrix Exploration Ltd
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.