Chinook Energy Inc. ("our", "we", or "us") (TSX:CKE) is pleased to announce its first quarter 2017 financial and operating results.
Our operational and financial highlights for the three months ended March 31, 2017 are noted below and should be read in conjunction with our condensed consolidated financial statements for the three months ended March 31, 2017 and 2016 and our related management's discussion and analysis which have been posted on the SEDAR website (www.sedar.com) and our website (www.chinookenergyinc.com).
Highlights for the three months ended March 31, 2017
Craft Oil Ltd.
On June 10, 2016, we conveyed the majority of our Alberta oil and natural gas assets, excluding our Montney assets, and the associated decommissioning obligations in addition to $0.9 million cash (collectively, the "Subject Assets") to Tournament Exploration Ltd., which subsequently changed its name to Craft Oil Ltd. and then Craft Oil Inc. ("Craft"), a private Calgary-based petroleum and natural gas production company, for 70% of its issued and outstanding common shares pursuant to an asset purchase and sale agreement dated and effective May 1, 2016. On December 12, 2016, we completed the distribution of all of the Craft Oil Ltd. shares held by us to our shareholders as at the close of business pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the "Craft Share Distribution"). Following the Craft Share Distribution, our control over Craft's operations ceased. As a result, for any period(s) subsequent to December 12, 2016, the accounts of Craft are not reflected in our financial and operating results. Generally, the first quarter changes in operating results and their corresponding financial measures, in comparison to the same quarter of 2016, result from the Subject Assets as either sold in October 2016 or as included in the Craft Share Distribution.
First Quarter 2017 Financial Results
Our production in the first quarter of 2017 averaged 3,514 boe/d, down 39% from the same quarter of 2016 primarily as a result of the Craft Share Distribution. However, our first quarter production for 2017 increased 36% compared to the 2,593 boe/d achieved during the fourth quarter of 2016 related to assets that we still currently own. This increase resulted from our Birley/Umbach area development program and the reactivation of wells in Boundary Lake North, BC.
Our first quarter of 2017 petroleum and natural gas revenues were down approximately 13% from the same quarter of 2016 due to the decrease of production volumes resulting from the absence of the Subject Assets. However, although our overall petroleum and natural gas revenues were down, an increase in our realized prices, due to increases in benchmark pricing, resulted in an increase in revenues related to our natural gas and associated liquids during the first quarter of 2017 compared to the same quarter of 2016.
Our net production expense (operating costs net of processing income) for the first quarter of 2017 decreased by approximately 55% to $3.6 million from $7.9 million in the quarter of 2016, which on a boe basis, respectively, resulted in a decrease to $11.27/boe from $15.12/boe. Our first quarter net production expense benefited from a new gas handling agreement which we entered into during the third quarter of 2016.
Our adjusted funds from operations for first quarter of 2017 of $2.0 million increased by approximately $4.9 million compared to the same quarter of 2016. This increase resulted from higher commodity benchmark prices, realized gains on a commodity price contract and a lower cash-based cost structure for our Montney focused operations.
We reported net income for the first quarter of 2017 of $10.4 million compared to a loss of $12.8 million during the same quarter of 2016. This increase reflects higher commodity prices, a lower cost structure associated with our transition to a pure Montney play in addition to a $10.9 million gain on the disposition of non-core properties and a $1.7 million gain on commodity price contracts.
First Quarter 2017 Operational Results
During the first quarter of 2017 we completed, equipped and tied-in three (2.64 net) horizontal Montney wells at Birley/Umbach at an average total cost of $3.7 million per well, a 30% decrease from the previous six (5.0 net) wells which averaged $5.3 million per well. Completion and equipping costs were consistent with our revised budget. Currently, we have production from nine wells (7.63 net) in this area.
Through to the date of this news release, at our Birley/Umbach area, we have drilled another three (2.67 net) of a four (3.67 net) well drilling program. All three wells were drilled on our D-93-F pad with various downhole locations. The fourth well (1.0 net) will be drilled in May on the same pad. Completions and equipping are expected to occur after spring break-up. All four of these Birley/Umbach wells are scheduled to be on-stream during the fourth quarter of 2017.
We use commodity price hedges to support our capital investment and growth by providing more certainty regarding our adjusted funds from operations and balance sheet management. Our internal policy permits us to hedge up to a maximum period of 24 months, based on our total estimated oil and natural gas production volumes, consisting of no more than 50% for the first 12 months and 25% for the last 12 months.
We continue to execute on our previously announced $40 million capital program for 2017 and remain excited about the growth this program will provide. As we implement this capital program we will continue to closely monitor our balance sheet and commodity prices. As in previous years, we will remain prudent in how we deploy our capital in order to defend our strong balance sheet.
We have made great strides over the past 12 months to improve our cost structure, including completing the Craft Share Distribution and executing a new gas handling agreement in BC. On a per boe basis, our net production expense in the fourth quarter of 2017 is expected to drop by almost 30% to approximately $8.00/boe from $11.27/boe in the first quarter of 2017. G&A is also projected to drop from $5.10/boe during the first quarter of 2017 to below $2.90/boe in the fourth quarter of 2017. As we begin to increase our production at Birley, our cost structure and profitability significantly improves.
Finally, we would like to personally acknowledge Matthew J. Brister, Stuart G. Clark and Donald F. Archibald who have decided not to run for re-election to our Board of Directors this year. We wish to thank them collectively for all the hard work and commitment they brought to our company and wish them all the best in their future endeavors.
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and natural gas exploration and development company which is focused on realizing per share growth from its large contiguous Montney liquids-rich natural gas position at Birley/Umbach, British Columbia.
SOURCE: Chinook Energy Inc
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