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Granite Oil Corp. Announces Second Quarter, 2017 Results and Appointment of New Director

CALGARY, Alberta, Aug. 09, 2017 (GLOBE NEWSWIRE) -- GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO) (OTCQX:GXOCF) is pleased to release its financial and operational results and operational update for the six months ended June 30, 2017.

Financial and Operating Highlights

Three Months Ended June 30, Six Months Ended June 30,
2017201620172016
(000s, except per share amounts) ($)($)($)($)
FINANCIAL
Oil and natural gas revenues13,78811,83728,23919,854
Funds from operations (1)6,7436,01413,30311,972
Per share – basic0.200.190.390.38
Per share – diluted (2)0.200.190.390.38
Net income (loss)(116)(5,010)2,384(7,268)
Per share – basic(0.00)(0.16)0.07(0.23)
Per share – diluted (2)(0.00)(0.16)0.07(0.23)
Capital expenditures (3)5,8465,73110,63710,053
Net debt (4)35,98525,69735,98525,697
Shareholders’ equity212,735219,592212,735219,592
Dividends paid3,5403,2007,0786,369
Dividends declared (per share)0.10500.10500.10500.1050
(000s)(#)(#)(#)(#)
SHARE DATA
At period-end34,16933,58834,16933,588
Weighted average – basic33,80431,84633,74931,095
Weighted average – diluted34,04632,12034,01931,376
OPERATING (5)
Production
Natural gas (mcf/d) (6)448 588146
Crude oil (bbls/d)2,7842,8582,8352,843
Total (boe/d)2,8592,8582,9332,867
Average wellhead prices
Natural gas ($/mcf)3.242.751.08
Crude oil and NGLs ($/bbl)53.9145.5854.4638.14
Combined average ($/boe)53.0145.5853.1937.87
Netbacks
Operating netback ($/boe) (8)30.3727.8029.0527.27
Gross (net) wells drilled
Oil (#)3 (3.0)3 (3.0)6 (6.0)4 (4.0)
Total (#)3 (3.0)3 (3.0)6 (6.0)4 (4.0)
Average working interest (%)100100100100

(1) Funds from operations and funds from operations per share are not recognized measures under International Financial Reporting Standards (IFRS). Refer to the commentary in the Management’s Discussion and Analysis under “Non-GAAP Measurements” for further discussion.
(2) The Company uses the weighted average common shares (basic) when there is a net loss for the period and the weighted average common shares (diluted) when there is net income in the period to calculate net income (loss) per share diluted. The Company uses the weighted average common shares (diluted) to calculate the funds from operations diluted.
(3) Total capital expenditures, excluding acquisitions and excluding non-cash transactions. Refer to commentary in the Management’s Discussion and Analysis under “Capital Expenditures and Acquisitions” for further information.
(4) Net debt, which is calculated as current liabilities (excluding derivative financial instruments) and bank debt less current assets (excluding derivative financial instruments), is not a recognized measure under IFRS. Please refer to the commentary under “Non-GAAP Measurements” for further discussion.
(5) For a description of the boe conversion ratio, refer to the commentary in the Management’s Discussion and Analysis under “Other Measurements”.
(6) Commencing in March 2016, the Company began injecting the majority of its natural gas production into the Alberta Bakken property pursuant to the EOR scheme.
(7) Combined average realized prices includes all oil, gas and NGL sales revenue, excluding other income.
(8) Operating netback, which is calculated by deducting royalties, operating expenses and transportation expenses from oil and gas revenue and adjusting for any realized hedging on financial instruments, is not a recognized measure under IFRS. Please refer to the commentary under “Non-GAAP Measurements” for further discussion.

Second Quarter Highlights

  • Generated funds flow of $6.8 million ($0.20 per share), compared to $6.0 million ($0.19 per share) in Q2, 2016.
  • Reduced General and Administrative costs by 21% in the second quarter of 2017 as compared to the same period of 2016.
  • Maintained production on a per boe basis year over year.
  • Maintained monthly dividend distributions at $0.035/share.
  • Completed Granite’s annual borrowing base review in April 2017, which resulted in a renewal of its credit facility at $60 million with no material change to terms or conditions.

During the second quarter, Granite drilled, completed and tied in three (3.0 net) horizontal development wells and tested a new hydraulic fracturing technology as the Company continues its focus on cost reductions and capital-efficient development. As well, the Company completed significant upgrades to the gas injection enhanced oil recovery (“EOR”) facilities that are integral to the Company’s long-term development model and which will reduce future facility requirements and long-term operating costs.

Operating costs for the quarter were higher than anticipated due to third party fees for processing the Company’s oil as repairs were being made to Granite’s processing equipment. These repairs were completed in the second quarter. Operating costs have returned to normalized levels going forward.

All-in capital costs for the three wells totaled approximately $4.1 million, with production for the quarter being slightly lower than the first quarter of 2017, totaling 2,859 BOE/d (97% liquids). Production was impacted by delayed completions due to service company availability, the conversion of two producing oil wells into gas injection wells decreasing quarterly production by approximately 100 bbls/d and production interruptions associated with facility commissioning expansion projects.

Among second quarter capital expenditures, approximately $1.8 million was on facility upgrades and gas injection EOR infrastructure expansions. This capital included a new 1680 horsepower gas compressor commissioned in the third week of April, 2017 as well as 4.1 kilometers of additional high-pressure pipelines to accommodate an increasing number of restricted flowing wells and to support the continued expansion of the EOR program and future growth in production and reserves. The added gas compression facilities provide capacity for approximately two years of additional drilling and associated injection at current development rates. Lastly, as mentioned above, two formerly producing oil wells were converted into gas injection wells.

Funds flow throughout the quarter was $6.8 million, a 3% increase over the first quarter of 2017, which includes some prior period amendments complimenting the Company’s quarterly funds flow.

Operations Update

At present, Granite has concluded the majority of its third quarter capital program. Two 100% percent working interest oil wells have been drilled and completed this quarter and one existing producing oil well was converted to a gas injection well. The two wells drilled this quarter are currently under test and expected to be on-stream by the end of the current week. All-in costs for the wells are expected to total approximately $1.25 million per well returning to benchmark lows of 2016 despite increased service costs and longer lateral lengths - demonstrating the Company’s continued commitment to cost-efficient development. Total capital expenditures for the quarter are expected to drop significantly to approximately $3.2 million as the Company shifts the majority of its capital to drilling for the remainder of the year and continuing into 2018.

Guidance

Granite is revising its guidance for the second half of 2017 due to commodity price trends and added price pressure associated with the CAD/USD foreign exchange rate relative to the guidance released January 24, 2017. As well, due to increased well costs in the first half and shifting development capital to expanding its EOR, the Company reduced its development well count from 10 to 8 wells in 2017 protecting its balance sheet and resulting in a minor reduction in production. The following tables outline the revised guidance and associated assumptions:

2017 Second Half Pricing Assumptions

Previous Revised
WTI oil price (US$) $55.00 $50.00
Exchange rate (US/Cdn) 1.35 1.25
WCS Differential (US$) ($14.00) ($11.00)

2017 Annual Guidance

Previous Revised
Production (boe/d) 3,050 2,900 – 3,000
Funds from operations (‘000’s) $30.0 $26.0 - $27.0
Capital Expenditures - Development (‘000’s) $13.5 $14.2
Capital Expenditures – Exploration (‘000’s) $3.0 $3.0
Development Wells (#) 10 8
Year End net debt $31.0 $37.0
Net debt to annualized funds from operations 0.97 1.40
All in payout ratio 100% 119%
All in payout ratio (excluding exploration) 93% 108%

Outlook

Granite remains committed to the protection of its strong balance sheet and dividend while staying focused on maximizing long term value of its resource for the shareholders. For the remainder of the year Granite’s capital program will focus almost entirely on drilling, including two potentially high impact exploration wells, and demonstrating improved sustainability. Granite remains in a strong position to adapt to continued volatility in commodity pricing and will continue to adjust as needed.

Board of Directors Update

Granite is pleased to announce and welcomes Mrs. Kathy Turgeon to the Board of Directors. Mrs. Turgeon brings a wealth of experience as the current CFO of Peyto Exploration & Development Corp. Granite is following a similar, proven organic growth model as Petyo and Mrs. Turgeon’s experience will be invaluable. Mrs. Turgeon is a Chartered Accountant.

Contact Information

For further information, please contact Michael Kabanuk, President & CEO by telephone at (587)349-9123 or Tyler Klatt, V.P. Exploration by telephone at (587) 349-9125

Reader Advisories

Forward-Looking Statements. Certain statements contained in this news release may constitute forward-looking statements or information (collectively, “forward-looking statements” or “statements”). These statements relate to future events or Granite’s future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. Statements relating to "reserves" are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, this news release contains forward-looking statements, pertaining to the following: forecasted capital expenditures and plans, drilling and development plans, Granite’s financial strength, projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, oil and natural gas production levels, the success of the enhanced oil recovery scheme, expectations regarding Granite’s credit facility, treatment under governmental regulatory and taxation regimes and expectations regarding Granite’s ability to raise capital and to continually add to reserves through acquisitions and development.

Granite believes the expectations reflected in such forward-looking statements and the assumptions upon which such forward-looking statements are based, to be reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon by investors. These statements speak only as of the date of this news release and are expressly qualified, in their entirety, by this cautionary statement. Granite’s actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; general economic conditions, stock market volatility and ability to access sufficient capital from internal and external sources, uncertainties associated with estimating reserves; uncertainties associated with Granite’s ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel. Readers are cautioned that the foregoing list of factors is not exhaustive. Management has included the above summary of assumptions and risks related to forward-looking information provided in this news release in order to provide security holders with a more complete perspective on Granite’s future operations and such information may not be appropriate for other purposes. Additional information on these and other factors that could affect Granite'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).

With respect to forward-looking statements contained in this news release, Granite has made assumptions regarding, among other things: prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; the legislative and regulatory environments of the jurisdictions where Granite carries on business or has operations; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to market oil and natural gas successfully and Granite’s ability to obtain additional financing on satisfactory terms.

The forward-looking statements represent Granite’s views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. Granite has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking statements will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

This news release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Granite’s prospective results of operations, funds from operations, netbacks, net debt, operating costs and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this news release was made as of the date of this news release and was provided for the purpose of providing further information about Granite's anticipated future business operations. Granite disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this news release should not be used for purposes other than for which it is disclosed herein.

Non-GAAP Measurements. This news release contains the terms "net debt", which represent current assets less current liabilities, excluding current derivative financial instruments, is used to assess efficiency, liquidity and the Company's general financial strength. No IFRS measure is reasonably comparable to working capital deficit. This news release uses the term "operating netback" or "netback", which is calculated by deducting royalties, operating expenses and transportation expenses from oil and gas revenue and adjusting for any realized hedging on financial instruments, is not a recognized measure under IFRS. This news release contains the term “funds from operations”, which should not be considered an alternative to or more meaningful than cash flow from (used in) operating activities as determined in accordance with IFRS. This term does not have any standardized meaning under IFRS. Granite’s determination of funds from operations may not be comparable to that reported by other companies. Management uses funds from operations to analyze operating performance and leverage, and considers funds from operations to be a key measure as it demonstrates Granite’s ability to generate cash necessary to fund future capital investments and to repay debt, if applicable. Funds from operations is calculated using cash flow from operating activities as presented in the statement of cash flows, before changes in non-cash working capital.

BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Source: Granite Oil Corp.