Exhibit 99.1
News release via Canada NewsWire, Calgary 403-269-7605
Attention Business/Financial Editors:
Canetic Resources Trust announces solid third quarter operating and
financial results
CALGARY, Nov. 8 /CNW/ - (CNE.UN - TSX; CNE - NYSE) - Canetic Resources
Trust ("Canetic" or the "Trust") is pleased to announce its operating and
financial results for the three and nine months ended September 30, 2007.
"We have achieved solid financial and operating results for the fourth
consecutive quarter despite the challenges posed by the current natural gas
pricing environment, continued cost escalation, facility turnarounds and the
rapid appreciation of the Canadian to U.S. dollar exchange rate. We credit our
strong performance this quarter to our ability to successfully operate and
sustain production within our significant asset base," said J. Paul Charron,
President and Chief Executive Officer of Canetic.
"We are also very excited by our recently announced strategic combination
with Penn West Energy Trust ("Penn West") as we believe this combination will
strategically position our Trust and our unitholders for the future. The
combination creates Canada's flagship energy trust and the premier independent
light oil producer in Western Canada with initial production in excess of
200,000 barrels of oil equivalent ("boe") per day in 2008 and conventional
proven plus probable reserves in excess of 800 million boe. The combined trust
will have the size, financial strength and flexibility to be the dominant oil
and natural gas trust in North America. Moving forward, we will continue to
seek further growth opportunities, within the Western Canadian Sedimentary
Basin and outside Canada, to enhance our portfolio for long-term
sustainability."
<<
Highlights
- Production volumes averaged 74,572 boe per day for the third quarter
2007, compared to 74,475 boe per day for the third quarter 2006, and
reflect the impact of planned and unplanned turnarounds and outages
as well as normal production declines. On a year-to-date basis,
production volumes have averaged 77,435 boe per day in 2007 compared
to 72,431 boe per day in 2006. These volumes reflect the impact of
production related to the 2006 Samson acquisition offset by
minor property dispositions of approximately 1,000 boe per day in
the second quarter 2007, outages, and natural production declines.
- During the third quarter 2007, Canetic generated cash flow from
operating activities of $182.5 million, an increase of 32 percent
compared with the same period of 2006. For the nine months ended
September 30, 2007, cash flow from operating activities increased 18
percent to $574.0 million from $485.8 million during the comparable
period of 2006.
- Third quarter 2007 capital expenditures for development activities
totalled $88.0 million as compared to $104.4 million for the same
period in 2006. A total of 64 gross (27.4 net) wells were drilled
during the quarter with a success rate of 100 percent. On a
year-to-date basis we have drilled a total of 188 gross (96.6 net)
wells, incurring approximately $325.3 million on exploitation and
development activities.
- On October 18, 2007, Canetic announced its agreement to acquire
Titan Exploration Ltd. ("Titan") creating a dominant position in the
emerging Lower Shaunavon play in Southwest Saskatchewan. Canetic
will acquire production of approximately 1,800 boe per day, weighted
63 percent to oil, and a Canetic estimated 7.3 million boe of proved
plus probable reserves with a Reserve Life Index ("RLI") of
approximately 11 years. Canetic will also acquire approximately
73,000 net acres of undeveloped land including over 49,000 gross
(23,700 net) acres in the Leitchville area overlaying the Lower
Shaunavon trend.
- On October 31, 2007, Canetic and Penn West announced that they had
entered into a combination agreement (the "Combination Agreement")
that would provide for the strategic combination of Penn West and
Canetic. The combined trust will be the largest conventional oil and
natural gas trust in North America with an enterprise value of
approximately $15 billion and initial production in
excess of 200,000 boe per day. The combined asset portfolio will
include interests in a significant number of Western Canada's
highest quality conventional oil and natural gas pools and will also
include a number of non-conventional growth opportunities including
oil sands, coalbed methane, shale gas and enhanced oil recovery. At
closing, this merger of assets and people will operate under the
Penn West name and will be led by a management team and
board of directors drawn from each of Canetic and Penn West.
Under the terms of the Combination Agreement, Canetic unitholders
will receive 0.515 of a Penn West unit for each Canetic unit on a
tax-deferred basis for Canadian and U.S. tax purposes. Immediately
prior to the closing of the combination, a one-time special
distribution of $0.09 per unit will be paid to Canetic unitholders.
The special distribution is intended to keep Canetic unitholders
whole, in cash distributions, for a period of six months. Based on
the closing price of Penn West units on the Toronto Stock Exchange
("TSX") on October 30, 2007 Canetic unitholders will receive a
premium of 7.1 percent to the closing price of Canetic units on the
TSX on October 30, 2007. On completion of the combination, Penn West
unitholders will own approximately 67 percent and Canetic
unitholders will own approximately 33 percent of the combined trust.
Penn West units will continue to be listed on both the TSX and the
New York Stock Exchange ("NYSE").
The combination is subject to stock exchange, court and regulatory
approval, and the approval of at least 66 2/3 percent of the votes
cast by Canetic unitholders at a unitholder meeting to be held to
approve the combination in mid January 2008 with closing to occur
immediately thereafter. An Information Circular is expected to be
mailed to unitholders of Canetic in early December 2007.
A conference call will be held to discuss Canetic's third quarter
operating and financial results on November 9, 2007, at 11:00am mountain time
(1:00pm eastern time). The call number for participants is (416)644-3434 or
toll-free (800)814-4861.
A replay of the conference call will be made available approximately one
hour following the call and remain accessible until 11:59pm on November 16,
2007. The replay number is (416)640-1917 or toll-free (877)289-8525 and the
passcode is 21252717 followed by the pound key.
FINANCIAL AND OPERATING SUMMARY
As At And For The As At And For The
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------------------------------------------
($millions except % %
per unit amounts) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
FINANCIAL
Petroleum and
natural gas sales 346.1 368.5 -6% 1,084.7 1,060.1 2%
Funds flow(1) from
operations 181.6 200.3 -9% 564.0 580.1 -3%
Per unit - basic 0.80 0.95 -17% 2.48 2.91 -15%
Per unit - diluted 0.79 0.93 -15% 2.48 2.85 -13%
Net earnings (loss) 15.7 102.7 -85% (293.0) 244.7 -220%
Per unit - basic 0.07 0.49 -86% (1.29) 1.23 -205%
Per unit - diluted 0.07 0.48 -86% (1.29) 1.21 -206%
Cash distributions 130.0 144.9 -10% 397.5 417.0 -5%
Distributions declared
per unit 0.57 0.69 -17% 1.71 2.07 -17%
-------------------------------------------------------------------------
Capital expenditures
Net development
expenditures 88.0 104.4 -16% 325.3 257.2 26%
Net capital
expenditures 101.5 1,078.4 -91% 303.7 3,773.0 -92%
Total assets 5,578.4 5,853.2 -5% 5,578.4 5,853.2 -5%
Long-term debt 1,374.0 1,223.0 12% 1,374.0 1,223.0 12%
Net debt(1) 1,404.2 1,254.4 12% 1,404.2 1,254.4 12%
Unitholders' equity 2,887.7 3,662.5 -21% 2,887.7 3,662.5 -21%
-------------------------------------------------------------------------
Weighted average
trust units
outstanding (000s) 228,328 210,226 9% 227,389 199,640 14%
Trust units
outstanding at
period end (000s) 230,108 224,530 2% 230,108 224,530 2%
-------------------------------------------------------------------------
OPERATING
Production
Natural gas
(mmcf/d) 205.7 181.4 13% 212.2 174.5 22%
Crude oil (bbl/d) 34,578 38,314 -10% 35,636 37,765 -6%
Natural gas
liquids (bbl/d) 5,711 5,925 -4% 6,426 5,577 15%
Crude oil and
NGLs (bbl/d) 40,289 44,239 -9% 42,062 43,342 -3%
Barrels of oil
equivalent
(boe/d) (at)
6 mcf:1 bbl 74,572 74,475 0% 77,435 72,431 7%
-------------------------------------------------------------------------
Average prices
Natural gas ($/mcf) 5.33 6.21 -14% 6.91 7.04 -2%
Natural gas ($/mcf)
(including
financial
instruments) 6.64 7.23 -8% 7.51 7.72 -3%
Crude oil ($/bbl) 68.38 67.27 2% 61.79 63.03 -2%
Crude oil ($/bbl)
(including
financial
instruments) 64.42 62.67 3% 59.88 58.63 2%
Natural gas
liquids ($/bbl) 50.60 50.60 0% 46.65 48.81 -4%
-------------------------------------------------------------------------
Total ($/boe) 50.45 53.78 -6% 51.31 53.61 -4%
Total ($/boe)
(including financial
instruments) 52.22 53.91 -3% 52.09 52.96 -2%
-------------------------------------------------------------------------
Drilling activity
(gross)
Natural gas 33 55 - 84 150 -
Oil 31 34 - 92 101 -
Other - 1 - 7 5 -
Dry and abandoned - 2 - 5 7 -
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Total gross wells 64 92 - 188 263 -
-------------------------------------------------------------------------
Total net wells 27.4 43.2 - 96.6 125.6 -
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Success rate (%) 100% 98% - 97% 97% -
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(1) Please see Non-GAAP measures in this news release. See also the Non-
GAAP measures section of Canetic Management's Discussion and Analysis
("MD&A") available at www.sedar.ca or www.sec.gov
Note: All references are to Canadian dollars unless otherwise indicated.
Natural gas volumes recorded in thousand cubic feet ("mcf") or
million cubic feet ("mmcf") are converted to barrels of oil
equivalent ("boe") using the ratio of six (6) thousand cubic feet
to one (1) barrel of oil ("bbl"). BOEs may be misleading,
particularly if used in isolation. A BOE conversion ratio of
six (6) mcf: one (1) bbl is based on an energy equivalent
conversion method primarily applicable at the burner tip and does
not represent a value equivalent at the wellhead.
>>
PRESIDENT'S MESSAGE
We are pleased with the operational and production performance of our
existing high quality asset base and continue to be encouraged by the strong
results of our ongoing exploitation and development activities undertaken to
date. The solid performance of our assets helped to partially mitigate the
impact of both planned and unplanned third party facility turnarounds and
outages experienced during the quarter. The combined impact of turnaround
activity, facility outages, weather, and extended spring break-up related
factors resulted in the loss of an estimated 1,100 boe per day of production
over the quarter. Minor property dispositions in Northeast Alberta, effective
April 30, 2007, accounted for an additional loss of approximately 1,100 boe
per day of production during the quarter.
In addition to our continued focus on operations we have renewed our
efforts on the acquisition front. On October 18, 2007, Canetic announced its
agreement with Titan pursuant to which Canetic will acquire production of
approximately 1,800 boe per day, weighted 63 percent to oil, and a Canetic
estimated 7.3 million boe of proved plus probable reserves with an RLI of
approximately 11 years. More importantly, Canetic will also acquire over
49,000 gross (23,700 net) acres of land, in the Leitchville area of Southwest
Saskatchewan, in close proximity to Canetic's existing 45,100 gross (41,200
net) acres, to create a dominant position in the emerging and strategically
significant Lower Shaunavon trend. Current Titan production in Southwest
Saskatchewan exceeds 900 boe per day. In addition to the production and lands
in Southwest Saskatchewan, Canetic will also acquire approximately 900 boe per
day of production located in the northern regions of Alberta and British
Columbia. Approximately two-thirds of this production is located in the Peace
River Arch region in close proximity to Canetic's existing lands.
On October 31, 2007, Canetic announced our agreement to complete a
strategic combination with Penn West that will create Canada's flagship energy
trust and the dominant independent light oil producer in Western Canada with
production in excess of 200,000 boe per day in 2008 and conventional proven
plus probable reserves in excess of 800 million boe. The combination will
provide Canetic unitholders with exposure to a significantly enhanced
portfolio of unconventional development opportunities including the
multi-billion barrel (discovered heavy oil resources in place) Peace River Oil
Sands Project, a significant area for potential future growth now available to
Canetic unitholders. The combination also serves to provide significantly
greater exposure to growth opportunities from coalbed methane, shale gas and
enhanced recovery from some of Canada's largest legacy light oil pools. The
increased size and financial strength of the combined trust will help to
accelerate the future development of both its conventional and unconventional
growth opportunities and will provide added flexibility in positioning for
2011 and beyond. The larger size of the combined trust is also expected to
enhance liquidity on the Toronto and New York stock exchanges and increase its
weighting in major indices, including the S&P/TSX 60 Index. Thus leading to
greater attention and potentially better valuation from both equity and income
investors. The increased liquidity and enhanced financial flexibility is
expected to facilitate further expansion both within the Western Canadian
Sedimentary Basin and outside of Canada, further bolstering the
competitiveness of the combined trust beyond 2011. The combined trust will
initially boast tax pools in excess of $5.5 billion and safe harbour capacity
for growth, under the Undue Expansion rules set out for income trusts, of
approximately $8.7 billion on an equity basis in 2008, and approximately $15
billion on an equity basis in total. Going forward, we believe that
unitholders of the combined trust will benefit from the strength and
experience of the combined board of directors, management team and personnel.
On the development front we have continued to focus a significant
proportion of our 2007 capital program on the exploitation and development of
our extensive inventory of high quality crude oil prospects, many of which
were acquired as part of the StarPoint transaction completed early in 2006.
Year-to-date we have operated or participated in the drilling of 188 gross
(96.6 net) wells at a total exploitation and development cost of approximately
$325.3 million.
Highlights of the third quarter 2007 development program include the
successful drilling of our first operated multi-lateral horizontal Mannville
coalbed methane well in the Corbett Creek area. Canetic holds a 100 percent
working interest in this well which also served to validate a 21 section
exploration license in the active Mannville coalbed methane play. We expect to
complete the well and begin production in 2008.
Other activity included the successful drilling and completion of two
high rate oil wells in the strategically important Leitchville area of
Southwest Saskatchewan. Year-to-date, Canetic has actively participated at
Saskatchewan land sales amassing approximately 20,000 acres on the Lower
Shaunavon trend, at a cost of approximately $24 million. This targeted
activity culminated in the highlighted announcement of our intention to
acquire Titan to create a dominant position in the Southwest Saskatchewan
trend, an area anticipated to provide significant growth and development
opportunity for Canetic.
We continue to see upward pressure on our cost base, primarily from
increasing field service costs, specifically power and labour. As we continue
to experience higher field costs through our asset base, considerable effort
and focus is being given to improving operational efficiencies which are
expected to help control operating costs on a unit-of-production basis,
including the divestiture of assets which have a high cost base.
Further challenges facing our industry include the continued and rapid
appreciation of the Canadian dollar. The Canadian dollar continued to
appreciate and moved above par with the U.S. dollar by the end of the third
quarter of 2007. This will continue to impact our revenues as prices for both
oil and natural gas are based on U.S. dollar benchmarks thus reducing overall
margins we receive in Canadian dollars.
Our commodity price risk management program is primarily designed to
provide price protection on a portion of our future production in the event of
adverse commodity price movements, while retaining some participation in
favourable price movements. Canetic remains well hedged in light of continuing
weakness in natural gas prices. Approximately 40 percent of natural gas
production volumes are hedged to March 31, 2008 under costless collars with a
floor price of approximately $7.00 per Gigajoule.
In light of challenges posed by today's changing economic and political
environments we believe the combination of Penn West and Canetic will create a
platform able to deliver incremental value for our unitholders and having the
financial strength to embark on strategic acquisitions and initiatives that
will optimize the combined trust's diverse portfolio of oil and gas
properties. We also believe it will help to attract new talent and access to
opportunities which will further contribute to the foundation of world-class
assets and expertise. We believe our current course positions the combined
trust well to compete in today's environment and provide our unitholders with
a sustainable source of income.
FINANCIAL
Revenue for the nine months ended September 30, 2007 totalled
$1,084.7 million, an increase of two percent from $1,060.1 million for the
comparable period of 2006. Revenue for the third quarter 2007 totalled $346.1
million, a decrease of six percent compared to $368.5 million during the same
period of 2006. The decrease in quarterly revenue year-over-year is largely
attributable to declines in crude oil volumes, softer natural gas prices and
the appreciation in the Canadian dollar relative to the U.S. dollar.
Funds flow from operations totalled $564.0 million or $2.48 per diluted
unit, down three percent from $580.1 million reported for the corresponding
period in 2006. Funds flow from operations, during the third quarter totalled
$181.6 million or $0.79 per diluted unit, a decrease of nine percent from
$200.3 million or $0.93 per diluted unit in the same period of 2006 and a five
percent decrease from $192.0 million or $0.84 per diluted unit during the
second quarter of 2007.
The net loss for the nine months ended September 30, 2007, totalled
$293.0 million or $1.29 per diluted unit as compared to net income of $244.7
million reported for the same period in 2006. Net income for the third quarter
was $15.7 million or $0.07 per diluted unit, as compared to $102.7 million or
$0.48 per diluted unit in 2006. The net loss for the nine months ended
September 30, 2007, results from a one time charge to future tax expense
associated with the enactment of Bill C-52 (Budget Implementation Act, 2007)
which incorporated the Specified Investment Flow-Through Rules (the "SIFT
Rules") which became law on June 22, 2007.
The price of West Texas Intermediate ("WTI") crude averaged US$75.33
(Cdn$78.71) per bbl during the third quarter 2007, compared to US$70.55
(Cdn$79.10) per bbl for the same period in 2006. For the first nine months of
2007, WTI crude averaged US$66.26 (Cdn$73.22) per bbl compared to US$68.29
(Cdn$77.32) per bbl for the same period in 2006. Crude oil prices remain
strong with global demand growth continuing to tighten the supply-demand
situation as inventories decline. As the year has progressed there has been a
continued call for OPEC production to increase as Non-OPEC supply growth has
not been able to meet this increased demand. For the nine months ended
September 30, 2007, we received an average oil price of $61.79 per bbl as
compared to $63.03 per bbl for the comparable period in 2006. Our
differentials from the WTI crude oil prices fluctuate as premiums for our
light sweet crude oil are offset by increases in the differentials on heavy
crude oil.
The AECO Monthly Index gas price averaged $5.61 per mcf in the third
quarter of 2007, compared to $6.03 per mcf in the third quarter 2006.
Year-to-date, the AECO Monthly Index price has averaged $6.81 per mcf,
compared to $7.19 per mcf for the same period in 2006. The AECO price
continues to remain weak, consistent with 2006 levels. We believe that the
primary factors influencing the AECO gas price are high inventory levels in
North America caused by robust drilling activity in the United States, growth
in liquefied natural gas spot cargos redirected into North America from Europe
due to weak gas prices there, and the lack of significant weather patterns to
draw down gas storage. The Western Canadian Sedimentary Basin's ("WCSB")
activity levels are expected to remain weak until prices appreciate to a level
where natural gas margins improve to begin to drive supply. Our average
realized natural gas price was $6.91 per mcf for the nine months ended
September 30, 2007 as compared to $7.04 per mcf during the same period in
2006. Our average natural gas price for the quarter was $5.33 per mcf compared
to $6.21 per mcf in the third quarter in 2006.
During the third quarter of 2007, Canetic paid cash distributions of
$130.0 million or $0.57 per unit. For the nine months ended September 30, 2007
our cash distributions totalled $397.5 million.
For 2007, we estimate that for Canadian taxpayers, 100 percent of cash
distributions will be taxable and no portion of the distributions will be a
tax-deferred return of capital. We estimate that for U.S. taxpayers, 100
percent of cash distributions paid during the year will be taxable as
"Qualified Dividends" and no portion of the distributions will be a
tax-deferred return of capital. Actual taxable amounts may vary and is
dependant upon the Trust's current and accumulated earnings and profits as
determined under U.S. tax laws.
REVIEW OF OPERATIONS
Production
For the nine months ended September 30, 2007, production volumes averaged
77,435 boe per day as compared to 72,431 boe per day for the same period in
2006. The seven percent increase in average production volumes for the nine
months ended September 30, 2007 reflect the full impact of the Samson
acquisition which closed on August 31, 2006. Production in 2007 has been
impacted by planned and unplanned turnaround activity, weather related
downtime in the second and third quarter and minor property dispositions. We
continue to add new production volumes through our active drilling and
optimization programs which focused in the Rocky, Central and Southern Alberta
areas during the third quarter.
Third quarter volumes were negatively impacted by planned and unplanned
outages, with a resulting impact of approximately 1,200 boe per day. Major
outages occurred at the non-operated Kaybob South and Keyera plants, with
smaller non-operated outages in Saskatchewan. In addition, our third quarter
volumes were impacted by minor property dispositions totalling approximately
1,000 boe per day in Northeastern Alberta, primarily natural gas.
Looking forward to the fourth quarter, we are anticipating a number of
outages that will impact production. We expect that each outage individually
will not be significant and will impact production for only a few days. These
turnarounds are designed to take advantage of the softness in natural gas
prices prior to the winter heating season.
Exploitation and Development
Operational highlights during the third quarter reflect our continued
active exploitation and optimization program. We continued to target high
quality opportunities, high graded from our growing inventory list of
prospects. Specific program highlights include:
<<
- The completion of our first ever operated multi-lateral horizontal
Mannville CBM well in Corbett. This well validates a 21 section
exploration license in the Mannville play and is expected to
begin producing in 2008.
- Canetic followed its first quarter success in the Hoadley, Ferrybank
area with an additional four well program targeting high quality
glauconite and Ellerslie gas. This asset was acquired in the Samson
deal and has yielded results that to date have exceeded
expectations.
One of our first wells, drilled in the first quarter of 2007, was
brought on stream during the third quarter and is currently
producing at approximately 1.8 mmcf/d. In addition, production tests
from recent wells are encouraging with high initial test rates from
multiple zones. We expect all wells from this program to be tied in
and on stream by year-end, following the addition of incremental
compression to handle the higher than planned rates.
- Canetic effectively brought on production two high rate oil wells
in the Leitchville area of Southwest Saskatchewan. Production is
from horizontal wells targeting the Lower Shaunavon formation and
initial production volumes are strong from this medium crude
reservoir. Following these successful tests, we have embarked on a
larger drilling program through to the end of 2007.
- Canetic drilled an eight well oil program in Southern Alberta
targeting medium crude from the Sunburst formation, six of which are
currently on stream and producing.
- Canetic continued to have good success in the Greater Queensdale
area of Southeast Saskatchewan with one horizontal well targeting
the Alida formation. Initial production from the well was
approximately 300 boe per day. Continued drilling in this region is
planned, with a three well program planned for execution in the
fourth quarter.
- Non-operated highlights include participation with Centrica in
Mannville CBM wells in the Corbett area, participation with Conoco
in Homeglen-Rimbey area targeting Leduc oil, and participation with
Penn West and BP Amoco in the Pembina and Pine Creek areas targeting
prolific gas production from the Glauconite and Bluesky formations.
>>
During the third quarter, Canetic drilled and cased 18 gross (16.7
net)operated wells while participating in 46 gross (10.7 net) non-operated
wells. Operated wells consisted of 9 gross (8.8 net) oil wells, 8 gross (6.8
net) gas wells and 1 gross (1 net) CBM well. We are planning to drill
approximately 12 to 14 operated wells over the remainder of the year,
depending on well type and depth, focused primarily in the Leitchville and
Queensdale areas of Saskatchewan.
Due to the strong crude oil prices and continued weakness in natural gas
prices, Canetic will remain focused on our large inventory of oil prospects
for the remainder of 2007 and into 2008. Areas of activity for the remainder
of the year will be in Williston Basin and Southwest Saskatchewan targeting
medium to light crude. Limited capital will be spent developing shallower
natural gas opportunities until Canetic sees strengthening in the natural gas
market. However, we expect to continue to develop and execute on our Hoadley
natural gas program beginning in late 2007 or early 2008.
<<
Capital Expenditures
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------------------------------------------
Capital Expenditures
($000s) 2007 2006 2007 2006
-------------------------------------------------------------------------
Land 3,582 3,812 7,527 12,615
Geological and geophysical (38) 154 2,112 2,109
Drilling and completion 69,873 79,595 256,386 212,923
Production equipment
and facilities 14,614 20,863 59,253 29,566
-------------------------------------------------------------------------
Net development
expenditures 88,031 104,424 325,278 257,213
StarPoint acquisition - - - 2,511,746
Acquisition of
property interests - 967,204 - 967,204
Property acquisitions 14,465 4,480 16,637 28,349
Property dispositions (6,005) - (55,768) (5,000)
-------------------------------------------------------------------------
Net capital expenditures 96,491 1,076,108 286,147 3,759,512
Office 1,609 3,780 6,557 6,843
Asset retirement
obligation change in
estimate 593 767 2,086 2,239
Capitalized compensation 2,785 (2,240) 8,884 4,414
-------------------------------------------------------------------------
Total capital
expenditures 101,479 1,078,415 303,674 3,773,008
-------------------------------------------------------------------------
>>
During the nine months ended September 30, 2007, expenditures for
development activities totalled $325.3 million as compared to $257.2 million
for the same period in 2006. A total of 188 gross (96.6 net) wells have been
drilled, including 84 gross (41.1 net) natural gas wells and 92 gross (53.0
net) oil wells, 7 gross (1.0 net) service wells, and 5 gross (1.5 net) dry and
abandoned wells. The increase in development expenditures reflects the
inventory of locations associated with our asset base resulting from the
acquisitions made in previous years and a decision by Canetic to become more
focused on internal growth opportunities. Of the total wells drilled to
September 30, 2007, 69 gross (63.6 net) were operated by Canetic resulting in
46 gross (43.5 net) oil wells, 22 gross (19.1 net) natural gas wells, and 1
gross (1.0 net) dry and abandoned ("D&A") well. Canetic has also changed the
profile of its operated drilling program in 2007 over 2006, targeting deeper
more prolific horizons and consequently higher cost wells.
During the nine months ended September 30, 2007, we completed net
property dispositions totalling $55.8 million representing approximately 1,000
boe per day, primarily natural gas, in Northeast Alberta. Proceeds from the
dispositions have been utilized to fund a portion of our 2007 capital
expenditure program.
COMMODITY PRICE RISK MANAGEMENT
The prices we receive for petroleum and natural gas can fluctuate
significantly due to supply and demand fundamentals which are influenced by
weather patterns, the economic environment, or political uncertainty.
Our commodity price risk management program is designed to provide price
protection on a portion of our future production in the event of adverse
commodity price movements, while retaining the opportunity to participate in
favourable price movements. This practice is designed to allow us to generate
stable funds flow for distributions and achieve positive economic returns on
capital development and acquisition activities. Given appropriate market
conditions we may hedge up to 50 percent of our production at any given time.
For the nine months ended September 30, 2007 we have realized a gain on
financial derivatives of $16.5 million compared to a loss of $12.8 million for
the same period in 2006. During the third quarter 2007, we recorded a realized
financial derivative gain of $12.2 million as compared to a gain of $0.8
million for the same period in 2006.
The following commodity commitments have been put in place for the
remainder of 2007 and beyond:
<<
-------------------------------------------------------------------------
Annual Annual
Average Average
Commodity Contracts Q4 2007 2008 2009
-------------------------------------------------------------------------
Natural Gas
-------------------------------------------------------------------------
Fixed Price Volume (Gj/d) 20,000 11,667 -
Fixed Price Average ($/Gj) $ 7.51 $ 6.53 -
Collars Volume (Gj/d) 86,667 22,500 -
Collar Floors ($/Gj) $ 6.92 $ 7.00 -
Collar Caps ($/Gj) $ 10.74 $ 11.23 -
-------------------------------------------------------------------------
Total Volume Hedged (Gj/d) 106,667 34,167 -
-------------------------------------------------------------------------
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Crude Oil
-------------------------------------------------------------------------
CDN Denominated Fixed Price
Volumes (bbl/d) 8,000 250 -
CDN Denominated Fixed Price
Average ($CDN/bbl) $ 67.26 $ 72.20 -
U.S. Denominated Fixed Price
Volume (bbl/d) 1,500 - -
U.S. Denominated Fixed Price
Average ($US/bbl) $ 48.11 - -
Collars Volume (bbl/d) 6,000 12,000 -
Collar Floors ($US/bbl) $ 58.00 $ 64.17 -
Collar Caps ($US/bbl) $ 80.76 $ 81.49 -
-------------------------------------------------------------------------
Total Volume Hedged (bbl/d) 15,500 12,250 -
-------------------------------------------------------------------------
>>
CANADIAN TAX LEGISLATION AFFECTING INCOME TRUSTS
Under the SIFT Rules, certain of our future distributions that would have
otherwise been deductible by the Trust for tax purposes will be subject to a
special tax at a rate of 31.5 percent (the "Distribution Tax"). As expected,
the Distribution Tax will not apply to the Trust until January 1, 2011.
Currently, the Trust has approximately $1.7 billion of tax pools that may be
used to offset future taxes. In the period leading to 2011, our objective will
be to preserve and maximize tax pools that will be available to reduce or
defer the incidence of cash taxes in 2011 and subsequent years. Given our
current tax pool position and our expectations for growth of these pools
leading to 2011, we currently anticipate our effective tax rate will be
significantly less than the 31.5 percent statutory rate in 2011 and subsequent
years.
<<
Estimated Income Tax Pools ($000s) September 30, 2007
-------------------------------------------------------------------------
Undepreciated capital costs 561,600
Canadian oil and gas property expense 505,736
Canadian exploration expense 23,390
Canadian development expense 349,832
Non-capital losses 270,960
Other 38,016
-------------------------------------------------------------------------
Total estimated income tax pools 1,749,534
-------------------------------------------------------------------------
>>
Please refer to the section of Canetic's Management's Discussion and
Analysis ("MD&A"), dated September 30, 2007, entitled "Income Taxes" for a
more complete discussion of the potential impacts and changes anticipated to
result from implementation of the SIFT Rules and related Distribution Tax.
OUTLOOK
Looking forward, we are very excited about the opportunity presented by
our announced strategic combination with Penn West. Through this combination
we will have created what we believe to be Canada's flagship energy trust and
a world-class platform to compete in Canadian and global energy markets. The
combination will form the largest conventional oil and natural gas trust in
North America and the dominant independent light oil producer in the Western
Canadian Sedimentary Basin with anticipated production in 2008 of over 200,000
boe per day and conventional proven plus probable reserves in excess of 800
million boe. The increased size of the combined entity will facilitate the
future development of its extensive inventory of conventional and
unconventional opportunities including the multi-billion barrel (discovered
heavy oil resources in place) Peace River Oil Sands Project, coalbed methane,
shale gas and enhanced oil recovery from some of Canada's largest legacy light
oil pools.
We anticipate that the larger size of the combined trust will not only
increase the opportunity base for future growth but will also enhance the
liquidity of its units on both the Toronto and New York stock exchanges,
increase its weighting in major indices, including the S&P/TSX 60 Index, and
lead to greater attention from both equity and income investors. We also
expect that the increased liquidity and enhanced financial strength of the
combined trust will enable meaningful expansion both domestically and outside
Canada as we look to position the trust for 2011 and beyond. At closing the
combined trust will have tax pools in excess of $5.5 billion and safe harbour
capacity for the issuance of new units under the undue expansion rules of
approximately $8.7 billion in 2008 and approximately $15 billion in total.
We believe that the combined trust will have the size and scale needed to
develop and grow in today's dynamic market. The combination brings together
two organizations with complementary strategies, asset bases and management
teams which should translate into a strong shared future. We believe the
combined trust will be greater than the sum of its parts and look forward to
unlocking its potential and delivering upon the value proposition it
represents for our unitholders.
We encourage our unitholders to read all information pertaining to the
strategic business combination (press releases, presentations and information
circular). These items and additional information as it arises will be posted
to our website at www.canetictrust.com. If you have any questions regarding
released information please do not hesitate to contact our investor relations
department at 1-877-539-6300.
<<
(signed) (signed)
Jack C. Lee J. Paul Charron
Chairman President & Chief Executive Officer
November 8, 2007
>>
Canetic's complete third quarter 2007 unaudited Financial Statements and
Notes and Management's Discussion and Analysis ("MD&A") are available on
Canetic's website at www.canetictrust.com or on SEDAR at www.sedar.com or on
EDGAR at www.sec.gov.
All references are to Canadian dollars unless otherwise indicated.
Natural gas volumes recorded in thousand cubic feet ("mcf") or million cubic
feet ("mmcf") are converted to barrels of oil equivalent ("boe") using the
ratio of six (6) thousand cubic feet to one (1) barrel of oil ("bbl"). BOEs
may be misleading, particularly if used in isolation. A BOE conversion ratio
of six (6) mcf: one (1) bbl is based on an energy equivalent conversion method
primarily applicable at the burner tip and does not represent a value
equivalent at the wellhead.
ADVISORY
Certain statements contained in this news release constitute
forward-looking statements or information (collectively "forward-looking
statements") within the meaning of applicable securities law. These statements
relate to future events or future performances. All statements other than
statements of historical fact may be forward-looking statements. Statements
relating to "reserves" or "resources" are deemed to be forward-looking
statements as they involve the implied assessment, based on certain estimates
and assumptions, that the reserves and resources described can be profitably
produced in the future.
The use of any of the words "anticipate", "continue", "estimate",
"expect", "may", "will", "project", "could", "should", "believe", "intend",
"propose", "budget", and similar expressions are intended to identify
forward-looking statements. 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.
We believe the expectations reflected in the forward-looking statements are
reasonable, but no assurance can be given that these expectations will prove
to be correct and such forward-looking statements are not guarantees of future
performance and should not be unduly relied upon. These statements speak only
as of the date of this news release.
In particular, this news release contains or references documents
containing forward-looking statements pertaining to the following: business
strategies; production volumes; reserves volumes; drilling plans; expected
outages and impact thereof; operating and other costs and expenses; commodity
prices; future cash distribution levels and taxability; payout ratios; capital
spending including timing, allocation and amounts of capital expenditures and
the sources of funding thereof; sources of funding operations and
distributions and the sufficiency thereof; estimates of funds flow from
operations; royalty rates; interest rates; asset retirement obligations;
hedging and other risk management programs; debt levels, future tax treatment
of income trusts such as the Trust and unitholders; the acquisition of Titan
and strategic combination with Penn West and the benfits to be derived there
from and timing thereof; income tax pools, and liquidity and financial
capacity.
The forward-looking statements contained in this news release and
referenced documents are based on a number of expectations and assumptions
that may prove to be incorrect. In addition to other assumptions identified in
this news release and referenced documents, assumptions have been made
regarding, among other things: that the Trust will continue to conduct its
operations in a manner consistent with past operations; the continuance of
existing (and in certain circumstances, proposed) tax and royalty regimes; the
general continuance of current industry conditions; the accuracy of the
estimates of the Trust's reserves volumes; the ability of Canetic to obtain
equipment, services and supplies in a timely manner to carry out our
activities; the ability of Canetic to market oil and natural gas successfully;
the timely receipt of required regulatory and other approvals; the ability of
Canetic to obtain financing on acceptable terms; currency, exchange and
interest rates; future oil and gas prices; the failure of Canetic to obtain
the required approvals for mergers and acquisitions and future cost
assumptions. No assurance can be given that these factors, expectations and
assumptions will prove to be correct.
The actual results could differ materially from those anticipated in
these forward-looking statements as a result of the risk factors set forth
below and elsewhere in this news release and referenced documents: volatility
in market prices for oil and natural gas; risks and liabilities inherent in
oil and natural gas including operations, exploration, development,
exploitation, production, marketing and transportation risks; uncertainties
associated with estimating oil and natural gas reserves; competition for,
among other things, capital, acquisitions of reserves, undeveloped lands, and
skilled personnel; incorrect assessments of the value of acquisitions;
geological, technical, drilling and processing problems; risks and
uncertainties involving geology of oil and gas deposits; unanticipated
operating results or production declines; fluctuations in foreign exchange,
currency or interest rates, and stock market volatility; general economic
conditions; changes in laws and regulations including but not limited to those
pertaining to income tax, environmental and regulatory matters; changes in
royalty rates including the implementation of "The New Royalty Framework" in
Alberta discussed above; failure to realize the anticipated benefits of
acquisitions; health, safety and environmental risks; and the other factors
described in Canetic's public filings from time to time (including under "Risk
Factors" in our Annual Information Form) available in Canada at www.sedar.com
and in the United States at www.sec.gov. Readers are cautioned that this list
of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this news release and
referenced documents are expressly qualified by the following cautionary
statement: Canetic undertakes no obligation to publicly update or revise any
forward-looking statements except as expressly required by applicable
securities law.
NON-GAAP MEASURES
Throughout this news release certain supplemental financial measures that
are not specifically determined in accordance with GAAP are used to assist in
analyzing the operations of the Trust. In addition to the primary measures of
net earnings (loss) and net earnings (loss) per unit and cash flows from
operating activities determined in accordance with GAAP, we believe that
certain measures not determined in accordance with GAAP assist the reader in
assessing performance and understanding the Trusts results. These non-GAAP
measures as presented do not have any standardized meaning prescribed by GAAP
and therefore may not be comparable with calculations of similar measures for
other companies or trusts. These measures should not be considered
alternatives to net earnings (loss) and net earnings (loss) per unit or cash
flows from operating activities as calculated in accordance with GAAP.
<<
- Funds flow from operations - defined as net earnings (loss) plus
non-cash items before deducting changes in non-cash working capital
and asset retirement costs incurred. We use this measure to analyze
operating performance and leverage. This measure is an indicator of
the Trust's ability to generate funds flow in order to fund
distributions, working capital, principal debt repayments and
capital expenditures. Readers should refer to the "Funds Flow From
Operations" section of Canetic's MD&A for a reconciliation of funds
flow from operations to net earnings (loss).
- Net debt - defined as long-term debt and working capital excluding
financial derivatives. This measure is used to analyze liquidity and
capital resources in order to meet the Trusts' financing needs to
fund capital expenditures, acquisitions and short term funding
needs. Readers should refer to the "Liquidity and Capital
Resources" section of Canetic's MD&A for a reconciliation of net
debt.
- Operating and cash netbacks - defined as revenue and expense items
divided by production per boe per day. This measure is used
throughout the Oil and Gas industry to analyze margin and cash flow
on each boe of production. Readers should refer to the "Netbacks"
section of Canetic's MD&A for the calculation of operating and cash
netbacks.
- Total capitalization - defined as net debt including convertible
debentures plus unitholders' equity. Similar to net debt, this
measure is an indictor of the Trust's ability to analyze liquidity
and capital resources in order to meet the Trust's financing needs
to fund capital expenditures, acquisitions and short term funding
needs. This measure is an indicator of overall Trust leverage. Total
capitalization is not intended to represent the total funds from
equity and debt received by the Trust. Readers should refer to the
"Liquidity and Capital Resources" section of Canetic's MD&A for a
reconciliation of total capitalization.
>>
ADDITIONAL INFORMATION
Additional information regarding the Trust and its business operations,
including the Trust's Annual Information Form for the year ended December 31,
2006, is available on the Trust's SEDAR company profile at www.sedar.com or
the EDGAR company profile at www.sec.gov.
Canetic is one of Canada's largest oil and gas royalty trusts. Canetic
trust units and debentures are listed on the Toronto Stock Exchange under the
symbols CNE.UN, CNE.DB.A, CNE.DB.B, CNE.DB.C, CNE.DB.D, and CNE.DB.E and the
trust units are listed on the New York Stock Exchange under the symbol CNE.
<<
CONSOLIDATED
BALANCE SHEETS
As At As At
September 30, December 31,
($CDN thousands) unaudited 2007 2006
-------------------------------------------------------------------------
ASSETS
Current Assets
Accounts receivable $ 228,946 $ 261,498
Prepaid expenses and deposits 33,694 34,647
Financial derivative asset (Note 11) 23,641 -
-------------------------------------------------------------------------
286,281 296,145
Property, plant and equipment, net of
amortization (Note 5) 4,370,061 4,597,654
Goodwill (Note 3) 922,024 922,024
Deferred financing charges, net of
amortization (Note 2) - 8,996
Financial derivative asset (Note 11) - 6,157
-------------------------------------------------------------------------
Total assets $ 5,578,366 $ 5,830,976
-------------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 230,636 $ 260,206
Income taxes payable 11,632 10,979
Distributions payable 43,720 51,933
Convertible debentures (Note 6) 6,863 1,697
Financial derivative liability (Note 11) 25,204 1,124
-------------------------------------------------------------------------
318,055 325,939
Bank debt 1,374,002 1,289,678
Convertible debentures, net of deferred
transaction costs (Note 6) 245,128 258,959
Other long-term liabilities (Note 9) 8,040 7,272
Financial derivative liability (Note 11) 1,742 -
Future income taxes (Note 14) 549,296 250,339
Asset retirement obligations (Note 7) 194,410 191,874
-------------------------------------------------------------------------
2,690,673 2,324,061
Commitments and guarantees (Note 13)
UNITHOLDERS' EQUITY
Capital (Note 8) 4,287,538 4,224,470
Convertible debentures (Note 6) 6,584 6,584
Deficit (Note 10) (1,406,429) (724,139)
-------------------------------------------------------------------------
2,887,693 3,506,915
-------------------------------------------------------------------------
Total liabilities and unitholders' equity $ 5,578,366 $ 5,830,976
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS), COMPREHENSIVE
INCOME (LOSS) AND DEFICIT
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------------------------------------------
($CDN thousands except
per unit amounts)
unaudited 2007 2006 2007 2006
-------------------------------------------------------------------------
REVENUE
Petroleum and
natural gas sales $ 346,092 $ 368,502 $ 1,084,686 $ 1,060,053
Royalty expense (60,499) (62,432) (194,788) (194,651)
-------------------------------------------------------------------------
285,593 306,070 889,898 865,402
-------------------------------------------------------------------------
EXPENSES
Operating 72,401 66,713 215,004 178,226
Transportation 5,909 4,980 17,816 13,716
General and
administrative 12,891 9,628 41,396 28,163
Interest on bank
debt 18,340 13,908 50,053 34,197
Interest on
convertible
debentures 4,515 1,908 13,936 4,024
Depletion,
depreciation and
amortization 179,043 168,639 531,267 469,129
Accretion of asset
retirement
obligations (Note 7) 3,870 2,851 11,609 7,759
(Gain) loss on
financial
derivatives
(Note 11) (2,347) (73,297) (8,115) (66,928)
-------------------------------------------------------------------------
294,622 195,330 872,966 687,848
-------------------------------------------------------------------------
Earnings before taxes (9,029) 110,740 16,932 177,554
Current income taxes
(recovery) 596 2,540 3,043 2,268
Capital taxes 3,276 5,113 7,903 9,167
Future income tax
expense (recovery)
(Note 14) (28,599) 424 298,956 (78,614)
-------------------------------------------------------------------------
(24,727) 8,077 309,902 (67,179)
-------------------------------------------------------------------------
NET (LOSS) EARNINGS AND
COMPREHENSIVE (LOSS)
INCOME 15,698 102,663 (292,970) 244,733
Deficit, beginning
of period (1,291,621) (499,843) (724,139) (363,712)
Distributions declared (130,505) (149,918) (389,320) (428,119)
-------------------------------------------------------------------------
Deficit, end of
period $(1,406,429) $ (547,098) $(1,406,429) $ (547,098)
-------------------------------------------------------------------------
Net (loss) earnings
per unit (Note 12)
Basic $ 0.07 $ 0.49 $ (1.29) $ 1.23
Diluted $ 0.07 $ 0.48 $ (1.29) $ 1.21
Weighted average units
outstanding (Note 12)
Basic 228,328 210,226 227,389 199,640
Diluted 231,002 217,337 227,389 204,415
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------------------------------------------
($CDN thousands)
unaudited 2007 2006 2007 2006
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net (loss) earnings $ 15,698 $ 102,663 $ (292,970) $ 244,733
Adjustments for:
Unit-based
compensation 1,606 (1,856) 6,048 16,814
Depletion,
depreciation and
amortization 179,043 168,639 531,267 469,129
Accretion of asset
retirement
obligations 3,870 2,851 11,609 7,759
Unrealized (gain)
loss on financial
derivatives 9,827 (72,453) 8,342 (79,759)
Future income tax
expense (recovery) (28,599) 424 298,956 (78,614)
Accretion of
deferred
transaction costs 159 - 763 -
Asset retirement
costs incurred (4,096) (4,639) (11,160) (10,563)
Changes in non-cash
operating working
capital 4,654 (56,985) 21,128 (83,676)
-------------------------------------------------------------------------
182,462 138,644 573,983 485,823
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from
(repayment of) bank
debt 31,264 329,224 84,324 479,747
Proceeds from issuance
of units, net of
issue costs 30,087 453,016 51,466 469,366
Proceeds from issuance
of convertible
debentures, net of
issue costs - 220,800 - 220,800
Distributions to
unitholders (130,017) (144,859) (397,534) (416,974)
-------------------------------------------------------------------------
(68,666) 858,181 (261,744) 752,939
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of
petroleum and natural
gas properties (14,465) (4,480) (16,637) (28,349)
Disposition of
petroleum and natural
gas properties 6,005 - 55,768 5,000
Corporate acquisitions,
net of cash - (897,458) - (933,458)
Capital expenditures (105,036) (94,887) (351,370) (281,955)
-------------------------------------------------------------------------
(113,496) (996,825) (312,239) (1,238,762)
-------------------------------------------------------------------------
Cash beginning and
end of period $ - $ - $ - $ -
-------------------------------------------------------------------------
The Trust paid the
following cash
amounts:
Interest paid $ 20,040 $ 14,986 $ 65,058 $ 41,881
Income and capital
taxes paid $ 1,022 $ 4,413 $ 9,779 $ 14,888
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
>>
%SEDAR: 00023165E %CIK: 0001349237
/For further information: or to receive a complete copy of Canetic's
third quarter operating and financial results, including the MD&A and
Financial Statements free of charge, please visit our website at
www.canetictrust.com or contact Canetic investor relations by email at:
Info(at)canetictrust.com or toll free telephone at 1-877-539-6300/
(CNE.UN. CNE)
CO: Canetic Resources Trust
CNW 21:49e 08-NOV-07