News

Dundee Energy Limited Announces Second Quarter 2012 Financial Results

July 31, 2012

TORONTO, ONTARIO--(Marketwire - July 31, 2012) - Dundee Energy Limited (TSX:DEN) ("Dundee Energy" or the "Corporation") today announced its financial results for the three and six months ended June 30, 2012. The Corporation's unaudited condensed interim consolidated financial statements, along with management's discussion and analysis have been filed on the System for Electronic Document Analysis and Retrieval ("SEDAR") and may be viewed under the Corporation's profile at www.sedar.com or the Corporation's website at www.dundee-energy.com.

  • Cash flow from operating activities, before changes in non-cash working capital items, decreased to $2.3 million in the second quarter of 2012 compared with $3.0 million in the second quarter of the prior year, reflecting lower realized prices on sales of oil and natural gas.

  • Production volumes for the second quarter of 2012 averaged 10,135 Mcf/d of natural gas and 799 bbls/d of oil and liquids.

  • Revenues, before royalty interests earned from oil and natural gas sales during the second quarter of 2012 were $8.9 million, representing an average price of $2.72/Mcf on sales of natural gas and an average price of $89.01/bbl on sales of crude oil.

  • Field netbacks were $1.67/Mcf from sales of natural gas and $53.69/bbl from sales of oil and liquids.

  • Capital expenditures during the second quarter of 2012 were $4.5 million.

  • Cash and available credit under the Corporation's credit facilities totalled $17.4 million at June 30, 2012. Subsequent to quarter end, the Corporation's credit facility was amended to reduce amounts available pursuant to the credit facility from $80.0 million to $70.0 million. There were no other material changes to the terms of the credit facility.

  • Net loss attributable to owners of the parent for the quarter ended June 30, 2012 was $0.3 million compared with net earnings attributable to owners of the parent of $0.9 million incurred in the second quarter of 2011. Current quarter results include a mark-to-market gain of $1.5 million (three months ended June 30, 2011 - $1.9 million) in respect of the Corporation's risk management strategies.
SOUTHERN ONTARIO ASSETS
Production Volumes
Average daily volume during the three months ended June 30, 2012 2011
Natural gas (Mcf/d) 10,135 10,602
Oil (bbls/d) 769 674
Liquids (bbls/d) 30 36
Total (boe/d) 2,488 2,477
Revenue from Oil and Gas Sales
For the three months ended June 30, 2012 2011
Realized Realized
Sales Prices ($ / unit) Sales Prices ($ / unit)
Natural gas $ 2,508 2.72 $ 4,541 4.71
Oil 6,232 89.01 6,479 105.63
Liquids 153 56.64 185 56.47
8,893 11,205
Less: Royalties at 15% (2011 - 15%) (1,350 ) (1,675 )
Net sales $ 7,543 $ 9,530

Despite an increase in oil production volumes, net sales were adversely affected by decreases in commodity prices, including a significant decrease in the price for natural gas.

Natural gas prices as reported by NYMEX fell below US$2.00/Mcf in April 2012, as relatively warmer winter weather diminished demand, at the same time as new discoveries and technological changes resulted in a surplus of supply. More recently, the price of natural gas has rebounded marginally to approximately US$2.74/Mcf at June 30, 2012, reflecting, in part, increased consumption of electrical energy powered by natural gas in response to unusually high summer temperatures. In reaction to these market conditions, the Corporation realized an average price on sales of natural gas of $2.72/Mcf during the three months ended June 30, 2012, a decrease of 42% from the average price of $4.71/Mcf realized in the same period of the prior year. The decline in the market price of natural gas is partially mitigated by the Corporation's proximity to the Dawn Hub, a leading provider of natural gas supply to the greater Toronto market area, which provides the Corporation with a positive basis differential from average industry benchmarks.

Concern over slowing global growth and uncertainties in the ability of the European Union to contend with its financial challenges continued to place downward pressure on the price for crude oil. In addition, Saudi Arabia's recent overproduction, meant to make up for lost Iranian supply in the wake of expected sanctions, sparked a sharp drop in global prices. These economic factors are reflected in the substantial volatility of the West Texas Intermediate ("WTI") Crude Oil price, which reached a high of US$106.17/bbl and a low of US$77.72/bbl during the second quarter of 2012.

Changes in the Corporation's realized oil price per barrel are more closely correlated to the Edmonton Par, reflecting the markets in which the Corporation operates. Similar to the volatility in the WTI oil price, the Edmonton Par price reached a high of $95.71/bbl and a low of $71.14/bbl during the second quarter of 2012. During this period, the Corporation realized an average price on sales of oil of $89.01/bbl (three months ended June 30, 2011 - $105.63/bbl), representing a 5 % premium (three months ended June 30, 2011 - 2%) to the Edmonton Par average price during the same period.

Price Risk Management

The Corporation has entered into fixed price derivative contracts for the purpose of protecting its oil and natural gas revenue from the volatility of oil and natural gas prices and the volatility in Canadian to US foreign exchange rates. During the second quarter of 2012, the Corporation realized a gain of $1.5 million (three months ended June 30, 2011 - $1.9 million) from these arrangements.

At June 30, 2012, the Corporation had locked in pricing for 500 bbls/d of oil production through to December 31, 2012 at a weighted average rate of $101.20/bbl. It had also locked in pricing on 7,000 mbtu/day of natural gas through to December 31, 2012 at $3.84/MMbtu. These risk management contracts protect pricing on approximately 70% of the Corporation's oil and natural gas production.

Field Level Cash Flows

For the three months ended June 30, 2012 2011
Natural Gas Oil and Liquids Total Natural Gas Oil and Liquids Total
Total sales $ 2,508 $ 6,385 $ 8,893 $ 4,541 $ 6,664 $ 11,205
Realized risk management gain (loss) 1,029 (2 ) 1,027 81 (267 ) (186 )
Royalties (372 ) (978 ) (1,350 ) (696 ) (979 ) (1,675 )
Production expenditures (1,636 ) (1,499 ) (3,135 ) (1,716 ) (1,338 ) (3,054 )
Field level cash flows $ 1,529 $ 3,906 $ 5,435 $ 2,210 $ 4,080 $ 6,290

Field Netbacks

For the three months ended June 30, 2012 2011
Natural Gas Oil and Liquids Total Natural Gas Oil and Liquids Total
$/Mcf $/bbl $/boe $/Mcf $/bbl $/boe
Total sales $ 2.72 $ 87.80 $ 39.27 $ 4.71 $ 103.14 $ 49.71
Realized risk management gain (loss) 1.12 (0.03 ) 4.54 0.08 (4.13 ) (0.83 )
Royalties (0.40 ) (13.46 ) (5.96 ) (0.72 ) (15.15 ) (7.43 )
Production expenditures (1.77 ) (20.62 ) (13.85 ) (1.78 ) (20.71 ) (13.55 )
Field netbacks $ 1.67 $ 53.69 $ 24.00 $ 2.29 $ 63.15 $ 27.90

Capital Expenditures

During the three months ended June 30, 2012, the Corporation incurred capital expenditures of $4.5 million on oil and gas properties in southern Ontario. Onshore, the Corporation expended $2.0 million on advancing its three dimensional seismic program, which will be critical to the Corporation in identifying its drill candidates in subsequent years. In response to declining natural gas prices, the Corporation reduced its offshore planned capital expenditure activities by $0.2 million to $0.4 million during the second quarter of 2012.

In addition to its planned capital work program, the Corporation has purchased an onshore drilling rig at a cost of approximately $3.1 million. The rig will augment the offshore drilling and completion barge operation in Lake Erie as the equipment and personnel will be interchangeable. The acquisition will enhance drilling efficiencies significantly, and will provide the Corporation with better control over the timing and safety aspects of its operations. The acquisition will also provide the Corporation with a monetization opportunity as the rig may be leased to third parties.

The Corporation's remaining 2012 work program is budgeted at $7.1 million. During the remainder of the year, the Corporation's capital programs will continue to focus on its onshore oil projects and will include a number of workover initiatives to optimize oil production from existing fields. Furthermore, the Corporation continues to assess potential drill opportunities in an ongoing effort to replenish reserves. The Corporation plans to acquire 60 kilometres of two-dimensional seismic to identify near-shore structures for future drilling to add reserves and production.

CASTOR UNDERGROUND GAS STORAGE PROJECT

The construction of the Castor Project is substantially complete, and is now subject to testing and subsequent commissioning into the Spanish gas system.

During the second quarter of 2012, the Government of Spain announced certain regulatory modifications to the remuneration regime applicable to underground gas storage facilities. Under the previous regime, eligible capital invested was to be repaid over a 10 year period beginning immediately after the commencement of operations. Regulatory modifications increase the repayment period to 20 years. Furthermore, these regulatory modifications significantly curtail the provisional remuneration available to gas storage projects during the construction period.

Escal has determined that these regulatory modifications have an unfavourable impact to the Castor Project economics and the related project financing. Consequently, Escal has entered into discussions with the Government of Spain with a view to finding solutions that would re-establish the economic value of the project. Such discussions are ongoing, with the full knowledge and involvement of the lenders to the project. Accordingly, further borrowings pursuant to the project financing arrangements have been deferred until a satisfactory agreement has been reached between all parties.

In the interim, Escal has continued with the commissioning process. On July 6, 2012, Escal was granted the provisional commissioning certificate necessary to commence the injection of cushion gas into the Castor facilities. This key milestone signifies that the facility is ready for service, subject to the injection of cushion gas and certain subsequent performance testing. However, in light of the regulatory modifications discussed above, Escal has chosen to defer the acquisition of cushion gas until such time as an acceptable solution has been agreed upon with the Spanish government and the lenders to the Castor Project. Meanwhile, Escal is ensuring that the systems and components of the Castor facilities are carefully maintained.

NON-IFRS MEASURES

The Corporation believes that important measures of operating performance include certain measures that are not defined under IFRS and as such, may not be comparable to similar measures used by other companies. While these measures are non-IFRS, they are common benchmarks in the oil and natural gas industry, and are used by the Corporation in assessing its operating results, including net earnings and cash flows.

  • "Field Level Cash Flows" are calculated as revenues from oil and gas sales, less royalties and production expenditures, adjusted for realized gains or losses on price management contracts.

  • "Field Netbacks" refers to field level cash flows expressed on a measurement unit or barrel of oil equivalent basis.

ABOUT THE CORPORATION

Dundee Energy Limited is a Canadian-based oil and natural gas company with a mandate to create long-term value for its shareholders through the exploration, development, production and marketing of oil and natural gas, and through other high impact energy projects. Dundee Energy holds interests, both directly and indirectly, in the largest accumulation of producing oil and gas assets in Ontario, in the development of an offshore underground natural gas storage facility in Spain and, through a preferred share investment, in certain exploration and evaluation programs for oil and natural gas offshore Tunisia. The Corporation's common shares trade on the Toronto Stock Exchange under the symbol "DEN".

FORWARD-LOOKING STATEMENTS

Certain information set forth in these documents, including management's assessment of each of the Corporation's future plans and operations, contains forward-looking statements. Forward-looking statements are statements that are predictive in nature, depend upon or refer to future events or conditions or include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" or similar expressions. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Corporation's control, including: exploration, development and production risks; uncertainty of reserve estimates; reliance on operators, management and key personnel; cyclical nature of the business; economic dependence on a small number of customers; additional funding that may be required to execute on exploration and development work; the ability to obtain, sustain or renew licenses and permits; risks inherent to operating and investing in foreign countries; availability of drilling equipment and access; industry competition; environmental concerns; climate change regulations; volatility of commodity prices; hedging activities; potential defects in title to properties; potential conflicts of interest; changes in taxation legislation; insurance, health, safety and litigation risk; labour costs and labour relations; geo-political risks; risks relating to management of growth; aboriginal claims; volatility of the Corporation's share price; royalty rates and incentives; regulatory risks relating to oil and natural gas exploration; marketability and price of oil and natural gas; failure to realize anticipated benefits of acquisitions and dispositions; information system risk; and other risk factors discussed or referred to in the section entitled "Risk Factors" in the Corporation' s Annual Information Form for the year ended December 31, 2011.

Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The Corporation's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Corporation will derive from them. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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