Crown Point Energy Inc. (TSX VENTURE:CWV) ("Crown Point", the "Company" or "we") today announced its operating and financial results for the three months ended March 31, 2017.
Copies of the Company's unaudited condensed interim consolidated financial statements and Management's Discussion and Analysis ("MD&A") filings for the three months ended March 31, 2017 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.
In the following discussion, the three months ended March 31, 2017 may be referred to as "Q1 2017", the comparative three months ended March 31, 2016 referred to as "Q1 2016", and the previous three months ended December 31, 2016 referred to as "Q4 2016".
Tierra del Fuego Concession ("TDF")
In Q4 2016, the Company requested a two year extension of the December 31, 2016 commitment dates for drilling one exploration well on each of the Rio Cullen and La Angostura Concessions. Approval of the extension was received from both the Secretary of Energy and Governor of the Province, however the approval was not ratified prior to the Christmas recess of the Provincial Legislature on December 15, 2016. Accordingly, the Company and its partners commenced preparation of the two drilling sites (RC x-1002 in Rio Cullen and SM x-1001 in La Angostura) in late December 2016. SM x-1001 was drilled and cased in Q1 2017 and RC x-1002 commenced drilling in March 2017 and was cased in April 2017. Perforation and testing of both wells is planned to commence in June 2017.
The Company fulfilled the Rio Cullen concession expenditure commitment during Q1 2017 and expects to fulfill the La Angostura concession expenditure commitment by June 30, 2017.
Prospect identification and evaluation to develop additional exploitation, step out and appraisal locations on the Las Violetas Concession is ongoing.
Cerro de Los Leones Concession
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 Q4 2016, the Company applied for an extension to the Period 2 exploration period which was to expire on May 21, 2017. The extension was requested to allow the Company time to acquire 234km2 of 3-D seismic and drill one exploration well. In March 2017, the Mendoza provincial government formally agreed to extend the deadline to acquire seismic until January 22, 2018 and informally agreed to extend the commitment to drill one exploration well for an unspecified period following the acquisition of seismic.
The Company is seeking a partner in the CLL concession to share future capital costs and provide capital cost recovery opportunities on existing and previous capital projects.
Crown Point estimates a total of $12.3 million of capital expenditures for 2017 comprised of $3.5 million of expenditures on the TDF concessions and $8.8 million of expenditures on the CLL concession (which will be reduced if the Company obtains a partner at CLL). Crown Point expects to meet these obligations, along with its other anticipated expenses, using funds flow from operations, expected proceeds from Petróleo Plus bonds as well as additional debt and/or equity financings and potential joint venture arrangements.
The Company anticipates the following activities to occur during Q2 2017 and Q3 2017 at a total estimated cost of $11 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. Recent impacts of these changes include an increase in interest rates by the Central Bank of Argentina to control inflation; a decrease in Argentina's inflation rate, although it still remains high; and a stabilization of the ARS/USD exchange rate. The Argentine government continues its efforts to attract investment in Argentina, particularly in the energy sector, and the response from foreign investors has been positive.
Following his election, President Macri replaced the Secretaría de Energía with the Ministry of Energy and Mines and appointed Juan Jose Aranguren, the former CEO of Shell´s Argentine branch, as the Minister. The reorganization of Argentina's Federal Administration for Energy underlines the strategic importance of the energy industry to the Macri government. One of the first acts of the Ministry of Energy and Mines was the implementation of measures to gradually reduce subsidized natural gas and electricity residential rates over a three year period.
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 $47.85 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.
TDF Sales and Production Volumes
During Q1 2017, the Company's average daily sales volumes were 1,200 BOE per day, down 15% from 1,412 BOE per day in Q4 2016 and down 18% from 1,462 BOE per day in Q1 2016 due mainly to lower sales of inventoried volumes of oil in Q1 2017 combined with natural declines.
TDF average daily production volumes for Q1 2017 were 1,298 BOE per day, down 2% from 1,329 BOE per day in Q4 2016 and down 9% from 1,421 BOE per day in Q1 2016. The decrease in Q1 2017 daily production volumes is due to the natural decline of wells.
Operating costs are higher in Q1 2017 as compared to Q1 2016 due mainly to increased contract operator costs caused by increased operating activity, as well as higher costs related to company labor and supervision and access rights.
General and Administrative ("G&A") Expenses
G&A expenses were 2% lower in Q1 2017 compared to Q1 2016. The decrease in Q1 2017 G&A expenses is due to a reduction in staffing levels, the closing of the Calgary office and cost savings achieved in the Argentina offices.
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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