Nov. 5, 2009 (Canada NewsWire Group) --
CALGARY, Nov. 5 /CNW/ -- (TSX: BXE) Bellatrix Exploration Ltd. ("Bellatrix," or the "Company") announces the financial and operating results of True Energy Trust ("True" or the "Trust") for the three and nine months ended September 30, 2009. Effective November 1, 2009, the Trust, True Energy Inc. and holders of trust units and exchangeable shares of the Trust completed a plan of arrangement (the "Arrangement") which resulted in the reorganization of the Trust into the Company. As a result of the Arrangement, the Trust was dissolved, and the Company assumed all of the liabilities and acquired all of the assets of the Trust. The Arrangement was effective November 1, 2009 and as at September 30, 2009, the Trust continued to exist and was a reporting issuer, and accordingly, prepared financial statements and accompanying management's discussion and analysis for the periods then ended. All future financial statements and management's discussion and analysis of the continuing legal entity will be in the name of Bellatrix Exploration Ltd.
Bellatrix common shares and debentures are listed on the Toronto Stock Exchange and trade under the symbols BXE and BXE.DB, respectively.
HIGHLIGHTS
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Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
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FINANCIAL (unaudited)
(CDN$000s except unit
and per unit amounts)
Revenue (before
royalties and
hedging(1)) 23,860 72,225 85,010 224,332
Funds flow from
operations(2) 11,090 21,491 28,344 72,028
Per basic trust unit $0.14 $0.27 $0.36 $0.91
Per diluted trust
unit(6) $0.14 $0.27 $0.36 $0.91
Net income (loss) (9,633) 29,939 (118,404) (10,056)
Per basic trust unit $(0.12) $0.38 $(1.51) $(0.13)
Per diluted trust
unit(6) $(0.12) $0.38 $(1.51) $(0.13)
Distributions declared - 9,474 1,570 28,486
Per unit - $0.12 $0.02 $0.36
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Exploration and
development 2,682 14,097 6,238 26,204
Corporate and property
acquisitions 28 (286) 379 337
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Capital expenditures
- cash 2,710 13,811 6,617 26,541
Property dispositions
- cash (84,696) (32) (92,977) (44,350)
Other - non-cash 178 (144) (1,043) (2,858)
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Total capital
expenditures - net (81,808) (13,635) (87,403) (20,667)
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Long-term debt 26,485 116,591 26,485 116,591
Convertible debentures(3) 82,549 80,693 82,549 80,693
Working capital excess (4,701) (3,511) (4,701) (3,511)
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Total net debt(3) 104,333 193,773 104,333 193,773
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Total assets 443,115 752,030 443,115 752,030
Unitholders' equity 286,841 424,121 286,841 424,121
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OPERATING
Daily sales
volumes
Crude oil,
condensate
and NGLs (bbls/d) 2,253 3,977 3,292 4,329
Natural gas (mcf/d) 31,075 43,715 34,547 47,480
Total oil
equivalent (boe/d) 7,432 11,263 9,050 12,242
Average prices
Crude oil,
condensate
and NGLs ($/bbl) 57.77 96.89 48.07 89.49
Crude oil,
condensate
and NGLs
(including
hedging(1) ($/bbl) 57.77 77.39 48.07 73.32
Natural gas ($/mcf) 3.89 8.97 4.26 8.92
Natural gas
(including
hedging(1)) ($/mcf) 5.84 7.80 5.74 8.20
Total oil
equivalent ($/boe) 33.79 69.03 33.74 66.24
Total oil
equivalent
(including
hedging(1)) ($/boe) 41.94 57.61 39.40 57.71
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Statistics
Operating
netback(4) ($/boe) 16.24 38.31 12.56 36.39
Operating
netback(4)
(including
hedging(1)) ($/boe) 24.39 26.90 18.23 27.87
Transportation ($/boe) 0.50 2.45 1.28 1.75
Production
expenses ($/boe) 13.29 14.95 14.15 14.51
General &
administrative ($/boe) 4.75 3.48 3.51 3.54
Royalties as a
% of sales
after
Transportation 11% 20% 18% 21%
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TRUST UNITS
Trust units
outstanding 78,496,581 78,862,690 78,496,581 78,862,690
Trust unit
incentive rights
outstanding 4,039,229 2,539,166 4,039,229 2,539,166
Units issuable
for exchangeable
shares 312,467 340,642 312,467 340,642
Units issuable for
convertible
debentures(5) 5,390,625 5,390,625 5,390,625 5,390,625
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Diluted trust units
outstanding 88,238,902 87,133,123 88,238,902 87,133,123
Diluted weighted
average trust
units(6) 78,496,581 78,996,154 78,496,581 79,140,544
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TRUST UNIT TRADING STATISTICS
(CDN$, except volumes) based
on intra-day trading
High 1.13 4.45 1.56 4.69
Low 0.67 2.74 0.48 2.74
Close 1.07 3.03 1.07 3.03
Average daily volume 203,568 257,512 166,148 260,393
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(1) The Trust has entered into various commodity risk management
contracts which are considered to be economic hedges. Per unit
metrics after hedging includes only the realized portion of gains or
losses on commodity contracts.
The Trust does not apply hedge accounting to these contracts. As
such, these contracts are revalued to fair value at the end of each
reporting date. This results in recognition of unrealized gains or
losses over the term of these contracts which is reflected each
reporting period until these contracts are settled, at which time
realized gains or losses are recorded. These unrealized gains or
losses on commodity contracts are not included for purposes of per
unit metrics calculations disclosed.
(2) The highlights section contains the term "funds flow from
operations" (or as commonly referred to as "cash flow from
operations"), which should not be considered an alternative to, or
more meaningful than cash flow from operating activities as
determined in accordance with Canadian generally accepted accounting
principles ("GAAP") as an indicator of the Trust's performance.
Therefore reference to diluted funds flow from operations or funds
flow from operations per trust unit may not be comparable with the
calculation of similar measures for other entities. Management uses
funds flow from operations to analyze operating performance and
leverage and considers funds flow from operations to be a key measure
as it demonstrates the Trust's ability to generate the cash necessary
to fund future capital investments and to repay debt. The
reconciliation between cash flow from operating activities and funds
flow from operations can be found in the Management Discussion and
Analysis ("MD&A"). Funds flow from operations per trust unit is
calculated using the weighted average number of trust units for the
period.
(3) Net debt and total net debt are considered non-GAAP terms. The
Trust's calculation of net debt includes the net working capital
deficiency (excess) before short-term commodity contract assets and
liabilities, current portion of long-term debt and short-term future
income tax assets and liabilities. Total net debt also includes the
liability component of convertible debentures and excludes asset
retirement obligations and the future income tax liability. A
reconciliation between total liabilities under GAAP and total net
debt as calculated by the Trust is found in the MD&A.
(4) Operating netbacks are a non-GAAP term. Operating netbacks are
calculated by subtracting royalties, transportation, and operating
costs from revenues.
(5) Units issuable for convertible debentures are calculated as the
$86.25 million principal amount of the convertible debentures divided
by the conversion price of $16.00 per unit available to debenture
holders.
(6) In computing weighted average diluted earnings per trust unit and
weighted average diluted funds flow from operations for both the
three and nine month periods ended September 30, 2009 a total of
4,039,229 (2008: 2,539,166) trust incentive units, 312,467 (2008:
340,642) exchangeable shares and 5,390,625 (2008: 5,390,625) trust
units issuable pursuant to the conversion of convertible debentures
were excluded from the calculation of diluted earnings per trust unit
and weighted average diluted funds flow from operations as they were
not dilutive.
REPORT TO SHAREHOLDERS
On August 19, 2009, we announced that our Board of Directors had approved the conversion from a trust structure to a growth oriented, public exploration and production company pursuant to the terms of a plan of arrangement (the "Arrangement"). We are pleased to report that on October 28, 2009, securityholders of the Trust voted 97.8% in favour of the reorganization of the Trust under the Arrangement at the special meeting of the Trust, with subsequent approval by the Court. The reorganization of the Trust was completed with an effective date of November 1, 2009 and the Company now operates under the name of Bellatrix Exploration Ltd. Strategically, the Arrangement has re-positioned the Company, allowing Bellatrix to move forward with a corporate organic growth model and a strong balance sheet.
We accomplished significant steps in the restructuring of the Trust through the first nine months of 2009. Following changes to the senior management team earlier in the year, the Trust's restructuring efforts were consistent with a number of objectives including:
- Operating within cash flow: targeted reductions in G&A, operating
costs and staffing levels in early 2009; maintaining an active
hedging program to mitigate vulnerability to negative commodity price
fluctuations.
- Controlled capital program: a total capital program for 2009
initially budgeted at $15 million, but recently increased to $19
million.
- Production base focus: continued optimization, maintenance and
production tie-ins.
- Continued debt management: Reduced net debt by $61 million over the
2007 and 2008 fiscal years while paying distributions; net debt was
further reduced $111 million for the first nine months of 2009 due in
large part to strategic dispositions completed in the year. On August
17, 2009, new total $85 million bank syndicate credit facilities were
entered into, with a total of $26.5 million drawn under the
facilities as of September 30, 2009. On November 1, 2009, Bellatrix
confirmed its $85 million facilities with existing lenders on
substantially the same terms and conditions.
- Corporate conversion completed effective November 1, 2009
Following these restructuring efforts and our substantially improved financial flexibility, we are well positioned to focus on the balance of our 2009 drilling program currently underway.
Production levels have been maintained by diligent field optimization programs designed to arrest decline. Sales volumes averaged 7,432 boe/d in the third quarter in spite of plant turnarounds and the sale of the majority of the Trust's Saskatchewan production closing July 30, 2009. For the first nine months of 2009 sales volumes averaged 9,050 boe/d.
As of September 30, 2009, year to date capital expenditures totalled $6.6 million. Our 2009 capital program was initially set at $15 million and subsequent to board approval has been increased to $19 million.
On July 8, 2009, True announced the divestiture of a majority of its oil and natural gas assets in Saskatchewan for gross proceeds of $93 million effective May 1, 2009 (the "Divestiture"). On July 30, 2009 True closed the Divestiture for net proceeds, after purchase adjustments, of approximately $86 million. The purchase adjustments of approximately $7 million include net operating income, prepaid and other items for the interim period from May 1, 2009 to July 30, 2009. The Divestiture excluded the Saskatchewan properties of Cypress and Mantario. True's interest to the base Belly River in three sections in the Ferrier area of West Central Alberta were also disposed of in the transaction. The assets sold included production estimated to average 3,000 boe/d in Q3 and Q4 in 2009, including 5.3 mmcf/d of natural gas, 128 km(2) of 3D proprietary seismic with 389.7 km of 2D proprietary seismic, and 63,333 net acres of undeveloped mineral leases.
Operating results
- During the third quarter of 2009, True drilled, completed and placed
on production its first 100% interest well in September 2009 at
Willesden Green in West Central Alberta. To date including the
aforementioned well, True has drilled or participated in 8 wells (7.5
net) at Willesden Green, Pembina, Irvine and Mantario; True operated
7 of 8 wells drilled. True had 100% success rate in the eight wells
drilled, all of the wells have been completed, tested and are
currently on production or being tied in.
- True expects to drill four additional gross wells (3.35 net) prior to
year end; three horizontal wells (two Notikewin and one Cardium) at
Ferrier and Pembina and one vertical test at West Pembina. True is
currently drilling the first of four wells, a 3,178 meter Notikewin
horizontal test at Ferrier with an 85% WI. Bellatrix's total capital
expenditure program for the 4th quarter is anticipated to be
approximately $12.4 million. The Alberta wells drilled by Bellatrix
take advantage of the Alberta Government Royalty incentive program.
- 58% of True's natural gas production for Q4 2009 is forward sold at
an average price of $7.75 CAD/mcf, and approximately 29% of its
natural gas production for 2010 is hedged at an average of price
$7.01 CAD/mcf. These conversions to "mcf" are based on True's
corporate average heat content factor of 39 Mj/m3. In addition, 500
bbl/d of oil for Q4 is hedged by way of a costless collar of $52.30
CAD x $80.70 CAD.
- On August 17, 2009, True finalized new syndicated credit facilities
to replace its then existing bank facilities. The new facilities
consist of a $10 million demand operating facility provided by one
Canadian bank and a $75 million extendible revolving term credit
facility provided by one Canadian bank and one Canadian financial
institution. As of September 30, 2009 there was approximately $26.5
million drawn on True's existing facilities.
The third quarter of 2009 featured continued erosion of natural gas
pricing primarily as a result of the supply and demand imbalance associated
with the persistent global economic recession. Third quarter financial results
include:
- 2009 third quarter sales volumes averaged 7,432 boe/d compared to
9,767 boe/d in the second quarter of 2009. The decrease in production
is a result of the divestitures completed at the end of the second
quarter and first part of the third quarter of 2009. True initiated a
production optimization and maintenance program at the beginning of
the year. This program has not only arrested True's production
decline through the first three quarters, but also increased overall
deliverability without drilling or recompleting wells.
- Cash flow from operating activities and funds flow from operations
for the third quarter of 2009 was $12.2 million and $11.1 million,
respectively, on gross sales of $23.9 million compared to cash flow
from operating activities and funds flow from operations for the
second quarter of 2009 of $6.5 million and $10.8 million,
respectively, on gross sales of $29.8 million.
- The net loss for the third quarter of 2009 was $9.6 million compared
to a net income of $29.9 million for the same period in 2008 and a
net loss of $99.7 million in the second quarter of 2009. The net loss
for Q2 2009 was primarily the result of a non-cash accounting loss on
petroleum and natural gas properties held for sale of $114.2 million.
This amount was calculated as the excess of the historical net book
value allocated to Saskatchewan oil and gas property assets sold as
compared to the estimated total net proceeds received on closing.
- True's total net debt as of September 30, 2009, excluding a net
unrealized commodity contract asset of $5.0 million, future income
taxes and asset retirement obligations is approximately $104.3
million, represented by $26.5 million outstanding on the credit
facilities, $82.5 million in convertible debentures (liability
component), and the net balance of a working capital surplus. Funds
from strategic divestitures executed in the second and third quarters
of 2009 have been used to reduce True's net debt.
- True's natural gas price for the third quarter of 2009, after
including hedging, was $5.84/mcf compared to $7.80/mcf for the same
period in 2008.
- Capital expenditures for the third quarter of 2009 were $2.7 million
which were funded by available cash flow.
- As of September 30, 2009, the Trust had approximately $384 million in
tax pools for deduction against future income.
Bellatrix's production guidance remains unchanged. Fourth quarter production is anticipated to be approximately 6,500 boe/d, comprised of 31.7 mmcf/d of natural gas and 1,230 bbls/d of light/medium oil. Bellatrix anticipates 2009 average production rate of 8,100 boe/d and a 2009 production exit rate of 7,000 boe/d based on normal decline rates and risked production adds from Bellatrix's capital program.
Bellatrix has approximately 268,000 net acres of undeveloped land with in excess of 300 exploitation drilling opportunities identified representing over 5 years of drilling inventory.
2010 Outlook
Bellatrix is well positioned following a stressful year of reorganization to move forward with a corporate organic growth model, coupled with a mandate to seek opportunities that will complement our assets or through future development potential. An initial capital budget of $40 million has been set for fiscal 2010. The Company will be active throughout 2010 drilling our 2 resource plays, the Cardium and Notikewin utilizing horizontal drilling multi fracturing technology, that will provide the engine for our growth.
Bellatrix is a company dedicated to "the pursuit of sustainable growth" for its stakeholders.
Raymond G. Smith, P. Eng.
President and CEO
November 5, 2009
MANAGEMENT'S DISCUSSION AND ANALYSIS
November 5, 2009 - The following Management's Discussion and Analysis of financial results as provided by the management of True Energy Trust ("True" or the "Trust") should be read in conjunction with the unaudited interim consolidated financial statements and selected notes for the three and nine months ended September 30, 2009 and the audited consolidated financial statements of the Trust for the years ended December 31, 2008 and 2007 and the related Management's Discussion and Analysis of financial results. This commentary is based on information available to, and is dated as of, November 5, 2009. The financial data presented is in accordance with Canadian generally accepted accounting principles ("GAAP") in Canadian dollars, except where indicated otherwise.
CONVERSION: The term barrels of oil equivalent ("boe") 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/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. All boe conversions in this report are derived from converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil.
NON-GAAP MEASURES: This Management's Discussion and Analysis contains the term "funds flow from operations" (or also commonly referred to as "cash flow from operations"), which should not be considered an alternative to, or more meaningful than "cash flow from operating activities" as determined in accordance with Canadian GAAP as an indicator of the Trust's performance. Therefore reference to funds flow from operations or funds flow from operations per unit may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the Trust's ability to generate the cash necessary to fund future capital investments and to repay debt. The reconciliation between cash flow from operating activities and funds flow from operations can be found in the Management's Discussion and Analysis. Funds flow from operations per unit is calculated using the weighted average number of units for the period.
This Management's Discussion and Analysis also contains other terms such as total net debt and operating netbacks, which are not recognized measures under Canadian GAAP. Total net debt is calculated as long-term debt plus the liability component of the convertible debentures and the net working capital deficiency (excess) before short-term commodity contract assets and liabilities, current portion of long-term debt and short-term future income tax assets and liabilities. Operating netbacks are calculated by subtracting royalties, transportation, and operating expenses from revenues. The reconciliation between total liabilities and net debt is contained in the Management's Discussion and Analysis. Management believes these measures are useful supplemental measures of firstly, the total amount of current and long-term debt and secondly, the amount of revenues received after transportation, royalties and operating expenses. Readers are cautioned, however, that these measures should not be construed as an alternative to other terms such as current and long-term debt or net income determined in accordance with GAAP as measures of performance. True's method of calculating these measures may differ from other entities, and accordingly, may not be comparable to measures used by other trusts or companies.
Additional information relating to the Trust, including the Trust's Annual Information Form, is available on SEDAR at www.sedar.com.
FORWARD LOOKING STATEMENTS: Certain information contained herein may contain forward looking statements including management's assessment of future plans and operations, drilling and tie-in plans and the timing thereof, expected or anticipated average and exit production rates, hedging strategies, anticipated liquidity of the Trust and various matters that may impact such liquidity, planned reductions in operating expenses in 2009 and expected operating expenses, expected royalty rates and administrative expenses, expected levels of revenues and operating expenses and operating netbacks in 2009 compared to 2008, the expected effect of dispositions on debt to funds flow ratios, the use of forecast funds flow from operations, expected cost of drilling commitments, the proportion of distributions anticipated to be taxable, maintenance of productive capacity and capital expenditures and the nature of capital expenditures and the timing and method of financing thereof, and the expectation that no dividends will be payable by Bellatrix following completion of the Reorganization may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, 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, inability to retain drilling rigs and other services, 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. The recovery and reserve estimates of True's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Events or circumstances may cause actual results to differ materially from those predicted, as a result of the risk factors set out and other known and unknown risks, uncertainties, and other factors, many of which are beyond the control of True. In addition, forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information in order to provide shareholders with a more complete perspective on Bellatrix's future operations. Such information may prove to be incorrect and readers are cautioned that the information may not be appropriate for other purposes. Although the Trust 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 the Trust can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which the Trust operates; the timely receipt of any required regulatory approvals; the ability of the Trust to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Trust has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Trust 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 the Trust to secure adequate product transportation; future commodity gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Trust operates; and the ability of the Trust to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Additional information on these and other factors that could effect True's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), at Bellatrix's website (www.bellatrixexploration.com). Furthermore, the forward-looking statements contained herein are made as at the date hereof and True does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
The reader is further cautioned that the preparation of financial statements in accordance with GAAP requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes.
Overview and Description of the Business
True Energy Trust is a Canadian trust, formed in 2005 via the reverse takeover of TKE Energy Trust. The Trust is involved in the exploration, development and production of petroleum and natural gas in western Canada. The Trust has a significant multi-year inventory of drilling locations in Alberta, Saskatchewan and British Columbia.
On August 19, 2009, the Trust announced that its Board of Directors had approved the conversion from a trust structure to a growth oriented, public exploration and production company pursuant to the terms of a plan of arrangement (the "Arrangement"). The reorganization of the Trust (the "Reorganization") under the Arrangement was approved by the Trust's securityholders at the special meeting on October 28, 2009, and received customary court and regulatory approvals. The reorganization of the Trust was completed with an effective date of November 1, 2009 and now operates under the name of Bellatrix Exploration Ltd. ("Bellatrix" or the "Company"). Unitholders of the Trust received an equal number of common shares of Bellatrix which holds the assets and liabilities previously held, directly or indirectly, by the Trust. Exchangeable shares of the Trust were exchanged for common shares of Bellatrix at the current exchange ratio in effect on the effective date. The outstanding convertible debentures of the Trust were assumed by the Company as a result of the Arrangement and are now convertible into common shares of Bellatrix, rather than trust units of the Trust, at a conversion price of $16.00 per share. Strategically, the Arrangement has re-positioned the Company, allowing Bellatrix to move forward with a corporate organic growth model and a strong balance sheet.
Pursuant to the Arrangement, the Unitholders' Capital of the Trust Units as of the effective date of November 1, 2009 shall be reduced by the amount of the deficit of the Trust on October 31, 2009.
The Reorganization will be accounted for on a continuity of interest basis and accordingly, the consolidated financial statements for periods prior to the effective date of the Reorganization will reflect the financial position, results of operations and cash flows as if the Company had always carried on the business formerly carried on by the Trust.
Bellatrix common shares and debentures are listed on the Toronto Stock Exchange and trade under the symbols BXE and BXE.DB, respectively.
Third Quarter 2009 Financial and Operational Results
Dispositions
The Trust's focus in 2009 has been on the restructuring and strengthening of its balance sheet. The Trust had two minor dispositions in the second quarter and successfully completed the divestiture of the majority of its petroleum and natural gas properties in Saskatchewan in the third quarter. Net proceeds from the dispositions were used to reduce the Trust's bank indebtedness; these strategic accomplishments will allow the Company to progress forward with substantially improved financial flexibility.
On June 30, 2009, True sold 145 boe/d, including 0.63 mmcf/d of natural gas, in the Penhold Area of Central Alberta for $4.7 million, after purchase adjustments and closing costs. In addition, in June 2009, True completed a disposition of certain royalty interests for approximately $3.7 million, after purchase adjustments and closing costs. The proceeds from these two dispositions were used to reduce True's bank indebtedness.
On July 30, 2009, the Trust successfully completed the divestiture of a majority of its oil and natural gas assets in Saskatchewan for net proceeds of $86 million (the "Saskatchewan Divestiture"). The Saskatchewan Divestiture excludes the Saskatchewan properties of Mantario and Cypress. True's interest to the base Belly River in three sections in the Ferrier area of West Central Alberta were also included in the divestiture package. The disposition was accounted for under the guidance of Accounting Guideline 16 - "Oil and Gas Accounting - Full Cost". Under full cost accounting, if crediting the proceeds from disposition to costs results in a change of 20 percent or more to the DD&A rate then a gain or loss should be recognized. When a gain or loss is to be recognized the total net book value of capitalized costs should be allocated between the properties sold and the properties retained. The assets sold were an allocation of the Trust's historical full cost pool based on a pro-rata ratio of future cash flows of proved reserves associated with the assets sold, discounted at 10%, as compared to all oil and gas assets as of June 30, 2009. In the second quarter of 2009, the Trust recorded a $114.2 million non-cash loss on the assets sold being the excess of the allocated net book value to these assets, compared to the total estimated net proceeds, after purchase adjustments and estimated closing costs.
Sales Volumes
Sales volumes for the three months ended September 30, 2009 averaged 7,432 boe/d compared to 11,263 boe/d for the same period in 2008, representing a 34% decrease. In comparison, sales volumes for the second quarter of 2009 averaged 9,767 boe/d; the decrease in volumes from the second quarter to the third quarter of 2009 is primarily due to the Saskatchewan Divestiture closing on July 30, 2009. Sales volumes for the nine months ended September 30, 2009 averaged 9,050 boe/d as compared to 12,242 boe/d for the same period in 2008, representing a 26% decrease.
The decrease in average sales volumes from third quarter 2008 to 2009 is a result of natural production decline, minimal 2009 capital spending and dispositions during 2009 totaling approximately 3,000 boe/d and dispositions totaling approximately 1,000 boe/d that were closed during the second quarter of 2008, partially offset by tuck-in acquisitions completed in the fourth quarter of 2008 that added approximately 250 boe/d. During the first quarter of 2009, True implemented a full scale field optimization and maintenance program throughout True's operated properties. The field optimization programs were designed to arrest production declines and increase overall deliverability without drilling or recompleting wells.
Sales Volumes
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Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
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Natural gas (mcf/d) 31,075 43,715 34,547 47,480
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Heavy oil (bbls/d) 1,300 2,820 2,191 2,789
Light oil and
condensate (bbls/d) 662 760 766 1,088
NGLs (bbls/d) 291 397 335 452
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Total crude
oil and NGLs (bbls/d) 2,253 3,977 3,292 4,329
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Total boe/d (6:1) 7,432 11,263 9,050 12,242
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During the third quarter of 2009, True drilled, completed and placed on production its first 100% working interest well at Willesden Green in West Central Alberta.
For the three months ended September 30, 2009, the weighting towards natural gas sales averaged 70% compared to 65% in the same period in 2008. Similarly, for the nine month period ended September 30, 2009, the weighting towards natural gas sales averaged 64% compared to 65% for the same period in 2008. Heavy oil sales made up 17% of total production for the 2009 third quarter compared to 25% in the 2008 third quarter. In comparison, heavy oil sales made up 28% of total production for the 2009 second quarter. The increase in the natural gas weighting is largely due to the July 30, 2009 sale of Saskatchewan production which was primarily heavy oil.
Sales of natural gas averaged 31.1 Mmcf/d for the third quarter of 2009, compared to 43.7 Mmcf/d in the same 2008 period, a decrease of 29%. Crude oil and NGL sales for the 2009 third quarter decreased 15% averaging 2,253 bbls/d compared to the 2008 third quarter average sales of 3,977 bbls/d.
For the fourth quarter of 2009, production volumes are anticipated to average approximately 6,500 boe/d and a 2009 production exit rate of 7,000 boe/d. The forecast of 2009 production volumes has been updated from the 10,000 boe/d forecast previously reported to include the recent disposition activity. The forecast is based on assumptions, including normal production declines and expenditures under the current updated planned capital budget for 2009 of $19 million.
Commodity Prices
Average Commodity Prices
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Three months ended Nine months ended
September 30, September 30,
% %
2009 2008 Change 2009 2008 Change
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Exchange rate (US$/Cdn$) 0.9108 1.0000 (9) 0.8839 0.9980 (11)
Natural gas:
NYMEX (US$/mmbtu) 3.44 8.99 (62) 3.62 9.67 (63)
AECO daily index
(CDN$/Mcf) 2.94 7.74 (62) 3.19 8.61 (63)
AECO monthly index
(CDN$/Mcf) 3.02 9.24 (67) 3.34 8.57 (61)
True's average price
($/mcf) 3.89 8.97 (57) 4.26 8.92 (52)
True's average price
(including hedging(1))
($/mcf) 5.84 7.80 (25) 5.74 8.20 (30)
Crude oil:
WTI (US$/bbl) 68.22 118.28 (42) 64.17 113.43 (43)
Edmonton par -
light oil ($/bbl) 71.71 122.61 (42) 62.68 115.85 (46)
Bow River - medium/heavy
oil ($/bbl) 64.97 104.95 (38) 56.81 95.53 (41)
Hardisty Heavy - heavy
oil ($/bbl) 61.11 98.07 (38) 52.85 88.23 (40)
True's average prices
($/bbl)
Light crude oil,
condensate, and NGLs 56.23 107.55 (48) 48.19 98.85 (51)
Heavy crude oil 58.89 92.51 (36) 48.01 84.32 (43)
Total crude oil and
NGLs 57.77 96.89 (40) 48.07 89.49 (46)
Total crude oil and
NGLs (including
hedging(1)) 57.77 77.39 (25) 48.07 73.32 (34)
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(1) Per unit metrics including hedging include realized gains or losses
on commodity contracts and exclude unrealized gains or losses on
commodity contracts.
True's natural gas sales are priced with reference to the daily or monthly AECO indices. During the 2009 third quarter, the AECO daily and monthly reference price decreased by 62% and 67%, respectively, compared to the same period in 2008. True's average sales price before hedging for the 2009 third quarter decreased by 25% compared to the same period in 2008. The Trust's natural gas physical sales contract to deliver 5,275 GJ/day at a fixed price of $7.29/GJ contributed to higher pricing experienced for the 2009 third quarter relative to AECO indices. True's natural gas price after including hedging for the third quarter of 2009 was $5.84/mcf compared to $7.80/mcf for the same period in 2008.
The Company has entered into a natural gas physical delivery sales contract to sell 5,275 GJ/day at a fixed price of $7.90/GJ for the fourth quarter of 2009.
For heavy crude oil, True received an average price before transportation of $58.89/bbl in the 2009 third quarter, a decrease of 36% over prices in the same period in 2008. The Bow River reference price and the Hardisty Heavy reference price both decreased approximately 38% from the 2008 third quarter to the 2009 third quarter. The majority of True's heavy crude oil density ranges between 11 and 16 degrees API consistent with the Hardisty Heavy reference price, although all of True's heavy oil production is sold at Saskatchewan delivery points.
For light oil, condensate and NGLs, True recorded an average $56.23/bbl before hedging in the 2009 third quarter, 48% lower than the average price of $107.55/bbl received in the same period in 2008. In comparison, the Edmonton par price decreased by 42% over the same period. The average WTI crude oil US dollar based price decreased 42% from the third quarter of 2008 to that in 2009. The average US$/Cdn$ foreign exchange rate was 0.9108 for the 2009 third quarter compared to 1.00 during the same period in 2008. The negative correlation between the Canadian dollar and U.S. dollar denominated WTI oil prices has softened the impact on the Trust of lower US$ WTI prices.
WTI crude oil prices varied greatly throughout 2008, increasing significantly to a high of US$147/bbl in July and dramatically falling during the fourth quarter of 2008 with December 2008 prices of under US$40/bbl and averaging over US$60/bbl through the nine months of 2009. The pricing outlook in 2009 for crude oil and natural gas remains uncertain given the current global economic environment.
Revenue
Revenue before other income and hedging for the three month period ended September 30, 2009 was $23.1 million, 68% lower than the $71.5 million in the same period in 2008. The decrease in revenue for the 2009 period was the result of lower sales volumes in conjunction with significantly lower commodity prices.
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Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
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Light crude oil,
condensate and NGLs 4,930 11,455 14,478 41,717
Heavy oil 7,040 23,999 28,729 64,425
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Crude oil and NGLs 11,970 35,454 43,207 106,142
Natural gas 11,133 36,073 40,159 116,034
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Total revenue before
other 23,103 71,527 83,366 222,176
Other(1) 757 698 1,644 2,156
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Total revenue before
royalties and hedging 23,860 72,225 85,010 224,332
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(1) Other revenue primarily consists of processing and other third party
income.
Revenues for the remainder of 2009 are currently expected to be lower than 2008 due to lower commodity prices and average estimated 2009 year production of approximately 8,100 boe/d, after adjusting for divestitures that closed during the year.
Commodity Price Risk Management
The Trust has a formal risk management policy which permits management to use specified price risk management strategies as determined by the board of directors including fixed price contracts, collars and the purchase of floor price options and other derivative financial instruments and physical delivery sales contracts to reduce the impact of price volatility and ensure minimum prices for a maximum of eighteen months beyond the current date. The program is designed to provide price protection on a portion of the Trust's future production in the event of adverse commodity price movement, while retaining significant exposure to upside price movements. By doing this, the Trust seeks to provide a measure of stability to funds flow from operations, as well as, to ensure True realizes positive economic returns from its capital development and acquisition activities. The Company will continue its hedging strategies focusing on maintaining sufficient cash flow to fund the Company's operations. Any remaining unhedged production is realized at market prices.
A summary of the financial commodity price risk management volumes and average prices by quarter currently outstanding as of November 5, 2009 is shown in the following tables:
Natural gas
Average Volumes (GJ/d)
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Q4 2009
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Fixed 15,000
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Q1 2010 Q2 2010 Q3 2010 Q4 2010
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Fixed 10,000 10,000 10,000 10,000
Call option (ceiling
price) 5,000 5,000 5,000 5,000
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Total GJ/d 15,000 15,000 15,000 15,000
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Average Price ($/GJ AECO C)
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Q4 2009
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Fixed 6.75
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Q1 2010 Q2 2010 Q3 2010 Q4 2010
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Fixed 7.58 6.06 5.66 6.25
Call option (ceiling
price) 8.05 8.05 8.05 8.05
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Crude oil and liquids
Average Volumes (bbls/d)
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Q4 2009
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Costless collars 500
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Total bbls/d 500
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Average Price (CDN$/bbl WTI)
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Q4 2009
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Collar ceiling price 80.70
Collar floor price 52.30
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Included in the above natural gas table is a fixed price contract of $5.90/GJ at 5,000 GJ/d from the second quarter 2009 to fourth quarter 2009 periods which was funded by selling a call option of 5,000 GJ/d at $8.05 for the 2010 year.
As of September 30, 2009, the fair value of True's outstanding commodity contracts is a net unrealized asset of $5.0 million as reflected in the financial statements. The fair value or mark-to-market value of these contracts is based on the estimated amount that would have been received or paid to settle the contracts as at September 30, 2009 and may be different from what will eventually be realized. Changes in the fair value of the commodity contracts are recognized in the Consolidated Statements of Loss within the financial statements.
The following is a summary of the gain (loss) on commodity contracts for the three and nine months ended September 30, 2009 and 2008 as reflected in the Consolidated Statements of Loss in the financial statements:
Commodity contracts
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Crude Oil Natural Q3 2009 Q3 2008
($000s) & Liquids Gas Total Total
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Realized cash gain
(loss) on contracts - 5,572 5,572 (11,831)
Unrealized gain (loss)
on contracts(1) 594 (4,445) (3,851) 49,911
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Total gain (loss) on
commodity contracts 594 1,127 1,721 38,080
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Crude Oil Natural YTD 2009 YTD 2008
($000s) & Liquids Gas Total Total
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Realized cash gain
(loss) on contracts - 13,992 13,992 (28,592)
Unrealized gain (loss)
on contracts(1) (111) 1,400 1,289 6,674
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Total gain (loss) on
commodity contracts (111) 15,392 15,281 (21,918)
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(1) Unrealized gain (loss) commodity contracts represent non-cash
adjustments for changes in the fair value of these contracts during
the period.
Royalties
For the three months ended September 30, 2009, total royalties were $2.6 million, compared to $13.8 million incurred in the same period in 2008. Overall royalties as a percentage of revenue (after transportation costs) in the third quarter of 2009 were 11%, compared with 20% over the same period in 2008 and 19% for the second quarter of 2009. Royalties for the nine months ended September 30, 2009 were $14.2 million compared to $45.6 million for the same period in 2008. The reduction in royalty percentages experienced for the third quarter was primarily due to several factors: the sale of Saskatchewan properties (primarily heavy oil) with higher royalty rates and lower natural gas royalties in Alberta due to the impact of lower natural gas pricing under the new Alberta Government Royalty Program, including approximately $0.8 million over accrued in the first six months of 2009. The average corporate royalty rate for the fourth quarter of 2009, based on an updated analysis of company properties after dispositions, is currently estimated at 14%.
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Royalties by
Commodity Type Three months ended Nine months ended
($000s, except September 30, September 30,
where noted) 2009 2008 2009 2008
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Light crude oil,
condensate and NGLs 1,369 2,893 3,952 9,556
$/bbl 15.62 27.16 13.16 22.64
Average light crude
oil, condensate and
NGLs royalty rate (%) 27 26 27 23
Heavy Oil 689 4,174 5,183 11,806
$/bbl 5.77 16.09 8.66 15.45
Average heavy oil
royalty rate (%) 10 18 19 19
Natural Gas 512 6,732 5,067 24,226
$/mcf 0.18 1.67 0.54 1.86
Average natural gas
royalty rate (%) 5 19 13 21
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Total 2,570 13,799 14,202 45,588
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$/boe 3.76 13.32 5.75 13.59
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Average total royalty
rate (%) 11 20 18 21
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Royalties, by Type
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Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
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Crown royalties 609 6,931 6,700 25,474
Freehold & GORR 1,314 4,837 4,392 14,548
Indian Oil and Gas
Canada royalties 515 2,031 2,488 5,566
Saskatchewan resource
surcharge 132 - 622 -
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Total 2,570 13,799 14,202 45,588
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Expenses
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Three months ended Nine months ended
September 30, September 30,
($000s) 2009 2008 2009 2008
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Production 9,089 15,494 34,951 48,660
Transportation 340 2,534 3,170 5,855
General and
administrative 3,244 3,610 8,667 11,872
Interest and financing
charges 3,573 3,318 11,093 11,321
Unit-based compensation (3) 660 (363) 1,089
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Expenses per boe
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Three months ended Nine months ended
September 30, September 30,
($ per boe) 2009 2008 2009 2008
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Production 13.29 14.95 14.15 14.51
Transportation 0.50 2.45 1.28 1.75
General and administrative 4.75 3.48 3.51 3.54
Interest and financing
charges 5.22 3.20 4.49 3.37
Unit-based compensation (0.01) 0.64 (0.15) 0.72
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Production Expenses
For the three months ended September 30, 2009, production expenses totaled $9.1 million ($13.29/boe), compared to $15.5 million ($14.95/boe) recorded in the same 2008 period. In comparison, production expenses were $11.9 million ($13.41/boe) in the second quarter of 2009 and $66.6 million ($15.33/boe) for the 2008 annual period. For the nine month period ended September 30, 2009, production expenses totaled $35.0 million ($14.15/boe) compared to $48.7 million ($14.51/boe) for the same period in 2008. Reductions in production expenses between comparable periods is consistent with dispositions and planned cost reduction initiatives.
Bellatrix is targeting operating costs of approximately $42 million ($14.21/boe) in 2009 which is based on assumptions of estimated 2009 annualized production of approximately 8,100 boe/d, after considering completed divestitures, planned cost reductions, and cost reductions due to disposition of high operating cost properties. Forecasted cost reductions are on track through the third quarter of 2009.
Production Expenses, by Commodity Type
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Three months ended Nine months ended
($000s, except September 30, September 30,
where noted) 2009 2008 2009 2008
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Light crude oil,
condensate and NGLs 2,074 2,974 6,701 8,248
$/bbl 23.65 27.92 22.30 19.55
Heavy oil 1,780 6,612 9,928 17,455
$/bbl 14.89 25.49 16.59 22.85
Natural gas 5,235 5,908 18,322 22,957
$/mcf 1.83 1.47 1.94 1.76
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Total 9,089 15,494 34,951 48,660
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$/boe 13.29 14.95 14.15 14.51
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Total 9,089 15,494 34,951 48,660
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Processing and other
third party income(1) (757) (698) (1,644) (2,156)
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Total after deducting
processing and other
third party income 8,332 14,796 33,307 46,504
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$/boe 12.19 14.28 13.48 13.86
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(1) Processing and other third party income is included within petroleum
and natural gas sales on the statement of income.
Transportation
Transportation expenses for the three month period ended September 30, 2009 were $0.3 million ($0.50/boe) compared to $2.5 million ($2.45/boe) in the same 2008 period. In comparison, transportation was $1.3 million ($1.42/boe) in the second quarter of 2009 and $7.0 million ($1.62/boe) 2008 annual periods, respectively. The reduction in transportation expenses from the second quarter to the third quarter of 2009 was due to significantly less heavy oil hauling costs following sale of Saskatchewan properties in July 2009.
Operating Netback
Field Operating Netback - Corporate (before hedging)
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Three months ended Nine months ended
September 30, September 30,
($/boe) 2009 2008 2009 2008
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Sales 33.79 69.03 33.74 66.24
Transportation (0.50) (2.45) (1.28) (1.75)
Royalties (3.76) (13.32) (5.75) (13.59)
Production expense (13.29) (14.95) (14.15) (14.51)
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Field operating netback 16.24 38.31 12.56 36.39
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For the third quarter of 2009, corporate field operating netback (before hedging) was $16.24/boe compared to $38.31/boe in the same period in 2008. This was the result of decreased overall commodity prices, offset by lower transportation, royalties and operating expenses. By comparison, corporate field operating netback (before hedging) for the second quarter of 2009 was $12.52/boe. After including hedging activities, the corporate field operating netback for the third quarter of 2009 was $24.39/boe compared to $26.90/boe in the same 2008 period.
Overall, corporate operating netbacks for 2009 are currently expected to be lower than 2008 due to anticipated lower commodity prices.
Field Operating Netback - Natural Gas (before hedging)
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Three months ended Nine months ended
September 30, September 30,
($/mcf) 2009 2008 2009 2008
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Sales 3.89 8.97 4.26 8.92
Transportation (0.20) (0.33) (0.20) (0.18)
Royalties (0.18) (1.67) (0.54) (1.86)
Production expense (1.83) (1.47) (1.94) (1.76)
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Field operating netback 1.68 5.50 1.58 5.12
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Field operating netback for natural gas in the third quarter of 2009
decreased 69% to $1.68/mcf, compared to $5.50/mcf in the same 2008 period,
primarily reflecting weakening natural gas prices experienced.
