Crown Point Announces Operating and Financial Results and Reserve Information for the Year Ended December 31, 2016
Crown Point Energy Inc. (TSX VENTURE:CWV) ("Crown Point", the "Company" or "we") today announced its operating and financial results and certain reserve information for the year ended December 31, 2016.
Copies of the Company's audited consolidated financial statements and Management's Discussion and Analysis ("MD&A") and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") filings for the year ended December 31, 2016 are being filed with Canadian securities regulatory authorities and will be made available under the Company's profile at www.sedar.com and on the Company's website at www.crownpointenergy.com. All dollar figures are expressed in United States dollars ("USD") unless otherwise stated, and "MUS$" means thousands of USD.
In the following discussion, the three months and year ended December 31, 2016 may be referred to as "Q4 2016" and "YE 2016" or "2016", respectively, the comparative three months and year ended December 31, 2015 referred to as "Q4 2015" and "YE 2015" or "2015", respectively, and the previous three months ended September 30, 2016 referred to as "Q3 2016".
Tierra del Fuego Concession ("TDF")
The Company identified a number of older producing and non-producing wells on the Las Violetas concession as candidates for fracture stimulation during 2016. Four wells were selected for treatment in 2016 and all have been fracture stimulated. Of these one well has been returned to production, one well was tied in and placed on stream in late August, one well will undergo further treatment in 2017 to improve inflow and one well has been suspended.
Prospect identification and evaluation to develop additional exploitation, step out and appraisal locations on the Las Violetas Concession is ongoing.
Cerro de Los Leones Exploration
The Company has a 100% working interest in the 100,907 acre area covered by the Cerro de Los Leones ("CLL") Concession Permit, which is located in the northern portion of the Neuquén Basin in the Province of Mendoza, Argentina.
In late 2015, the Company re-entered two wells in the Vega del Sol area that had been previously drilled by YPF and subsequently abandoned when YPF relinquished the acreage.
Crown Point estimates a total of $12.3 million of capital expenditures for 2017 comprised of $3.6 million of expenditures on the TDF concessions and $8.7 million of expenditures on the CLL concession. Crown Point expects to meet these obligations, along with its other anticipated expenses, using funds flow from operations, working capital which totaled approximately $0.2 million at the end of Q4 2016 and $1.6 million of expected Petróleo Plus bond proceeds as well as additional debt and/or equity financings and potential joint venture arrangements.
The Company anticipates the following activities to occur during the first half of 2017 at a total estimated cost of $5.7 million:
DEVELOPMENTS IN ARGENTINA
Political and Economic Developments
Since December 2015, the President of Argentina, Mauricio Macri, has undertaken several measures to stabilize the Argentine economy and rebuild trust and confidence. Some of these measures include: relaxing of currency controls, reaching an agreement with holdout creditors, lifting restrictions to capital inflow/outflow, returning to the international capital markets, removing or reducing export duties, gradually removing import restrictions, correcting exchange rates and subsidies, and reestablishing relations with countries that have traditionally been Argentina's business and political partners.
Mr. Macri appointed Juan Jose Aranguren, the former CEO of Shell´s Argentine branch, as Minister of Energy and Mines. This appointment underlines the strategic importance of the energy industry to the Macri government. One of the first measures of the Minister of Energy and Mines was the declaration of the state of emergency of Argentina's electricity sector through an executive decree from President Macri which will last until December 31, 2017. The Company expects the government will implement gradual increases in natural gas and electricity rates until the end of 2019.
Currency controls were relaxed by the Argentine government in December 2015 and the Argentine peso ("ARS") now freely floats against the USD and Euro. As a portion of the Company's operating costs at TDF and general and administrative expenses incurred in Argentina are denominated in ARS some of the Company's operating costs and general and administrative expenses have decreased in USD equivalent terms.
Commodity Price Developments - Crude Oil
In January 2017, at the request of the Government of Argentina, an agreement to converge the Medanito and Escalante oil prices with international Brent pricing over the coming months (the "Pricing Agreement") was signed by a majority of producers and refiners in Argentina. Under the terms of the Pricing Agreement, local refiners will pay $59.40 per bbl for Medanito crude oil and $48.30 per bbl for Escalante crude oil in January 2017 and the prices will be gradually decreased every month until they reach $55 per bbl and $47 per bbl, respectively, in July 2017. Prices in effect in July 2017 will then be applicable until December 31, 2017, when the terms of the Pricing Agreement are set to expire. The Pricing Agreement will remain in place until December 31, 2017 unless (1) the Brent price falls below $45 per bbl for ten consecutive days or (2) the Argentinian peso depreciates more than 20%, in which case the Pricing Agreement will be renegotiated. Further, the Pricing Agreement outlines that should Brent remain higher than $1.00 above the monthly Medanito floor price for ten consecutive days, the Pricing Agreement will be suspended and the Brent price will be adopted.
Oil from Crown Point's TDF concessions is sold at a discount to the Medanito crude oil price. Under the terms of the Pricing Agreement and taking the discount into account, the Company expects to receive an average of $49 per bbl for its TDF oil in 2017.
Commodity Price Developments - Natural Gas
On October 6, 2016, the Ministry of Energy and Mines issued Resolution 212/2016 which specified that new prices for residential users would commence on October 7, 2016 with a 300% to 400% increase limit to prices set in the comparative period of the previous year, depending on the type of residential user, and a 500% increase limit for small and medium-sized companies. Resolution 212/2016 supersedes resolutions issued in March, June and July of 2016 which had mandated higher price increases that were subsequently blocked by class action suits initiated by residential consumers and small business.
TDF Sales and Production Volumes
During Q4 2016, the Company's average daily sales volumes were 1,412 BOE per day, up 9% from 1,301 BOE per day in Q3 2016 due mainly to sales of inventoried volumes of oil and comparable to average daily sales of 1,416 BOE per day in Q4 2015.
TDF average daily production volumes for Q4 2016 averaged 1,329 BOE per day, down 3% from 1,376 BOE per day in Q3 2016 and down 7% from 1,431 BOE per day in Q4 2015. The decrease in Q4 2016 daily production volumes is due to the natural decline of wells.
Operating costs are lower in the 2016 periods as compared to the 2015 periods due in part to the effect of the devaluation of the ARS against the USD. During the year ended December 31, 2015, the ARS declined 53% against the USD and declined a further 22% during 2016. The majority of the devaluation has occurred since December 16, 2015, the date currency controls were lifted. A portion of the Company's operating costs, including rates for field personnel and trucking, are set and settled in ARS based on the ARS to USD exchange rate at a particular point in time. Rates are subsequently adjusted in the event of significant changes in the ARS to USD exchange rate.
General and Administrative ("G&A") Expenses
G&A expenses were 18% and 33% lower in Q4 2016 and the YE 2016 period, respectively, than the comparative 2015 periods. The decrease in 2016 G&A expenses is due to a reduction in staffing levels, lower professional fees and other efficiencies and cost savings achieved in the Canadian and Argentina offices combined with the effect of the devaluation of the ARS against the USD which reduced certain ARS denominated expenses.
Exploration and Evaluation Expense
During 2016, the Company recognized $2,527,270 of exploration expense in relation to expenditures on the VdS x-1 and VdS x-3 wells in the CLL concession as the recoverability of the expenditures is dependent on a multi-well program for which there are no current plans or budgeted funds.
An officer of the Company retired effective November 9, 2016, and in connection with same, received a retiring allowance pursuant to the terms of the related employment agreement in the aggregate amount of $381,298.
Office lease termination
During 2016, the Company recognized $376,380 of lease termination expenses in connection with the surrender of the Canadian office lease comprised of a $172,257 lease termination fee, $17,455 for the forfeiture of the lease security deposit and $186,668 for the write-off of the carrying amount of leasehold improvements and office furniture at the time of the lease surrender.
Further details of the audit of the Company's reserves as at December 31, 2016 are contained in the Company's NI 51-101 filings for the year ended December 31, 2016 which will be filed with Canadian securities regulatory authorities and will be made available under the Company's profile at www.sedar.com and on the Company's website at www.crownpointenergy.com.
About Crown Point
Crown Point Energy Inc. is an international oil and gas exploration and development company headquartered in Calgary, Canada, incorporated in Canada, trading on the TSX Venture Exchange and operating in South America. Crown Point's exploration and development activities are focused in two of the largest producing basins in Argentina, the Austral basin in the province of Tierra del Fuego and the Neuquén basin, in the province of Mendoza. Crown Point has a strategy that focuses on establishing a portfolio of producing properties, plus production enhancement and exploration opportunities to provide a basis for future growth.
SOURCE: Crown Point Energy Inc.
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