Enercapita Energy Trust (“Enercapita”, the “Trust”) is pleased to announce a summary of key 2014 accomplishments and provide an update on how the Trust is well positioned to succeed in the current low commodity price environment.
Enercapita’s business strategy is to engage in the exploration, acquisition, development and production of petroleum and natural gas in western Canada and invest in assets that have demonstrated an ability to generate substantial free cash flow. The Trust’s objective is to acquire these high quality assets and then grow incremental production through optimization, exploitation and operational excellence. Key to this approach is to protect against downside commodity risk through a disciplined price risk management strategy to create long term stable free cash flow. In addition, maintaining a strong balance sheet is a key component of the business strategy as this provides financial flexibility in volatile commodity price environments.
The Trust’s investment thesis is that there will be significant opportunities for well capitalized entities to make accretive acquisitions in low commodity price environments. Current low commodity pricing provides a tremendous opportunity for Enercapita as competition will be reduced and some companies will be required to sell high quality assets to protect their balance sheets. Enercapita will target assets which have the following characteristics:
• Low risk, low decline, conventional assets;
• Assets with low operating and royalty cost structures;
• Assets with long term predictable production profiles;
• Operated assets with high working interest; and
• Exploitation and optimization upside, not drilling upside
Enercapita was incorporated in February 2014 and successfully closed an acquisition of a property with long life, low decline legacy production predominantly in East Central and North Western Alberta (the “Acquisition”). Enercapita and a private junior oil and gas company acquired approximately 800 boe/d of production for cash consideration of $15.6 million. Enercapita’s initial non operated working interest in the acquired assets was 75% which was approximately 600 boe/d net to the Trust. Enercapita’s first Acquisition positioned the Trust well with a low decline and stable production base. The assets were acquired at attractive metrics and generate significant free cash flow for Enercapita’s future growth. The acquired production was 90% weighted to natural gas with the balance of the production oil and liquids. This Acquisition was consistent with Enercapita’s investment premise, with the following key attributes:
• Long life, low risk production with the majority of wells producing for over 20 years
• Less than 10% production decline profile
• Low operating costs of approximately $11.00/boe
• Low royalty costs of approximately 10%
• Numerous low risk optimization opportunities identified to add production at low capital costs
Since acquiring the assets, Enercapita and its partners have:
• Not only arrested production decline but have increased gross production by +13% from 800 boe/d (600 boe/d net) to approximately 900 boe/d (675 boe/d net). Enercapita expects to add another 150 boe/d in Q1 2015 by tying in a newly recompleted well.
• Reduced operating costs by approximately 10% to date (approximately $275,000 annually) by streamlining operating personnel and implementing more cost effective chemical programs.
• Began licensing a water disposal facility which when constructed will further reduce annual operating costs by an additional 10% by mid-year 2015.
• Initiated a contract review process to update all processing, gathering and compression contracts which is expected to increase revenue by $80,000 annually.
• Identified numerous additional low risk optimization and exploitation opportunities which will be implemented in 2015.
• Geologically mapped the existing assets and identified development potential in the Mannville and Viking formations.
Enercapita’s first Acquisition reinforces the Trust’s belief that a unique opportunity exists to generate superior risk adjusted returns by aggregating a portfolio of high quality, low risk conventional energy assets.
The current commodity price environment has been extremely volatile in recent months with current West Texas Intermediate crude oil prices below US$50 per barrel and AECO natural gas prices below CAD$2.75 per gigajoule. Enercapita’s business model allows the Trust to be in a position of strength during periods of low commodity prices. With a strong balance sheet, disciplined hedging strategy, and a stable, low decline asset base, the Trust is well positioned to grow during this period of low commodity prices.
Enercapita exited 2014 with no debt and approximately 70% of our 2015 production hedged at CAD$3.59 per gigajoule of natural gas and CAD$99.85 per barrel of oil. These financial hedges protect the Trust’s cash flow and reduce earnings volatility. In addition, the low decline production base allows the Trust to spend minimal maintenance capital and continue to generate significant free cash flow.
A significant portion of the oil and gas industry will be in a distressed financial condition in 2015, which will provide opportunities for Enercapita to acquire high quality assets that meet our investment criteria on a counter cyclical basis. As a well-capitalized entity, Enercapita is well positioned to grow our company during this commodity price cycle and continue to add value for our unitholders.
Enercapita is an energy fund focused on low risk exploitation and optimization of existing production. The fund is an RRSP eligible investment vehicle that streams the cash flow from its production directly to its investors on a priority basis. For more information please contact:
Greg Tooth, Co-Founder
Forward Looking Information
This news release may contain certain information that is forward looking and, by its nature, such forward-looking information is subject to important risks and uncertainties. The words “anticipate,” “expect,” “may” “should” “estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward looking information. Those forward-looking statements herein made by Enercapita, if any, reflect Enercapita’s beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those anticipated or predicted in these forward-looking statements, and the differences may be material. Factors which could cause actual results or events to differ materially from current expectations include, among other things: risks associated with the ownership and operation of businesses, including fluctuations in interest rates; general economic conditions; supply and demand for businesses; competition for available businesses; changes in legislation and the regulatory environment; and international trade and global political conditions. Readers are cautioned not to place undue reliance on any forward-looking information contained in this news release (if any), which is given as of the date it is expressed herein. Enercapita undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise.