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Press Release

AvenEx Energy Corp. Announces First Quarter 2012 Results

CALGARY, ALBERTA--(Marketwire - May 14, 2012) - AvenEx Energy Corp. ("AvenEx" or the "Company") (TSX:AVF) is pleased to announce the financial and operational results for the first quarter ended March 31, 2012 and to announce they have filed the complete Management Discussion and Analysis and the unaudited Interim Condensed Consolidated Financial Statements. Certain selected financial and operational information is set out below and should be read in conjunction with AvenEx's Condensed Consolidated Financial Statements and related Management Discussion and Analysis. These filings will be available on the Corporation's SEDAR profile at www.sedar.com.
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TOTAL CONSOLIDATED FINANCIAL SUMMARY
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For the three months ended March 31
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(in thousands of $ except for per %
share amounts) 2012 2011 Change
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Total Revenue $ 288,465 $ 209,981 37
Funds from Operations (FFO)(1) $ 11,743 $ 14,534 (19)
FFO Per Share(1) - Basic $ 0.22 $ 0.27 (19)
Dividends $ 7,269 $ 9,518 (24)
Dividends Per Share - Basic $ 0.14 $ 0.18 (22)
Dividend Payout Ratio(2) 62% 65% (5)
Net Loss $ (2,879) $ (1,745) (65)
Net Loss Per Share - Basic $ (0.05) $ (0.03) (33)
Total Assets $ 477,291 $ 416,134 15
Working Capital deficiency(3) $ (63,489) $ (46,677) (36)
Mortgages (assets held for sale) $ 3,100 $ 5,573 (44)
Wtd. Avg. Shares Outstanding - Basic 53,798,571 52,864,658 2
Shares Outstanding 53,858,146 52,877,930 2
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(1) Funds from Operations ("FFO"), FFO per share are not recognized measures under International Financial Reporting Standards ("IFRS"). FFO is calculated by taking cash provided by operating activities on the statement of cash flows adjusted for the effect of changes in non-cash working capital and asset retirement costs incurred. Management believes that these measures are useful supplemental measures to analyze operating performance as they demonstrate AvenEx Energy Corp.'s ("AvenEx" or the "Corporation") ability to generate the FFO necessary to fund future dividends and capital investments. AvenEx's method of calculating these measures may differ from other issuers, and accordingly, they may not be comparable to measures used by other issuers. Investors should be cautioned that these measures should not be construed as an alternative to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS.
(2) Dividend Payout Ratio is calculated by dividing the Monthly Dividends by the FFO. During the three months ended March 31, 2012 there were three dividends declared versus four in the first quarter of 2011.
(3) Working capital deficiency excludes (a) assets held for sale and (b) risk management assets and liabilities.
FIRST QUARTER RESULTS SUMMARY
AvenEx Energy Corp.'s first quarter 2012 results were down from first quarter of 2011 due to the impact of lower natural gas prices and lower production volumes in the Oil & Gas Division. For the quarter ended March 31, 2012, the Corporation had a net loss of $2.9 million, funds from operations of $11.7 million and dividends of 62% of funds from operations. This compares to the first quarter of the previous year, where the Corporation had a net loss of $1.7 million, funds from operations of $14.5 million and dividends of 65% of funds from operations based on four dividend payments upon completion of its corporate conversion. Of the first quarter 2012 funds from operations, the Oil & Gas Division provided 60%, with 41% coming from Elbow River, 1% from Real Estate and the Corporate Division used 2%. In conjunction with the release of the 2011 year end results on March 30, 2012, AvenEx announced the reduction of the monthly dividend to $0.035 per month from $0.045 per month effective with the April 2012 dividend payable May 15, 2012. Given the results to date and forecast commodity prices for the balance of the year this adjusted dividend puts the Corporation back on track to meet its annual 60% payout ratio target.
In the Oil & Gas Division, first quarter 2012 production averaged 4,340 BOE per day, down 19% from the 5,391 BOE per day in the corresponding quarter of 2011 with oil and NGL's down 15% and natural gas down 23%. Oil and NGL production was down from first quarter 2011 due to natural declines, third party processing issues in Pembina, southern Alberta power disruptions and delays in adding new volumes from the 2012 winter drilling program at Randell. Natural gas volumes are down due to declines and shut-ins as no new capital has been directed to natural gas projects over the past nine months. First quarter 2012 production volumes were split 48% oil and NGL and 52% natural gas. First quarter oil and NGL prices were $83.74 up 8% over the previous year while natural gas prices were $3.19 per Mcf down 30% from the previous year level. First quarter 2012 benefited from a hedging program with 35% of natural gas volumes hedged at $5.20 per Mcf or 143% higher than market prices in the quarter. Looking forward, some natural gas hedges fall off in the second quarter 2012 but the Corporation continues to have about 16% of its natural gas production hedged at $5.27 per Mcf. Operating netbacks decreased slightly with the lower natural gas prices to $23.57 per BOE versus $24.11 in the comparable period in 2011 and $25.20 per BOE in the fourth quarter of 2011.
Capital expenditures for the first quarter of 2012 were $10.9 million, with remaining capital programs budgeted at $17 million for the remainder of the year. AvenEx will continue to focus entirely on oil development programs in the core areas of Randell, Cranberry, East Pembina and the Peace River Arch targeting the Slave Point, Cardium and Montney formations through horizontal drilling. The focus on oil will also continue to include non-operated horizontal drilling activity in the Viking of SW Saskatchewan. With this level of spending, AvenEx is forecasting the oil and natural gas liquids production to reach 2,200 Bbls/d by year end 2012. As expected, AvenEx will manage its gas volumes through the year in light of the current commodity pricing levels. As of the end of first quarter 2012, the Corporation had shut-in 1,000 Mcf/d of uneconomic gas and now expects the gas production to average 12,100 Mcf/d (2,015 BOE per day) for the remainder of 2012 in the absence of any additional gas production curtailments by joint interest partners.
Overall, Elbow River results were slightly behind first quarter 2011 results but in line with management expectations with funds from operations of $4.8 million versus $5.0 million in 2011. The quarter was negatively impacted by the unusually mild winter weather hampering propane sales versus prior year's levels and the loss of US ethanol tax credits as of December 31, 2011. Offsetting the weaker propane season was strong crude by rail shipments, continued growth in heavy fuel oils and solid condensate and butane term and spot sales. The quarter included unrealized losses on financial instruments of $5.7 million on hedged forward sales as a result of changes in the underlying product commodity prices. The loss impacts net income but not funds from operations as the gains or losses reverse in the next period when the physical transactions occur. The second and third quarters are traditionally Elbow River's weakest quarters as winter propane and butane demand subsides, but with strong crude by rail and condensate for diluent demand we expect second quarter 2012 results to be significantly ahead of Elbow River's last year's level.
The Corporation is continuing with the disposition of its real estate portfolio in order to focus on its more energy related divisions. Two portfolio properties remain, including an industrial property in Ontario and the Kelowna theatre property. There has been interest in the properties but firm transactions are now not expected to be in place on the remaining properties until later in 2012. The portfolio continues to be 100% leased and perform as expected.
AvenEx holds about 308,000 EnerVest Diversified Income Trust units for investment purposes. It is expected that the Corporation will sell the balance of these units over the next few months with the proceeds used to reduce Oil & Gas Division bank debt or fund capital expenditures.
The benefits of the diversification of an energy marketing company together with a traditional junior exploration and production company is being borne out as the energy industry deals with the lowest natural gas prices in over ten years. In the interim, as natural gas cash flows decline and we transition away from a natural gas weighted mix to an oil weighted focus in the Oil & Gas Division, Elbow River's funds from operations now support a greater portion of the dividend. Strong forecast demand for crude and condensate by rail within Elbow River and continued forecast oil price strength supports the dividend and our target funds from operations payout ratio of 60%.
REVIEW OF FINANCIAL RESULTS
Net loss for the quarter ended March 31, 2012 was $2.9 million, greater than the net loss of $1.7 million for the quarter ended March 31, 2011 as the Corporation experienced a decline in realized natural gas prices, coupled with a decline in both oil and natural gas production volumes. This translated into lower funds from operations of $11.7 million for the quarter ended March 31, 2012, down from funds from operations for the quarter ended March 31, 2011 of $14.5 million.
AvenEx declared dividends of $7.3 million ($0.135 per share) for the quarter ended March 31, 2012 which is down from the $9.5 million ($0.18 per share) distributed for the quarter ended March 31, 2011, as the first quarter of 2011 included four dividend payments of $0.045 each versus three dividend payments in the first quarter of 2012 of $0.045 each. The first quarter 2012 payout ratio was 62% of funds from operations compared to 65% for the three months ended March 31, 2011 and the Corporation's long term target of 60%. Without the additional dividend declared on January 7, 2011 the first quarter 2011 dividend payout ratio would have been 49%.
As of March 31, 2012 AvenEx had approximately 53.9 million common shares issued and outstanding. The common shares of AvenEx trade on the Toronto Stock Exchange (the "TSX") under the trading symbol "AVF".
AvenEx Energy Corp.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
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As at
March 31, December 31,
2012 2011
(in thousands of dollars) $ $
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ASSETS
Current
Marketable securities 4,396 4,182
Accounts receivable 124,152 130,739
Prepaid expenses 4,478 3,038
Inventory 19,493 29,735
Risk management assets 5,871 9,489
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Current assets 158,390 177,183
Assets held for sale - Real Estate 10,515 10,517
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168,905 187,700
Exploration and evaluation 35,349 35,500
Property, plant and equipment 207,354 202,914
Intangibles and other assets 11,108 11,428
Goodwill 28,603 28,603
Deferred income taxes 25,972 25,135
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477,291 491,280
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 99,707 102,608
Accounts payable and accrued liabilities 113,877 120,170
Dividend payable 2,424 2,406
Risk management liabilities 6,314 3,023
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Current liabilities 222,322 228,207
Liabilities of assets held for sale - Real Estate 3,230 3,258
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225,552 231,465
Decommissioning liabilities 31,840 31,630
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257,392 263,095
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Shareholders' equity
Share capital 256,710 254,500
Contributed surplus 7,083 7,545
Deficit (44,254) (34,032)
Accumulated other comprehensive income 360 172
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219,899 228,185
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477,291 491,280
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AvenEx Energy Corp.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
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For the three months ended March 31,
2012 2011
(in thousands of dollars) $ $
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REVENUE
Oil and gas revenue 19,707 24,752
Royalties (2,844) (4,694)
Unrealized loss on financial instruments (1,196) (4,527)
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Total oil and gas revenue 15,667 15,531
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Elbow River revenue 278,315 196,529
Unrealized loss on financial instruments (5,713) (2,235)
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Total Elbow River revenue 272,602 194,294
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Interest and other revenue 196 156
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Total revenue 288,465 209,981
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EXPENSES
Oil and gas operating 6,958 7,705
Oil and gas transportation costs 590 654
Elbow River operating 270,098 190,284
General and administrative 5,442 4,761
Share-based compensation 633 729
Bad debt expense (recovery) 1 (507)
Finance costs 1,440 81
Capital taxes 106 72
Exploration and evaluation expense 442 214
Depletion, depreciation and amortization 6,523 8,118
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292,233 212,111
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Net loss from continuing operations before income tax (3,768) (2,130)
Income taxes:
Deferred income tax recovery 864 159
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864 159
Net loss from continuing operations (2,904) (1,971)
Net income from discontinued operations - Real Estate 25 226
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Net loss for the period (2,879) (1,745)
Other comprehensive income:
Change in fair value of marketable securities, net
of tax 188 189
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Other comprehensive income 188 189
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Comprehensive loss for the period (2,691) (1,556)
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Net loss from continuing operations per share
Basic and diluted (0.05) (0.03)
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Net income from discontinued operations per share
Basic and diluted 0.00 0.00
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Net loss per share
Basic and diluted (0.05) (0.03)
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AvenEx Energy Corp.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
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For the three months ended March 31,
2012 2011
(in thousands of dollars) Number $ Number $
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Share capital
Balance, beginning of period 53,475,546 254,500 52,781,690 250,337
Exercise of options 382,600 2,210 94,240 599
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Balance, end of period 53,858,146 256,710 52,877,930 250,936
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Contributed surplus
Balance, beginning of period 7,545 6,144
Exercise of options (1,091) (107)
Cash settlement of options (107) (56)
Share based compensation
capitalized 103 -
Share based compensation expensed 633 729
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Balance, end of period 7,083 6,710
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Deficit
Balance, beginning of period (34,032) -
Net loss (2,879) (1,745)
Dividends (7,343) (9,518)
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Balance, end of period (44,254) (11,263)
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Accumulated other comprehensive
income
Balance, beginning of period 172 1,241
Change in fair value of
marketable securities, net of
tax 188 189
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Balance, end of period 360 1,430
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AvenEx Energy Corp.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the three months ended March 31,
2012 2011
(in thousands of dollars) $ $
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OPERATING ACTIVITIES
Net loss from continuing operations (2,904) (1,971)
Add (deduct) non-cash items:
Share-based compensation 633 729
Non-cash general and administrative 252 252
Exploration and evaluation expense 442 214
Depletion, depreciation and amortization 6,523 8,118
Accretion of decommissioning liabilities 448 404
Unrealized loss on financial instruments 6,909 6,762
Unrealized foreign exchange 191 46
Deferred income tax recovery (864) (159)
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Funds from continuing operations 11,630 14,395
Funds from discontinued operations - Real Estate 113 139
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11,743 14,534
Asset retirement expenditures during period (371) (385)
Net change in non-cash working capital 9,178 28,455
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Cash provided by operating activities 20,550 42,604
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FINANCING ACTIVITIES
Issue of shares, net of issue costs 1,119 354
Cash settlement of options (107) (56)
Dividends (7,269) (9,518)
Decrease in bank indebtedness (2,901) (7,621)
Real estate repayment of mortgages (41) (61)
Net change in non-cash working capital 92 -
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Cash used in financing activities (9,107) (16,900)
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INVESTING ACTIVITIES
Oil and gas property acquisitions (14) (9,133)
Oil and gas property disposals 47 2
Oil and gas evaluation and exploration (541) -
Oil and gas development expenditures (10,412) (12,774)
Purchase of other assets (29) (741)
Net change in non-cash working capital (468) (3,101)
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Cash used in investing activities (11,417) (25,747)
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Increase (decrease) in cash and cash equivalents during
the period 26 (45)
Cash and cash equivalents, beginning of period - -
Change in cash within assets held for sale (26) 45
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Cash and cash equivalents, end of period - -
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Supplemental information:
Cash taxes paid 1,496 22
Cash interest paid 1,064 370
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An electronic copy of this press release may be obtained on AvenEx's SEDAR profile at www.sedar.com.
AvenEx Energy Corp. was created to provide stable, sustainable dividends to shareholders while providing modest growth. AvenEx is focused on energy with two distinct business units, namely Oil & Gas development and production and crude oil and LPG marketing and logistics.
AvenEx trades on the TSX under the symbol AVF.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The securities offered have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.
Forward Looking Statements
Certain statements contained herein including, without limitation, financial and business prospects and financial outlook, the effect of government announcements, proposals and legislation, plans in its Oil & Gas Division regarding hedging, wells to be drilled, expected or anticipated production rates, timing of expected production increases, the weighting of production between different commodities, expected commodity prices, exchange rates, production expenses, transportation costs and other costs and expenses, maintenance of productive capacity and capital expenditures; plans in the Elbow River Marketing Limited Partnership ("Elbow River") business regarding plans for its ongoing Liquefied Petroleum Gas ("LPG") business and activities around the exit from marketing its bio-diesel product; plans in the Real Estate Division for the timing and completion of selling assets, repayment of mortgages on the assets and the nature of capital expenditures; and the timing and method of financing these businesses, may be forward looking statements. Words such as "may", "will", "should", "could", "anticipate", "believe", "expect", "intend", "plan", "potential", "continue", "targeted" and similar expressions may be used to identify these forward looking statements. These statements reflect management's current beliefs and are based on information currently available to management.
Forward looking statements involve significant risk and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward looking statements including, but not limited to, risks associated with oil and gas exploration: development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers and the inability to retain drilling rigs and other services; risks associated with its Elbow River business including, but not limited to, counterparty risk in default, operational risks, hedging, access to credit, competitor risk, seasonality and impact of the global recession on overall economic activity; and risks associated with the Real Estate Division including, but not limited to the impact the overall economy has on valuations, future delinquencies, access to mortgages and impact on interest rates; as well as the risks associated with AvenEx's incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources and the risk factors outlined under "Risk Factors" and elsewhere herein. The recovery and reserve estimates of AvenEx's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements.
Forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. Although AvenEx believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because AvenEx can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which AvenEx operates; the timely receipt of any required regulatory approvals; the ability of AvenEx to obtain qualified staff, equipment and services in a timely and cost efficient manner; Divisional results; the ability of operators to operate the field in a safe, efficient and effective manner; the ability of AvenEx to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development of exploration; the timing and costs of pipeline, storage and facility construction and expansion and the ability of AvenEx to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which AvenEx operates; and the ability of AvenEx to successfully market its products, fluctuations in foreign exchange or interest rates and stock market volatility, credit risk and the ability to realize on collateral in the event of default, failure of counter parties to perform on contracts, fluctuation in the value of real property, failure to produce income or revenue from real estate, failure of tenants to meet lease obligations, increase in property taxes and mortgage, maintenance, insurance, operating costs and decreases in occupancy and rental rates, and fixed costs in relation to variable revenue streams. Readers are cautioned that the foregoing list of factors is not exhausted.
Forward looking statements and other information contained herein concerning the Oil & Gas Division, Elbow River's business, the Real Estate Division and AvenEx's general expectations concerning these industries are based on estimates prepared by each Division's management and from using data from publicly available industry sources as well as from reserve reports, market research and industry analysis and on assumptions based on data and knowledge of these industries which AvenEx believes to be reasonable. However, this data is inherently imprecise, although generally indicative of relative market positions, market shares and performance characteristics. While AvenEx is not aware of any misstatements regarding any industry data presented herein, these industries involve risks and uncertainties and are subject to change based on various factors.
These forward looking statements are made as of the date hereof and AvenEx assumes no obligation to update or review them to reflect new events or circumstances except as required by applicable securities laws.
The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.
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