Madalena Announces Fourth Quarter and Year End 2014 Financial Results and Provides an Operational Outlook
TSX - Toronto Stock Exchange
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TSXV Trading Symbol: MVN OTC Trading Symbol: MDLNF
CALGARY, April 17, 2015/CNW/ - Madalena Energy Inc. (TSXV: MVN) (the "Company" or "Madalena") is pleased to provide selected financial and operational information for the three months and year ended December 31, 2014.
Copies of the Company's consolidated financial statements for the year ended December 31, 2014, the related management's discussion and analysis and the Annual Information Form (the "AIF") of the Company for the year ended December 31, 2014have been filed with Canadian securities regulatory authorities and will be made available under the Company's profile at www.sedar.comand on the Company's website at www.madalenaenergy.com.
2014 HIGHLIGHTS _($CDN unless otherwise specified) _Highlights for 2014 included:
The year was highlighted by the results of the accretive acquisition made by Madalena in late June 2014and successful horizontal drilling, both of which were in Argentina; Oil and gas production averaged 4,075 boe/d (Q4-2013 – 1,271 boe/d) and 2,883 boe/d (2013 - 1,087 boe/d) for the fourth quarter and year, respectively; Increase in proved plus probable reserves ("P+P") to 11.5 MMboe, which is primarily driven by the Company's conventional assets. Net present value of these P+P reserves before tax, discounted at 10% ("NPV@10%"), increased 297% to $199.4 million; P+P Reserves and P+P NPV@10% per common share have increased 72% and 168% respectively; Argentinaoperating netbacks averaged $32.62/boe in the fourth quarter (Q4-2013 - $29.28) with regulated oil prices in Argentinacontinuing to remain stable. The Medanito oil price posting for April 2015has been set at US$ 76.00/Bbl compared to a Q1 - 2015 average of US$ 76.30/bbl; Funds flow from operations was $4.4 million(Q4-2013 – $1.5 million) and $17.7 million(2013 -$3.9 million) for the fourth quarter and year, respectively; Exited the year with a positive working capital position of $11.8 millionand no debt; Drilled, completed and placed on production two (35% WI) Sierras Blancas light oil horizontal wells and one (35% WI) vertical Vaca Muerta shale delineation well; Subsequent to the year end, drilled, completed and placed on production one (35% WI) Sierras Blancas light oil horizontal well and one Loma Montosa light oil horizontal well (100% WI); and Subsequent to year end and following a successful renegotiation process, Madalena entered into a three year evaluation phase contract at Coiron Amargo Sur – a key unconventional shale block for the Company.
| SUMMARY FINANCIAL AND OPERATIONAL RESULTS | | | | | | | | | | | | | | | | | | Three months ended
December 31 | | Year ended
December 31 | | | | | | 2014 | 2013 | | 2014 | 2013 | | | | | | | | | | Financial - Canadian $000s, except per share amounts | | | | | | | | Oil and gas revenue | | 26,636 | 5,633 | | 72,945 | 17,960 | | Funds flow from operations(1) | | 4,352 | 1,493 | | 17,721 | 3,920 | | Per share - basic & diluted(1) | | 0.01 | 0.00 | | 0.04 | 0.01 | | Net loss(2) | | (30,526) | (20,529) | | (36,004) | (23,287) | | Per share – basic and diluted(2) | | (0.07) | (0.06) | | (0.08) | (0.07) | | Business combinations | | - | - | | 74,406 | - | | Capital expenditures | | 13,282 | 13,098 | | 40,537 | 43,296 | | Working capital | | 11,775 | 7,631 | | 11,775 | 7,631 | | | | | | | | | | Equity outstanding– 000s | | | | | | | | Common shares | | 539,783 | 364,029 | | 539,783 | 364,029 | | Stock options | | 25,880 | 19,530 | | 25,880 | 19,530 | | | | | | | | | | Operating | | | | | | | | Average Daily Sales | | | | | | | | Crude oil and Ngls – Bbls/d | | 2,991 | 711 | | 2,036 | 529 | | Natural gas – Mcf/d | | 6,505 | 3,366 | | 5,084 | 3,346 | | Total - boe /d | | 4,075 | 1,271 | | 2,883 | 1,086 | | | | | | | | | | Average Sales Prices | | | | | | | | Crude oil and Ngls - $/Bbl | | 87.69 | 69.50 | | 85.79 | 72.95 | | Natural gas - $/Mcf | | 4.50 | 3.52 | | 4.97 | 3.18 | | Total - $/boe | | 71.05 | 48.16 | | 69.33 | 45.28 | | | | | | | | | | _Corporate Operating Netbacks_(3) | | | | | | | | $/boe | | 26.74 | 16.82 | | 31.29 | 15.25 |
| | | | (1) | _This table contains the term "funds flow from operations", which is a non-GAAP measure and should not be considered an alternative to, or more meaningful than "cash flows from operating activities" as determined in accordance with International Financial Reporting Standards ("IFRS") as an indicator of the Company's performance. Funds flow from operations and funds flow from operations per share (basic and diluted) do not have any standardized meanings prescribed by IFRS and may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and considers funds flow from operations to be a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investment. The reconciliation between funds flow from operations and cash flows from operating activities can be found in "Management's Discussion and Analysis". Funds flow from operations per share is calculated using the basic and diluted weighted average number of shares for the period, consistent with the calculations of earnings per share._ | | (2) | _Includes an impairment charge on the Canadian assets in the amount of $28.0 million for the three months ended December 31, 2014 (Q4 -2013 - $19.7 million) and $31.2 million for the year ended December 31, 2014 (Year 2013 - $19.7 million)._ | | (3) | _Operating netback is a non-GAAP measure calculated as the average per boe of the Company's oil and gas sales, less royalties and operating costs._ |
ARGENTINAOPERATIONS UPDATE Puesto Morales (100% WI) Field – Horizontal Drilling of Loma Montosa Oil Resource Play
As disclosed in a news release dated April 8, 2015, Madalena successfully drilled and completed a Loma Montosa horizontal well with a 12 stage frac. The well tested 860 boe/d and was tied into existing facilities on April 10, 2015. The well is still flowing up 5.5" casing with the first twelve days of production averaging 381 bopd of oil and an estimated 1800 mcf/d of gas for a total of 681 boe/d. The well is flowing at a wellhead pressure of 510 psi and a watercut of 45%. The Loma Montosa formation, with a depth of approximately 1350 meters, is characterized as a tight dolomite with average porosity of 9 to 12% and permeability of 2 to 5 millidarcies. The vertical wells offsetting the PMS-1135(h) horizontal have approximately 15 metres of net pay over a 26 metre gross interval. The Puesto Morales block is 100% covered with 3D seismic with over 60 vertical penetrations drilled through the Loma Montosa formation. Based on internal geological mapping, the Company believes it has a large inventory of horizontal locations across this scalable resource play.
Coiron Amargo (35% WI) Block – Block Contract Update & Sierras Blancas Horizontal Exploitation
The Coiron Amargo block (34,951 net acres) is divided into two regions called Coiron Amargo Norte (northern portion of the block) and Coiron Amargo Sur (southern portion of the block). Coiron Amargo Norte is currently held under a 25 year exploitation (development) concession until 2038 with no further firm commitments remaining on this portion of the block. Following a successful block renegotiation process throughout the second half of 2014 and into the first quarter of 2015, the Company received approval on April 16, 2015, by way of an official decree signed by the Province of Neuquén, for a three year evaluation phase contract on Coiron Amargo Sur (south portion of the block). Coiron Amargo Sur is a key unconventional shale block located in the heart of the oil window for the Vaca Muerta shale and is a core asset within the Company's portfolio. Madalena and its partners have until November 8, 2017to further evaluate the southern portion of the block. The Company's share of the work commitment is US$17.5 millionwhich is to be incurred by November 8, 2017. Following this three year evaluation phase contract, Madalena is eligible to enter into a further exploitation (development) concession and/or enter into additional evaluation phase periods to further evaluate Coiron Amargo Sur. As disclosed in a news release dated April 8, 2015, the Company's fourth Sierras Blancas horizontal well at Coiron Amargo Norte CAN-16h is now on production. The average production over the first 28 days was 450 bopd of oil (158 bopd WI) and 700 mcf/d (245 mcf/d WI) for a total of 567 boe/d (198 boe/d WI). The well is flowing at 1,378 psi with a watercut of 15%.
CANADAOPERATIONS UPDATE
As press released on January 30, 2015, Madalena was advised by Keyera Corp. ("Keyera") that Keyera's Paddle River gas plant would be shut down for a minimum period of two months commencing February 1, 2015due to current economic conditions and recent commodity price declines in North America. As a result of the gas plant shut-down, Madalena temporarily suspended production of approximately 660 boe/d in Western Canada(40% oil) on February 1, 2015. As of April 1, 2015, the Company was successful in restoring production of 140 boe/d (100% oil). The Company along with Keyera has been evaluating various alternatives to bring the remaining shut-in volumes (estimated 400 boe/d) in the Paddle River area back on-stream. Madalena expects to restore the remainder of the Company's Western Canadian production in the coming months. Subsequent to the year end, as a result of the Company suspending its Canadian production, Madalena's Canadian credit facility was reduced from $10 millionto $7 million, of which the maximum draw is currently limited to $3.5 million. In addition to this credit facility, the Company's acquisition/development demand loan credit facility remains available to a maximum of $3 million. Both the credit and acquisition/development facilities are subject to a periodic review by the bank and the next review is scheduled for June 30, 2015. To date, the Company has not secured a credit facility against its Argentinaassets which is where the majority of the Company's production and reserves are located.
RATIONALIZING OF NON-CORE ASSETS AND JOINT VENTURE OPPORTUNITIES Madalena is committed to rationalizing select non-core properties across its portfolio of assets, and in parallel with executing the Company's 2015 drilling program, continues to actively seek joint venture opportunities, which would permit it to accelerate the exploration and development of its properties.
Regulated Argentina Oil AND GAS Price Market
In Argentina, oil prices are regulated and set by the Government for product sold into the domestic oil market, which is where Madalena sells the oil from its Argentine operations. When world prices fell sharply in the latter half of 2014 and into 2015, Argentinaprices continued to remain relatively stable. The Medanito oil price posting for April 2015has been set at US$ 76.00/Bbl compared to a Q1 2015 average of US$ 76.30/bbl. Madalena's average discount to this posting for quality and transportation is approximately US$ 4.00/bbl. On February 2, 2015the Government of Argentinaannounced a new oil incentive program. The program runs from January 1, 2015to December 31, 2015and could be extended for one year. To stimulate production and to provide an additional incentive to producers to invest further, the Government of Argentinahas set a US$ 3.00/Bbl royalty free bonus payment on all production for companies which are able to keep their quarterly production above 95% of its Q4-2014 production levels. For the first quarter of 2015 Madalena believes it has qualified for this incentive and is making the appropriate application to receive this bonus payment on its Argentinaproduction. Natural gas prices in Argentinaare fixed by the regulator in US$/mmbtu. For Madalena's current producing fields, summer prices have been set at US$ 4.10/mmbtu October 2014to April 2015. For the period May to September 2015which is the Argentinawinter, the price generally increases. Last winter it was US$ 5.20/mmbtu and Madalena expects to enter into a similar contract as last year for the 2015 winter season.
CORPORATE UPDATE
Madalena announces with regret that Mr. Doug Brookshas tendered his resignation from the Board of Directors. Mr. Brooks has recently accepted the position of president and chief executive officer with a private, U.S.-based oil and gas company. Mr. Brooks' employment terms preclude him from serving on public company boards. Mr. Brooks remains a strong supporter of Madalena. The Company would like to thank him for his valuable contributions and wish him well in his future endeavours. Steven Sharpe, the Company's Chairman commented: "In the time that he was on our Board, Doug made a meaningful contribution and was always available to share his experience and insight. I will miss his wise counsel."
2015 OUTLOOK
Madalena's current production is approximately 4,000 boe/d (79% oil and NGL's) with 3,800 boe/d (80 % oil and NGL's) in Argentinaand 200 boe/d (55% oil & NGL's) in Canada.
Over the last several months, Madalena has commenced international operational planning related to the drilling of four strategic resource plays in Argentinaand continued horizontal development of its light oil assets. The four strategic resource plays include the Loma Montosa oil resource play, Vaca Muerta shale, Lower Agrio shale, and liquids-rich Mulichinco gas resource play.
The Company has a new 45% WI partner (PlusPetrol) on the Coiron Amargo Block. Madalena has been involved in numerous technical meetings sharing information with the new partner and discussing future plans related to Vaca Muerta shale and Sierras Blancas development activities. The Company and its partners plan to drill additional horizontal wells into the Seirras Blancas light oil formation later in 2015 and in 2016. To date the Company has drilled, completed and placed on production four successful horizontals in the Sierras Blancas and has an inventory of horizontal development wells identified on four main pools on the northern portion of the block. Madalena and its partners are also planning to execute the first horizontal multi stage frac on the block in the Vaca Muerta shale (oil) and expect this to commence late in 2015.
Madalena has recently executed a strategic data exchange with a major E&P operator of a block offsetting Curamhuele. The Company is using this information to plan its re-entry and testing program of the Lower Agrio shale oil resource play. In particular Madalena is completing detailed technical analysis on the hydraulic fracture treatments completed on the Lower Agrio and the corresponding production test results. The goal is to improve the treatment design, cost and results. The Lower Agrio is approximately 225 meters thick at Curamhuele. Concurrently with the Lower Agrio re-entry operation, the Company intends to deepen and complete the Mulichinco in another well at Curamhuele. The Mulichinco is a liquids rich gas resource play (approximately 200 meters thick) comprising the fourth strategic resource the Company intends to evaluate in 2015.
The Company is well positioned to achieve it stated goals and objectives to advance four scalable resource plays in Argentinain 2015. With early success on the Loma Montosa and activity commencing on the Lower Agrio and Mulchinco over the next two quarters, 2015 will be the Company's most active year in Argentina.
Madalena currently funds its capital program through existing working capital and funds flow. As discussed above, to date the Company has not established a credit facility in respect of its Argentinaassets. To further enhance the Company's financial flexibility, Madalena is currently investigating establishing a credit facility secured by its Argentinaassets.
About Madalena Energy
Madalena is an independent, Canadian-based Argentinafocused, upstream oil and gas company.
Madalena holds over 950,000 net acres in five provinces of Argentinawhere it is focused on the delineation of large shale and unconventional resources in the Vaca Muerta shale, Lower Agrio shale, Loma Montosa oil play and the Mulichinco liquids-rich gas play. The Company is implementing horizontal drilling and completions technology to develop both its conventional and resource plays.
Madalena trades on the TSX Venture Exchange under the symbol MVN and on the OTC under the symbol MDLNF.
Reader Advisories
Forward Looking Information
The information in this news release contains certain forward-looking statements. These statements relate to future events or our future performance, in particular, but not limited to, with respect to the characteristics of the properties held by the Company, current and future test and production levels on recently drilled wells, the strategic value and opportunities available to Madalena and operational, business development and financial plans, and opportunities and the ability of Madalena to execute on such plans and opportunities. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "approximate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar expressions. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits the Company will derive from them. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The forward-looking statements in this news release are expressly qualified in their entirety by this cautionary statement. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements. Investors are encouraged to review and consider the additional risk factors set forth in the Company's Annual Information Form, which is available on SEDAR at www.sedar.com.
Meaning of Boe
The term "boe" or barrels of oil equivalent may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given that the value ratio based on the current price of crude oil, as compared to natural gas, is significantly different from the energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.