Eagle Energy Trust (the "Trust") (TSX:EGL.UN) is pleased to provide
an operational update of its subsidiary Eagle Energy Acquisitions
LP ("Eagle"), including Eagle's 2013 capital program, production
guidance and operating cost budget, as well as benchmark
calculations and commentary regarding the sustainability of its
distributions.
This press release contains statements that are forward looking.
Investors should read the "Note Regarding Forward-Looking
Statements" at the end of this press release. Figures within this
press release are presented in Canadian dollars unless otherwise
indicated.
2012 Exit Rate Guidance Achieved
Eagle's current working interest production is 3,300 barrels of
oil equivalent per day ("boe/d"). With 2012 exit production
guidance having been met, Eagle is well positioned to achieve 2013
production targets.
Eagle also maintains its full year 2012 guidance previously
provided to the market, that being average production of
approximately 2,700 boe/d, funds flow from operations of
approximately $37.0 million (assuming $US 88.00 WTI, natural gas
$US 2.90 NYMEX and 2012 average working interest production of
2,700 boe/d), a basic payout ratio of approximately 70%, average
operating costs of approximately $15.00 per boe, capital
expenditures of approximately $43.0 million and a 2012 exit debt to
trailing cash flow ratio of approximately 1.0x.
2013 Summary Capital, Production and Operating Cost Guidance
Eagle is pleased to announce that the Board of Directors has
approved a 2013 capital budget of $US 24.0 million (down 44% year
over year).
Eagle's 2013 budget demonstrates a planned move from a growth
phase on its Luling and Midland assets, toward a sustainability
phase, where the level of capital necessary to maintain production,
plus distributions paid to unitholders, will be more closely
aligned with funds flow from operations.
Management anticipates that, based on 2013 estimated levels of
drilling and operating costs, an annual budget of $US 24.0 million
should be sufficient to grow 2013 average working interest
production by approximately 11% over 2012 average working interest
production.
With this 2013 capital budget, Eagle intends to execute an 11
(gross) well drilling program at Midland and Luling and a 3 (gross)
well re-fracturing program at Midland. In addition, a portion of
the capital investment will be deployed to add new zones in
Midland, test Salt Flat analogs and pilot enhanced recovery
initiatives that would serve to flatten the corporate decline,
increase recovery rates, and cost effectively add reserves.
Eagle anticipates average 2013 working interest production in
the range of 2,900 to 3,100 boe/d (up 11% year over year) comprised
of 88% oil, 8% NGLs and 4% gas.
Operating costs (inclusive of transportation) per boe are
expected to average in the range of $12.00 to $14.00 per boe (down
13% year over year).
Funds flow from operations of approximately $41.0 million using
the following assumptions:
-- average working interest production of 3,000 boe/d;
-- pricing at $US 90.00 per barrel WTI oil, $US 2.90 per mcf NYMEX gas and
$US 39.60 per barrel NGLs (NGLs price is calculated as 44% of the WTI
price);
-- negative differential (excluding transportation) to WTI oil of $US 2.56
per barrel in Midland and $US 1.89 per barrel in Luling;
-- average operating costs (inclusive of transportation) of $13.00 per boe;
and
-- foreign exchange at $1.00 CDN/US.
A table showing the sensitivity of Eagle's funds flow to
production and pricing is set out below under the heading
"Sensitivities".
2013 Capital Budget
The Board of Directors has approved a 2013 capital budget of $US
24.0 million, consisting of:
-- in the Luling Area:
-- 6 (4.8 net) horizontal oil wells
-- 2 (1.6 net) salt water disposal well workovers
-- Addition to an existing battery
-- Land, seismic, workovers
-- in the Midland Area:
-- 5 (4.6 net) vertical oil wells
-- 1 (0.9 net) water source well
-- 3 refracs
The capital budget excludes corporate and property acquisitions,
which are evaluated separately on their own merits.
Calculations and Commentary Regarding the Sustainability of Eagle's
Distributions
Payout Ratios (as a percentage of
cash flow) 2012 Guidance 2013 Guidance Notes
------------------------------------- -------------- -------------- -----
Basic Payout Ratio (i.e.:
Distribution) 70% 77% (1)
Plus: Capital Expenditures 116% 59% (2)
Equals: Corporate Payout Ratio 186% 136% (3)
Adjusted Payout Ratio (i.e.:
Distribution - DRIP proceeds -
Capital Expenditures) 139% 85% (4)
Financial Strength
-------------------------------------
Debt to trailing cashflow 1.03 0.78 (5)
% Drawn on existing credit facility 79% 66%
Notes:
1. Eagle calculates the Basic Payout Ratio as follows:
Unitholder Distributions = Basic
----------------------------------------
Funds flow from Operations Payout Ratio
A table showing the sensitivity of Eagle's Basic Payout Ratio to
production and pricing is set out below under the heading
"Sensitivities".
2. A portion of the 2013 capital investment, approximately $1.2 million,
will be deployed to add new zones in Midland, test Salt Flat analogs and
pilot enhanced recovery initiatives that would serve to flatten the
corporate decline, increase recovery rates, and cost effectively add
reserves.
3. Eagle calculates the Corporate Payout Ratio as follows:
Capital Expenditures + Unitholder
Distributions = Corporate
-----------------------------------------
Funds flow from Operations Payout Ratio
A table showing the sensitivity of Eagle's Corporate Payout Ratio to
production and pricing is set out below under the heading
"Sensitivities".
4. Approximately 65% of Eagle's unitholders presently elect to receive
their monthly distributions in its distribution reinvestment and Premium
Drip(TM) programs. The benefit of these distribution reinvestment
programs is that it reduces the cash payout, but this can come at a cost
of dilution. Eagle will continue to weigh the benefits of a reduced cash
payout against the implied costs of this method of financing, (including
unitholder dilution and becoming over-reliant on dilutive financing) and
make adjustments as deemed prudent.
5. Debt to cash flow is a bigger driver than the percentage drawn on
current bank facilities. Increased leverage means increased distribution
sustainability risk. Eagle's view is that the maximum target would be
1.5x for larger entities, and 1.0x for smaller entities.
Underlying Asset Quality Benchmarks
Oil and Gas Fundamentals 2012 Guidance 2013 Guidance Notes
------------------------------ -------------- ------------------ -----
Oil Weighting 92% 88%
Gas Weighting (@ 6:1) 3% 4%
NGL Weighting 5% 8%
Operating Expense $ 15.00 $ 12.00 to $14.00 (1)
Field Netbacks $ 48.57 $ 51.17 (2)
% Hedged 56% 43% (3)
Notes:
1. Including transportation.
2. Directly relates to producer's ability to generate free cash flow.
Assuming average operating costs (inclusive of transportation) of $13.00
per boe.
3. Hedging supports sustainability in a volatile commodity price
environment (target 50%). 2013 hedges currently in place lock in an
average of 1,300 barrels per day at WTI prices ranging from $US 87.00 to
$US 108.25 per barrel.
Sustaining vs Growth Capital
2013 Guidance
-----------------
Base Production (boe/d) - 2012 average working interest
production 2,700
Corporate Decline Rate % 36%
Required Make-up (boe/d) 972
Capital Efficiency stats ($ / boe / day) $26,611(1)
Notes:
1. This is the cost for which a producer can replace a barrel of production
(i.e., how much does it cost to replace declines).
Sensitivities
Sensitivity of Funds flow ($ millions) to Commodity Price and Production
----------------------------------------------------------------------------
2013 Average WTI
$US 80.00 $US 90.00 $US 100.00
---------------------------------------------
2013 Average WI 2,800 35.3 37.6 41.1
Production 3,000 38.3 41.0 45.1
(boe/d) 3,200 41.3 44.7 49.1
Sensitivity of Corporate Payout Ratio to Commodity Price and Production
----------------------------------------------------------------------------
2013 Average WTI
$US 80.00 $US 90.00 $US 100.00
2013 Average WI 2,800 157% 147% 135%
Production 3,000 145% 136% 123%
(boe/d) 3,200 134% 124% 113%
Sensitivity of Basic Payout Ratio to Commodity Price and Production
----------------------------------------------------------------------------
2013 Average WTI
$US 80.00 $US 90.00 $US 100.00
2013 Average WI 2,800 90% 84% 77%
Production 3,000 83% 77% 71%
(boe/d) 3,200 77% 71% 65%
Assumptions:
1. Annual distributions are held at current levels of $1.05 per unit per
year.
2. No new equity issued, other than distribution reinvestment program.
3. Field operating costs, including transportation of $13.00 per barrel.
Non-IFRS Financial Measures
Statements throughout this press release make reference to the
terms "funds flow from operations", "distributions", "basic payout
ratio" and "corporate payout ratio" which are non-IFRS financial
measures that do not have any standardized meaning prescribed by
IFRS and therefore may not be comparable to similar measures
presented by other issuers. Investors should be cautioned that
these measures should not be construed as an alternative to net
income calculated in accordance with IFRS. Management believes that
"funds flow from operations", "basic payout ratio" and "corporate
payout ratio" provide useful information to investors and
management since these terms reflect the quality of production, the
level of profitability, the ability to drive growth through the
funding of future capital expenditures and the sustainability of
distributions to unitholders. Funds flow from operations is
calculated before changes in non-cash working capital. References
to "distributions" are to cash distributions to Unitholders in
accordance with the distribution policies of the Trust.
Distributable cash is a measure generally used by Canadian
open-ended trusts as an indicator of financial performance and
management believes that prospective investors may consider the
cash distributed by the Trust relative to the price of the Units
when assessing an investment in Units.
Note Regarding Forward-Looking Statements
Certain of the statements made and information contained in this
press release are forward-looking statements and forward looking
information (collectively referred to as "forward-looking
statements") within the meaning of Canadian securities laws. All
statements other than statements of historic fact are
forward-looking statements.
Forward-looking statements include those pertaining to Eagle's
working interest production exit rate for 2012, average working
interest production for 2012 and 2013, drilling and on production
program for 2013, 2013 capital budget amount and specific uses,
2013 operating costs, commodity prices, US/Canadian dollar exchange
rates, funds flow from operations, cash available from the
distribution reinvestment and Premium Drip(TM) programs, corporate
and basic payout ratios, sensitivities to production rates and
commodity prices, sustainability of production, amount of and
sustainability of distributions on the Trust's units and existing
credit facilities. In determining its drilling program, timing for
bringing wells onto production, the production rates from the wells
and operating costs, management has made assumptions relating to,
among other things, anticipated future production from wells in the
Luling area and Midland area, regulatory approvals, future
commodity prices and US/Canadian dollar exchange rates, the
regulatory framework governing taxes and environmental matters in
the U.S. and Texas, the ability to market future production from
the Luling area and Midland area, future capital expenditures and
the geological and engineering reserves estimates in respect of
Eagle's properties in the Luling area and Midland area. These
assumptions necessarily involve known and unknown risks and
uncertainties inherent in the oil and gas industry such as
geological, environmental, technical, drilling and processing
problems, the volatility of oil and gas prices, commodity supply
and demand, fluctuations in currency and interest rates, obtaining
regulatory approvals, competition for services and supplies as well
as other business risks that are set out in the Trust's Annual
Information Form dated March 22, 2012 under the heading "Risk
Factors".
The success of Eagle's drilling program is a key assumption in
the production estimates for the 2012 and 2013 financial years. The
primary risk factors which could lead to Eagle not meeting its
production targets are: (i) production rates from drilling activity
are less than expected; (ii) a lack of access to drilling rigs and
related equipment on a timely basis and at reasonable prices due to
high industry demand or poor weather; (iii) not obtaining
regulatory approvals; and (iv) unexpected operational delays and
challenges. Increases in capital costs from forecast amounts can
result from the foregoing reasons as well as general cost inflation
in the industry. Additionally, Eagle may choose to decrease capital
expenditures from those anticipated in its budget projections,
therefore affecting production estimates for the 2012 and 2013
financial years. There are many factors that could result in
production levels being less than anticipated, including greater
than anticipated declines in existing production due to poor
reservoir performance, the unanticipated encroachment of water or
other fluids into the producing formation, mechanical failures or
human error or inability to access production facilities, among
other factors.
As a result of these risks, actual performance and financial
results in 2012 and 2013 may differ materially from any projections
of future performance or results expressed or implied by these
forward-looking statements. Eagle's production rates, operating
costs and 2013 capital budget, and the Trust's distributions, are
subject to change in light of ongoing results, prevailing economic
circumstances, obtaining regulatory approvals, commodity prices and
industry conditions and regulations. Accordingly, readers are
cautioned that events or circumstances could cause results to
differ materially from those set out in this press release. New
factors emerge from time to time, and it is not possible for
management to predict all of these factors or to assess in advance
the impact of each such factor on the operations of Eagle, or the
extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any
forward-looking statement.
Undue reliance should not be placed on forward-looking
statements, which are inherently uncertain, are based on estimates
and assumptions, and are subject to known and unknown risks and
uncertainties (both general and specific) that contribute to the
possibility that the future events or circumstances contemplated by
the forward looking statements will not occur. Although management
believes that the expectations conveyed by the forward-looking
statements are reasonable based on information available to it on
the date the forward-looking statements were made, there can be no
assurance that the plans, intentions or expectations upon which
forward-looking statements are based will in fact be realized.
Actual results will differ, and the difference may be material and
adverse to the Trust and its unitholders.
Oil and Natural Gas Measures
This press release contains disclosure expressed as "boe" or
"boe/d". All oil and natural gas equivalency volumes have been
derived using the conversion ratio of six thousand cubic feet
("Mcf") of natural gas to one barrel ("bbl") of oil. Equivalency
measures may be misleading, particularly if used in isolation. A
conversion ratio of 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 well head. In addition,
given that the value ratio based on the current price of oil as
compared to natural gas is significantly different from the energy
equivalent of six to one, utilizing a boe conversion ratio of 6
Mcf:1 bbl would be misleading as an indication of value.
About the Trust
Eagle Energy Trust is an energy trust created to provide
investors with a publicly traded, oil and natural gas focused,
distribution producing investment with favourable tax treatment
relative to taxable Canadian corporations.
Richard W. Clark, President and Chief Executive Officer
All material information pertaining to Eagle Energy Trust may be
found under the Trust's issuer profile at www.sedar.com and on the
Trust's website at www.EagleEnergyTrust.com.
The Trust's units are traded on the Toronto Stock Exchange under
the symbol EGL.UN.
Contacts: Eagle Energy Trust Richard W. Clark President and
Chief Executive Officer 403.531.1575info@EagleEnergyTrust.com
www.EagleEnergyTrust.com