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Bonavista Energy Corporation Announces 2012 First Quarter Results

16:01 EDT Thursday, May 03, 2012

CALGARY, ALBERTA--(Marketwire - May 3, 2012) - Bonavista Energy Corporation (TSX:BNP) is pleased to report to shareholders its interim consolidated financial and operating results for the three months ended March 31, 2012.

Highlights
Three months
ended March 31, %
2012 2011 Change
Financial
($ thousands, except per share)
Production revenues 227,034 238,798 (5% )
Funds from operations(1) 104,635 129,067 (19% )
Per share(1) (2) 0.63 0.82 (23% )
Dividends declared(3) 52,183 48,488 8%
Per share 0.36 0.36 -
Net income 43,723 32,021 37%
Per share(4) 0.26 0.20 30%
Adjusted net income(5) 40,966 57,691 (29% )
Per share(4) 0.25 0.37 (32% )
Total assets 3,959,126 3,542,239 12%
Long-term debt, net of working capital 1,151,453 1,096,756 5%
Long-term debt, net of adjusted working capital(6) 1,146,417 1,068,847 7%
Shareholders' equity 2,015,380 1,849,978 9%
Capital expenditures:
Exploration and development 153,807 141,506 8%
Acquisitions, net (58,221 ) (14,932 ) 288%
Weighted average outstanding

equivalent shares: (thousands)(4)
Basic 166,253 156,856 6%
Diluted 167,253 157,943 6%
Operating
(boe conversion - 6:1 basis)
Production:
Natural gas (mmcf/day) 251 242 4%
Natural gas liquids (bbls/day) 14,623 11,741 25%
Oil (bbls/day)(7) 13,795 14,160 (3% )
Total oil equivalent (boe/day) 70,202 66,178 6%
Product prices:(8)
Natural gas ($/mcf) 2.38 4.22 (44% )
Natural gas liquids ($/bbl) 50.62 49.67 2%
Oil ($/bbl)(7) 82.73 75.91 9%
Operating expenses ($/boe) 9.39 8.46 11%
General and administrative expenses ($/boe) 0.96 0.97 (1% )
Cash costs ($/boe)(9) 13.46 12.86 5%
Operating netback ($/boe)(10) 18.94 24.45 (23% )

NOTES:

  1. Management uses funds from operations to analyze operating performance, dividend coverage and leverage. Funds from operations as presented does not have any standardized meaning prescribed by IFRS and therefore it may not be comparable with the calculations of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with IFRS. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital, decommissioning expenditures and interest expense Funds from operations per share is calculated based on the weighted average number of shares outstanding consistent with the calculation of net income per share.
  2. Basic funds from operations per share calculations include exchangeable shares which are convertible to common shares on certain terms and conditions.
  3. Dividends declared includes both cash dividends and common shares issued pursuant to the Corporation's dividend reinvestment plan (DRIP). For the three months ended March 31, 2012 approximately 770,000 common shares were issued under the DRIP with an approximate value of $16.2 million.
  4. Basic net income per share calculations include exchangeable shares which are convertible to common shares on certain terms and conditions.
  5. Amounts have been adjusted to exclude unrealized gains and losses on financial instrument commodity contracts.
  6. Amounts have been adjusted to exclude associated assets or liabilities from financial instrument commodity contracts.
  7. Oil includes both conventional and heavy oil.
  8. Product prices include realized gains and losses on financial instrument commodity contracts.
  9. Cash costs equal the total of transportation, operating, general and administrative, and financing expenses.
  10. Operating netback equals production revenues including realized gains and losses on financial instrument commodity contracts, less royalties, transportation and operating expenses, calculated on a boe basis.




Share Trading Statistics
Three months ended


March 31, 2012
December 31, 2011 September 30, 2011 June 30, 2011
($ per share, except volume)
High 26.79 27.48 29.98 30.36
Low 19.77 19.88 20.08 27.13
Close 20.20 26.07 23.56 28.57
Average Daily Volume - Shares 593,273 392,532 370,453 345,427

MESSAGE TO SHAREHOLDERS

Bonavista Energy Corporation ("Bonavista") is pleased to report to shareholders its financial and operating results for the three months ended March 31, 2012. The unaudited financial statements and notes, as well as management's discussion and analysis, are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at http://www.sedar.com and on Bonavista's website at www.bonavistaenergy.com. The North American market has seen an unprecedented 50% decline in natural gas prices over the past six months which has resulted in significant challenges for the energy industry. Natural gas producers, including Bonavista with a 59% weighting, are experiencing reduced cash flow, compounded by a cost structure that remains elevated by robust crude oil and liquids development activities. Bonavista's key business objectives in this environment include the maintenance of a sustainable business model, a high level of capital efficiency and a continued focus on cost control and full cycle profitability. Over the past several months, Bonavista has responded to this dramatic downturn in natural gas prices by divesting of non-core properties, reallocating capital expenditures toward oil development, curtailing high cost dry natural gas production and introducing a dividend reinvestment program.

Despite the continued deterioration of natural gas economics in our business, Bonavista experienced another successful quarter in the field as a result of the consistent application of our disciplined business strategies and focus on generating attractive returns.

Specific accomplishments for Bonavista in the first quarter of 2012 include:

  • Increased production volumes to 70,202 boe per day representing a 6% increase over the 66,178 boe per day of production in the first quarter of 2011. Furthermore, Bonavista increased oil and liquids volumes by 10% over the first quarter of 2011. Bonavista was able to achieve these growth rates in the first quarter of 2012 despite being impacted by 600 boe per day of unscheduled midstream facility downtime, 150 boe per day of dry natural gas curtailment and 200 boe per day of timing delays associated with limited service provider availability and an early spring break-up;
  • Invested $153.8 million in exploration and development activities in the first quarter of 2012 consisting of:
    • $118.5 million in drilling, completion and equipping expenditures;
    • $23.5 million in facility and pipeline infrastructure; and
    • $11.8 million in land and seismic acquisitions.
  • Divested of 650 boe per day of non-core assets during the quarter resulting in net acquisition and divestiture proceeds of $58.2 million;
  • Drilled 36 wells with a 100% success rate including 35 horizontal wells testing 12 different formations;
  • Increased our oil development activity by 70% over the first quarter of 2011 drilling 17 successful horizontal oil wells targeting nine different geological horizons;
  • Managed our exposure to forward commodity price fluctuations by adding to our hedge portfolio resulting in the protection of approximately 40% of forecasted natural gas production for the April through October 2012 time period with an average floor price of $2.37 per gj;
  • Generated funds from operations of $104.6 million ($0.63 per share) for the three months ended March 31, 2012. Bonavista distributed 34% of these funds to shareholders with the remainder reinvested to continue growing our production and reserves base;
  • Continued to achieve attractive levels of profitability in the first quarter of 2012 with a return on equity of 9% and an adjusted net income to funds from operations ratio of 39%. The above ratios reflect net income adjusted to negate the after tax impact of unrealized gains and losses on financial instrument commodity contracts; and
  • Since inception as a trust in 2003 and continuing in our current corporate structure, Bonavista has delivered cumulative dividends of over $2.2 billion or $25.11 per common share.

First Quarter 2012 Operational Highlights

Hoadley Glauconite Liquids Rich Natural Gas

Bonavista drilled nine horizontal wells in the first quarter of 2012 with a development program focused on maximizing the processing capacity of Bonavista operated facilities constructed in 2011. While the majority of these wells were not tied-in until the end of the first quarter, all nine wells have now been brought on production with an estimated average first month production rate consistent with existing type curve expectations.

The attractive natural gas liquids yields, low operating costs and favourable production addition costs of this play support continued development, even in the current low natural gas price environment. Our type well generates a 32% rate of return and a recycle ratio of 2.7 times at current 2012 strip commodity prices.

The application of pad drilling sites has provided Bonavista flexibility to continue drilling through the usually inactive spring break-up period. We are forecasting to spend between $90 and $105 million to drill between 30 and 35 horizontal wells on the Glauconite trend in 2012. Bonavista's Glauconite development program will contribute meaningfully to the value of our asset portfolio for many years to come with a current drilling inventory of 410 horizontal locations.

West Central Cardium Light Oil

Bonavista drilled six horizontal wells targeting the unconventional Cardium light oil trend in west central Alberta. We continued to focus our efforts in the first quarter of 2012 on prospective acreage in both the Ferrier and Willesden Green area with four horizontal wells drilled. Two additional horizontal wells were drilled in an emerging area of industry development in Harmattan where Bonavista successfully executed its first slickwater completion in the Cardium formation. This advancement reinforces Bonavista's corporate initiative to consistently apply new technology to enhance the capital efficiency of the numerous opportunities across our land base. Initial results have been encouraging leading to the continued application of this technology throughout the second quarter.

Bonavista has now drilled 60 horizontal Cardium wells since commencing our unconventional Cardium development program in the fourth quarter of 2009. Initial production rates and estimated recoverable reserves per well have increased significantly as a result of a greater understanding of the geology and a refinement in our drilling and completion techniques. Despite our robust drilling activity to date, we have increased our inventory by 20% over year end 2011 levels to 120 horizontal locations as we continue to delineate our 300 net section Cardium land base.

Using the current forward curve for commodity pricing, our type well generates a rate of return of 36% and offers an attractive recycle ratio of 2.6 times. Given our increasingly consistent production results to date and the attractive economics of light oil development, we will continue to reallocate a larger proportion of our 2012 capital budget to this play. We are currently forecasting spending between $70 and $80 million to drill between 24 and 27 horizontal wells in 2012.

Deep Basin Multi-zone Liquids Rich Natural Gas

Bonavista continues to pursue profitable, liquid rich natural gas prospects in this multi-zone area of the deep basin near Edson, Alberta. Our first quarter development program was focused on the Bluesky formation with the drilling of five horizontal wells and expanding the processing capacity for natural gas originating in the Pine Creek area by 20 mmcf per day. Initial production rates have been encouraging with four of the five wells brought on production within the last month at production rates averaging 600 boe per day per well inclusive of 40 bbls per mmcf of natural gas liquids. In addition to the Bluesky formation, Bonavista maintains a current inventory level of 120 locations in this multi-zone area with exposure to five other formations including the Rock Creek, Montney, Notikewin and Wilrich horizons. Bonavista intends to drill between 8 and 10 horizontal wells in the area in 2012.

Blueberry Montney Liquids Rich Natural Gas

Bonavista further delineated its Blueberry land base in the first quarter of 2012 drilling two horizontal Montney wells located approximately eight miles to the south west of our initial horizontal activity. These wells, which tested both Upper and Lower Montney horizons from a single pad location, have demonstrated encouraging initial test results of approximately 425 boe per day including a natural gas liquids yield of 100 bbls per mmcf, confirming the extension of a condensate-rich reservoir across our land base.

We will continue to observe industry activity and the production characteristics of these two step-out wells for a minimum of six months to assess further development in 2012.

Emerging Opportunities

Bonavista's first vertical Duvernay well, which was drilled and cored in the fourth quarter of 2011, was completed in the first quarter of 2012. The objective of this vertical well completion was to gather information on the initial reservoir pressure and the composition of hydrocarbons in the formation. After completing the fracture stimulation, the well recovered liquids rich natural gas and free condensate with test results suggesting potential natural gas liquid recovery rates of approximately 75 bbls per mmcf. In addition, pressure analysis suggests a significantly over-pressured reservoir. The results achieved with this vertical well provide sufficient encouragement for continued evaluation of the play. Bonavista will continue to monitor industry activity in the area, while determining the most appropriate manner to develop our 400 net sections of Duvernay rights.

In addition to the Duvernay formation, we continue to evaluate other emerging resource opportunities. In the first quarter of 2012, Bonavista drilled its first Second White Specks horizontal oil well and a successful horizontal oil well in the Viking formation in west central Alberta. We are encouraged by the results achieved to date on both plays and will continue to evaluate other light oil or liquids rich natural gas prospects in the Mannville, Viking, and Banff formations in 2012.

Strengths of Bonavista Energy Corporation

Beginning in 1997, with an initial restructuring to create a high growth junior exploration company, throughout the energy trust phase between July 2003 and December 2010, and now operating as a dividend paying corporation, Bonavista remains committed to the same strategies that have resulted in our tremendous success over the last 14 years. We have maintained a high level of investment activity on our asset base, increasing production by approximately 100% since converting to an energy trust in July 2003 and a further 5% since converting back to a corporation at the end of 2010. These results stem from the operational, technical and financial focus of our people, their attention to detail, and their entrepreneurial approach to generating low risk, highly profitable projects within the Western Canadian Sedimentary Basin. Our experienced technical teams have a solid understanding of our assets and they continue to exercise the discipline and commitment required to deliver long-term value to our shareholders. We actively participate in undeveloped land acquisitions, property purchases and farm-in opportunities, which have all enhanced the quality and quantity of our extensive drilling inventory. These activities have led to low cost reserve additions, lengthening of our reserve life index, and a predictable production base that continues to grow at a healthy pace. Our production base is currently weighted 59% towards natural gas and is geographically focused within select, multi-zone regions primarily in Alberta and British Columbia. The low cost structure of our asset base maintains attractive operating netbacks in most operating environments. In addition, our asset base is predominantly operated by Bonavista, providing control over the pace of operations and ensuring that operating and capital cost efficiencies are consistently optimized.

Our team brings a successful track record of executing low to medium risk development programs, including both asset and corporate acquisitions, along with sound financial management. Our Board of Directors and management team possess extensive experience in the oil and natural gas business. They have successfully guided our organization through many different economic cycles utilizing a proven strategy consisting of disciplined cost controls and prudent financial management. Directors, management and employees also own approximately 14% of the equity of Bonavista, resulting in the alignment of interests with all shareholders.

Outlook

Moving beyond the first quarter of 2012, Bonavista continues to focus on the development of our key resource plays offering the highest economic returns while prudently advancing our suite of emerging opportunities towards scaleable development.

Due to further erosion of natural gas prices, we intend to reduce our 2012 capital expenditure program by approximately $50 million to between $300 and $310 million. We are forecasting to drill between 95 and 100 wells within our key areas, all of which will target oil and liquids rich natural gas prospects. This capital program is expected to result in 2012 production volumes of between 69,500 and 70,500 boe per day and incorporates approximately 1,300 boe per day of shut-in natural gas production for the remainder of the year. This revised capital program involves a reduction in our exploration and development activity which may be recovered in part or in whole upon continued success with our ongoing disposition program. Bonavista is currently marketing a collection of non-core properties, which upon success and depending on relative investment opportunities, the proceeds from this disposition program will either be re-invested in our exploration and development program, potential 2012 acquisition opportunities or to reduce our outstanding debt. As in the past, we will monitor changes in commodity prices and the business environment and remain flexible with our capital expenditure and production curtailment plans in order to maximize shareholder value.

Overall, our long term business strategy will remain intact with a commitment to deliver a balance of growth and income through our monthly dividend. Bonavista's inventory of approximately 1,400 future drilling locations represents more than 10 years of organic growth opportunities at our current pace of drilling. Approximately 90% of these locations target high impact, unconventional resource prospects and approximately 60% generate a 2:1 recycle ratio at current strip commodity prices. Given the ample inventory of acquisition opportunities, we will also remain attentive for opportunities that complement our internally generated drilling programs.

Since our inception in 1997, we have experienced many changes in our business environment by continuing to apply the same core strategies that have proven to add shareholder value over the long term. The pillar of these strategies is to continually exercise cost discipline and a high level of capital spending efficiency in pursuit of low to medium risk growth prospects.

We would like to thank our employees for their continued success in the first quarter of 2012 and our shareholders for their continued support. Our core philosophy and key operating strategies have proven to work well throughout all phases of the business cycle and we look forward to continually creating long-term value for our shareholders. Our team is very committed to this vision.

FORWARD LOOKING INFORMATION

Corporate information provided herein contains forward-looking information. The reader is cautioned that assumptions used in the preparation of such information, particularly those pertaining to cash dividends, production volumes, commodity prices, operating costs and drilling results, which are considered reasonable by Bonavista at the time of preparation, may be proven to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein and the variations may be material. There is no representation by Bonavista that actual results achieved during the forecast period will be the same in whole or in part as those forecast.

Bonavista is a mid-sized energy corporation committed to maintaining its emphasis on operating high quality oil and natural gas properties, providing moderate growth and delivering consistent dividends to its shareholders and ensuring financial strength and sustainability.

FOR FURTHER INFORMATION PLEASE CONTACT:

Keith A. MacPhail
Bonavista Energy Corporation
Chairman & CEO
(403) 213-4300
OR
Jason E. Skehar
Bonavista Energy Corporation
President & COO
(403) 213-4300
OR
Glenn A. Hamilton
Bonavista Energy Corporation
Senior Vice President & CFO
(403) 213-4300
OR
1500, 525 - 8th Avenue SW
Bonavista Energy Corporation
Calgary, AB T2P 1G1
www.bonavistaenergy.com




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