Delphi
Energy Corp.
TSX:DEE
July 31, 2008
Delphi Energy Achieves Record Production,
Strengthens Balance Sheet in Q2 2008
CALGARY - Delphi Energy Corp. ("Delphi"
or the "Company") is pleased to announce its financial and
operational results for the three and six months ended June 30, 2008.
Second Quarter 2008 Highlights
- Achieved record production of 6,202 barrels of oil equivalent per day
(boe/d), marking the fifth consecutive quarter of production growth.
- Generated record funds from operations (cash flow) of $20.0 million ($0.29
per share), a 74 percent increase over $11.5 million ($0.17 per share) in the
comparative quarter of 2007.
- Reduced net debt to 1.2 times annualized second quarter funds from
operations, down from 1.8 times at the end of 2007. Net debt amounted to $97.2
million at the end of the second quarter.
- On July 29, 2008, the Company's lenders increased Delphi's
credit facilities to $140 million, up from $125 million.
Financial Highlights ($ thousands except per unit
amounts)
������������������������������ ��������������� Three
Months Ended������� Six Months Ended
�������������������������������������������
June 30���������������� June 30
����� ��������������������������������������������%���������������������� %
������������������������������ 2008�� 2007��
Change��� 2008��� 2007�
Change
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Petroleum and natural gas
�sales� ���������������������38,569 24,779������ 56�
70,781� 46,753����� 51
�Per boe��������������������� 68.33� 50.63������
35�� 63.45�� 53.22�����
19
Funds from operations������� 19,965 11,469������ 74�
37,024� 22,134����� 67
�Per boe��������������������� 35.37 �23.44������
51�� 33.18�� 25.19�����
32
�Per share -
Basic������������ 0.29�� 0.17������
71��� 0.54��� 0.34�����
59
�Per share - Diluted���������� 0.28�� 0.17������
65��� 0.53��� 0.34�����
56
Net
earnings (loss)������������� 49��� 797�����
(94)�� (690)(10,856)��� (94)
�Per boe���������������������� 0.09�� 1.63�����
(94)� (0.62) (12.36)��� (95)
�Per share - Basic��������������� -�� 0.01����
(100)� (0.01)� (0.17)���
(94)
�Per share - Diluted������������� -�� 0.01����
(100)� (0.01)� (0.17)���
(94)
Capital
invested������������� 7,489� 4,311������
74� 33,987� 20,307�����
67
Disposition
of properties���� 2,950����� -�����
100�� 2,950������ -����
100
Net
capital invested��������� 4,539� 4,311�������
5� 31,037� 20,307�����
53
Acquisition
of properties�� ��3,850 10,871����� (65)�
3,850� 10,871���� (65)
Total
capital���������������� 8,389 15,182����� (45) 34,887� 31,178����
(12)
���������������������������������������������
June 30,�� Dec. 31,�������� %
������������������������������������������������
2008 ������2007���� Change
Debt
plus working capital deficiency (1)������
97,172��� 100,658�������� (3)
Total
assets���������������������������������
323,791��� 311,735��������� 4
Shares
outstanding (000's)
�Basic���������������������������������������� 69,120
����68,070��������� 2
�Diluted��������������������������������������
73,862���� 73,551��������� -
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(1)
excludes risk management asset or liability and the related current
��� future income tax asset.
Operational
Highlights
��� �����������������������������Three Months
Ended������� Six Months Ended
�������������������������������������������
June 30 ����������������June 30
�������������������������������������������������
%���������������������� %
Production�������������������� 2008�� 2007��
Change��� 2008��� 2007�
Change
----------------------------------------------------------------------------
Natural
gas (mcf/d)��������� 31,898 26,967������ 18�
31,838� 24,327����� 31
Crude
oil (bbls/d)������������� 368��� 423�����
(13)��� 378���� 395�����
(4)
Natural
gas liquids (bbls/d)��� 517��� 461������
12���� 444���� 404�����
10
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Total
(boe/d)���������������� 6,202� 5,379������
15�� 6,129�� 4,854�����
26
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MESSAGE
TO SHAREHOLDERS
Delphi Energy Corp. continued to achieve record production in the second
quarter of 2008, with average daily production increasing for the fifth
consecutive quarter. Production increased 43 percent year over year from an
average of 4,322 barrels of oil equivalent per day (boe/d) in the first quarter
of 2007 to 6,202 boe/d. Natural gas production comprised 87 percent of the
Company's overall production which, combined with the increase in natural gas
prices, contributed to record funds from operations (cash flow) in the second
quarter.
The increase in natural gas prices in the second quarter of 2008 continues a
trend which began in September 2007 when AECO was $4.48 per thousand cubic feet
(mcf). While partially influenced by the strength of crude oil price increases,
natural gas price increases are predominantly based on supply and demand
fundamentals in the North American market. During the period, liquefied natural
gas (LNG) imports to the United States
remained below the historical average and well below record injections in the
spring of 2007, as world prices for natural gas provided greater economic
returns to offshore U.S.
producers. Natural gas injections into storage in the United
States through the second quarter resulted in
storage levels being approximately 13 percent below last year's levels and
approximately one percent below the five-year historical average. The
continuing increase in crude oil prices has also had a positive effect on the
rise in natural gas prices. During the second quarter, the AECO average daily
spot price ranged from $8.55 per mcf early in the quarter to $11.77 per mcf at
the end of the quarter.
Crude oil prices maintained momentum in the second quarter of 2008, approaching
U.S. $145 per barrel late in the quarter. This increase can be attributed to
continued strong global demand, production disruptions, geopolitical unrest in
major producing regions and the devaluation of the U.S. dollar. The outlook for
oil remains strong despite its lofty heights and growing concerns over the U.S.
and global economies. For Canadian producers, the realized price for light
crude oil is very similar to the price of West Texas Intermediate due to the
Canadian dollar continuing to remain around parity with the U.S. dollar.
Funds from operations in the second quarter of 2008 were a record $20.0 million
($0.29 per basic share), compared to $11.5 million ($0.17 per basic share) in
the same period of 2007. This is a result of strong cash netbacks from the
increasing natural gas price environment and the Company's significant leverage
to increasing natural gas prices. The second quarter of 2008 was the first
quarter in the past 10 in which Delphi's risk
management program resulted in a realized loss on hedging contracts. For the
three months ended June 30, 2008, Delphi recognized approximately $2.8 million
in realized losses on Canadian dollar denominated physical contracts, included
in natural gas revenue, and recognized a realized loss of approximately $0.4
million on financial contracts and U.S.
denominated physical contracts. For the six months ended June 30, 2008 the
Company has recognized approximately $1.8 million in realized losses on hedging
contracts. Despite the realized loss on risk management activities, Delphi
recorded net earnings of $49,000 in the second quarter of 2008 as increased
revenues helped offset the loss on hedging contracts.
The Company is focused on ensuring its capital program provides near-term
production growth at attractive capital metrics. As a result of spring
break-up, the Company's summer drilling program commenced late in the second
quarter. Completion of first quarter projects and the late start-up of summer
drilling resulted in a capital program for the second quarter of $7.5 million,
with one well being drilled and subsequent completion operations continuing
into the third quarter. Proceeds from the disposition of a minor property in
North East British Columbia of $3.0 million resulted in a net capital program
of $4.5 million in the quarter. In addition, the Company provided a $3.9
million cash deposit towards the acquisition of oil and natural gas properties.
Excess cash flow over net capital and the cash deposit was used to pay down the
Company's net debt.
With the reduction in net debt the Company's financial position continues to
strengthen. At June 30, 2008, the Company had net debt, excluding the risk
management liability and related current future income tax asset, of $97.2
million, down 11 percent from $109.7 million at March 31, 2008. The reduction
in net debt was anticipated due to strong natural gas prices, production growth
and a limited capital program in the second quarter because of spring break-up.
Based on annualized second quarter funds from operations, Delphi
improved its net debt ratio to 1.2 times funds flow from 1.6 times at the end
of the first quarter. Net debt includes bank debt plus working capital
deficiency excluding the risk management asset or liability and the related
current future income tax asset. The annual credit review by the Company's
lenders has also been completed. On July 29, 2008 the lenders renewed the
production credit facility at $130.0 million and continue to make available the
$10.0 million development credit facility. With the recent closing of Delphi's
acquisition of properties in the Peace River Arch, described below, the Company
has a strong enough cash flow and credit capacity of approximately $37.0
million to potentially expand the capital program.
On June 26, 2008, the Company announced the acquisition of oil and natural gas
properties for $38.1 million, after closing adjustments, in the Peace River
Arch area of North West Alberta and North East British Columbia. At the same
time, the Company announced an equity offering of 6,316,000 common shares at
$2.85 per share and 3,530,000 flow-through shares at $3.40 per share for
proceeds of approximately $30.0 million ($28.1 million net). The financing
transaction closed on July 17, 2008 and the acquisition of the properties was
concluded on July 30, 2008. The acquisition was funded by the net proceeds of
the equity offering and the Company's credit facilities.
For the full release,
please visit Delphi�s website at: http://www.delphienergy.ca.
For further
information please contact:
Delphi Energy Corp.
David J. Reid
President & CEO
(403) 265-6171
Fax: (403) 265-6207
or
Delphi
Energy Corp.
Brian P. Kohlhammer
V.P. Finance & CFO
(403) 265-6171
Fax: (403) 265-6207
or
Delphi
Energy Corp.
300, 500 - 4 Avenue S.W.
Calgary,Alberta
T2P
2V6
Email: info@delphienergy.ca
Website: www.delphienergy.ca
Forward-Looking Statements.
This management discussion and
analysis contains forward-looking statements and forward-looking information
within the meaning of applicable securities laws. The use of any of the words
"expect", "anticipate", "continue",
"estimate", may", "will", "should",
believe", "intends", "forecast", "plans",
"guidance" and similar expressions are intended to identify
forward-looking statements or information.
More particularly and without limitation, this
management discussion and analysis contains forward looking statements and
information relating to the Company's risk management program, petroleum and
natural gas production, future funds from operations, capital programs,
commodity prices, costs and debt levels. The forward-looking statements and
information are based on certain key expectations and assumptions made by
Delphi, including expectations and assumptions relating to prevailing commodity
prices and exchange rates, applicable royalty rates and tax laws, future well
production rates, the performance of existing wells, the success of drilling
new wells, the capital availability to undertake planned activities and the
availability and cost of labour and services.
Although the Company believes that the expectations reflected in such
forward-looking statements and information are reasonable, it can give no assurance
that such expectations will prove to be correct. Since forward-looking
statements and information address future events and conditions, by their very
nature they involve inherent risks and uncertainties. Actual results may differ
materially from those currently anticipated due to a number of factors and
risks. These include, but are not limited to, the risks associated with the oil
and gas industry in general such as operational risks in development,
exploration and production, delays or changes in plans with respect to
exploration or development projects or capital expenditures, the uncertainty of
estimates and projections relating to production rates, costs and expenses,
commodity price and exchange rate fluctuations, marketing and transportation, environmental
risks, competition, the ability to access sufficient capital from internal and
external sources and changes in tax, royalty and environmental legislation.
Additional information on these and other factors that could affect the
Company's operations or financial results are included in reports on file with
the applicable securities regulatory authorities and may be accessed through
the SEDAR website (www.sedar.com). The forward-looking statements and information contained in this
press release are made as of the date hereof for the purpose of providing the
readers with the Company's expectations for the coming year. The
forward-looking statements and information may not be appropriate for other
purposes. Delphi undertakes no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of new
information, future events or otherwise, unless so required by applicable securities
laws.
Basis of Presentation. For the
purpose of reporting production information, reserves and calculating unit
prices and costs, natural gas volumes have been converted to a barrel of oil
equivalent (boe) using six thousand cubic feet equal to one barrel. A boe
conversion ratio of 6:1 is based upon an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead. This conversion conforms with the Canadian
Securities Administrators' National Instrument 51-101 when boes are disclosed.
Boes may be misleading, particularly if used in isolation.
Non-GAAP Measures. The MD&A
contains the terms "funds from operations", "funds from
operations per share" and "netbacks" which are not recognized
measures under Canadian generally accepted accounting principles. The Company
uses these measures to help evaluate its performance. Management considers
netbacks an important measure as it demonstrates its profitability relative to
current commodity prices. Management uses funds from operations to analyze
performance and considers it a key measure as it demonstrates the Company's
ability to generate the cash necessary to fund future capital investments and
to repay debt. Funds from operations is a non-GAAP measure and has been defined
by the Company as net earnings plus the addback of non-cash items (depletion,
depreciation and accretion, stock-based compensation, future income taxes and
unrealized gain/(loss) on risk management activities) and excludes the change
in non-cash working capital related to operating activities and expenditures on
asset retirement obligations and reclamation. The Company also presents funds
from operations per share whereby amounts per share are calculated using
weighted average shares outstanding consistent with the calculation of earnings
per share. Delphi's determination of funds from operations may not be
comparable to that reported by other companies nor should it be viewed as an
alternative to cash flow from operating activities, net earnings or other
measures of financial performance calculated in accordance with Canadian GAAP.
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