Northern Blizzard Resources Inc. ("Northern Blizzard" or the "Company") (TSX: NBZ) announces its operating and financial results for the three months ended March 31, 2017. Northern Blizzard's financial statements and management's discussion and analysis ("MD&A") for the three months ended March 31, 2017 are available on our website at www.northernblizzard.com and on SEDAR at www.sedar.com.
As at March 31, 2017 the significant shareholders of the Company were NGP IX Northern Blizzard S.àr.l. ("NGP IX") and R/C Canada Coöperatief U.A. ("R/C Canada").
On April 10, 2017, Waterous Energy Fund ("WEF") announced that two of its affiliates had entered into purchase agreements to acquire all of the issued and outstanding common shares of Northern Blizzard held by NGP IX and R/C Canada (approximately 67% of the Company's outstanding common shares). The closing of the transaction is expected to be completed in May 2017. The acquisition of the shares will represent a change of control of the Company as defined in the documents noted below and will trigger the respective provisions:
(i) Bank loan credit agreement: includes a provision that must be waived by the syndicate of banks in the event of a change of control. The Company has received the waiver from the banking syndicate.
(ii) Senior unsecured notes indenture: includes a provision that if a change of control occurs, the holders of the notes can require the Company to repurchase their notes at a price equal to 101% of the aggregate principal amount of the notes together with accrued and unpaid interest. The Company has up to 30 days after the closing of the transaction to provide note holders with an offer. From the date of the offer, Northern Blizzard has up to 60 days to repurchase notes from note holders that accept the offer. The Company would need additional financing to repurchase all of the notes outstanding. Northern Blizzard has access to a portion of its credit facility, subject to the consent of its banking syndicate, for this purpose and expects to have financing in place for any incremental amount required.
(iii) Compensation award incentive plan (the "Incentive Plan"): includes a provision that awards outstanding become payable upon a change of control. The Company has the option of settling the value of the Awards that become payable in common shares, cash or a combination thereof.
Capital spending during the first quarter of 2017 was $21.0 million. This included the drilling of 41 gross (38.6 net) wells, polymer powder, well workovers and facilities.
We drilled 25.0 net wells at Cactus Lake during the first quarter of 2017. Average production for the quarter increased approximately 4% to 8,613 boe/d compared to average production in 2016 of 8,318 boe/d.
Production from Cactus Lake is now over 50% of total production for the Company. Base decline rates (excluding new wells that were drilled) are at or near zero in this field as a result of waterflood and polymer flood pressure support. Impressive operating performance underpins the strong economics being achieved at this field. For example, during the first quarter of 2017 when WTI averaged US$51.91/bbl, Cactus Lake generated $23.5 million of net operating income. During the same period, we invested $12.9 million of capital into the field, including drilling and polymer powder, resulting in $10.6 million of field level free cash flow. Similarly, in 2016 when WTI averaged US$43.32/bbl, Cactus Lake generated $68.1 million of net operating income. Total capital invested in the field was $24.8 million leaving $43.3 million of field level free cash flow. During this period, production grew by 11%.
At our Winter property, we drilled 16 gross (13.6 net) wells during the first quarter of 2017. Horizontal wells have been utilized to develop the property as there is water underlying the thick oil column. Of the 16 drilled wells, nine averaged lateral lengths of approximately 450 meters that are consistent with previously drilled wells. These wells are expected to earn rates of return before tax of over 50% at US$50/bbl WTI. The remaining six wells averaged lateral lengths of greater than 850 meters, which adds approximately 7% to capital costs and an additional 30% to economic reserves per well. Longer lateral wells are expected to have rates of return before tax that exceed 100% at WTI $50/bbl. This drilling design is an exciting initiative at our Winter property and we are monitoring the results from these wells.
We continue to focus on decline rates and generating free cash flow. Decline rates are a key driver in determining the capital required to maintain production levels. Approximately 90% of Northern Blizzard's production is associated with either an active waterflood or natural water drive reservoirs. Approximately 80% of the Company's first quarter 2017 production is from three fields: Cactus Lake, Winter and Court. Northern Blizzard's successful EOR projects have resulted in industry leading overall corporate decline rates of 10 – 12%. We estimate that only 50% of budgeted annual cash flow for 2017 is required to maintain production at current levels. The remaining 50% is free cash flow that can be used to grow production and reserves, pay dividends, repay debt or for other corporate initiatives.
Northern Blizzard currently pays a monthly cash dividend of $0.02 per share.
Production for the three months ended March 31, 2017 of 17,201 boe/d was close to the annual guidance of 17,100 boe/d.
Operating expenses of $15.65/boe for the first quarter of 2017 were close to the annual guidance of $15.40/boe.
Corporate costs of $6.77/boe for the first quarter of 2017 were higher than the annual guidance of $5.70/boe. The variance is mainly due to higher than anticipated finance costs as the Company expected to purchase and cancel a significant portion of the senior unsecured notes commencing early in the first quarter. Subsequent to March 31, 2017, Northern Blizzard purchased US$6.5 million of senior unsecured notes in the open market. G&A of $2.37/boe was below Northern Blizzard's budget for Q1 2017 and is expected to decrease on a per unit basis over the course of the year as budgeted production volumes increase.
Funds from operations per boe (including hedging) was lower than annual guidance primarily due to lower oil prices and higher corporate costs.
Northern Blizzard operates and controls virtually all of its development program, which provides flexibility in our capital expenditures. We will continue to review and evaluate our capital spending program in light of commodity prices and will align spending with the appropriate economic returns.
Conference Call Today
9:00am MT (11:00am ET)
Northern Blizzard will host a conference call on May 9, 2017, starting at 9:00AM MT (11:00AM ET), to review the Company's first quarter 2017 results. Participants can access the conference call by dialing (403) 532-5601 or toll-free (US & Canada) 1 (855) 353-9183 and entering the passcode 98589.
A recording of the conference call will be available until May 23, 2017 and can be accessed by dialing 1 (855) 201-2300 and entering the conference number 1214501 and passcode 98589. The replay will be available approximately one hour following completion of the call. The conference call recording will also be available on Northern Blizzard's website at www.northernblizzard.com.
SOURCE: Northern Blizzard Resources Inc.
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