Vero Energy Inc. (TSX-VRO) announces its second quarter, 2008 financial results. Copies of the financial statements and management discussion and analysis in respect thereof for the quarter ended June 30, 2008 will be available, in due course, through www.sedar.com or by visiting Vero's website at www.veroenergy.ca.
Second Quarter 2008 Highlights
- Increased average daily production 42% to 6,087 boe/d.
- Cash flow from operations increased 177% to $26.8 million or $0.84 per share (basic) and $0.82 (diluted).
- Generated net earnings of $8.7 million in the quarter, a 1,641% increase over the second quarter of 2007.
- Maintained a low operating cost per barrel average of $5.65 for the six months to date.
- Achieved an operating netback of $51.31 per boe and cash flow netback of $48.38 per boe.
- Net debt to annualized, quarterly cash flow was reduced to 0.4x.
- Drilled 6 (4.4 net) wells with a 100% success rate including 4 horizontal wells.
Through a combination of operational execution and good timing with respect to recovering gas prices, Vero delivered another record quarterly result in both earnings and cash flow. Vero continued with its rapidly advancing experience in horizontal drilling and multi-stage completions as four more of these wells were completed in the quarter. The drilling success we have enjoyed has directly translated into financial success and profitability. The exceptional cash flow of $26.8 million for the quarter leaves us in an enviable financial position and provides us with the flexibility to pursue our numerous drilling opportunities; strategic acquisitions; and also add to our drilling inventory through land purchases and farm-ins.
Vero completed two acquisitions in the second quarter and has recently entered into an agreement to purchase additional oil and gas properties that is expected to close on July 31. These acquisitions are at very favorable metrics wherein Vero will have purchased approximately 2.5 mmboe of proved plus probable reserve additions based on third party engineering reports for approximately $16 per boe. These acquisitions have recycle ratios of over 2.1 times based on first quarter netbacks. They also add approximately 900 boe/d (94 % natural gas) of production and over 70,000 net acres of undeveloped land. The properties are mainly in West Central Alberta and have many synergies with Vero's current operations, which include having common production with approximately 35% of the purchased wells.
Vero continues to manage its resources in an excellent, low-cost operating and controllable cost environment and has one of the lowest cost structures in the junior oil and gas sector. Our low cost structure translates directly to one of the highest netbacks in the industry for a heavily weighted natural gas producer. Our netbacks, coupled with our capital cost efficiency, ability to get production on and in a cash flow position quickly, continue to allow us to provide top tier returns.
With higher cash flows from added production, the rise in commodity prices, and the strength of our balance sheet we are planning to increase our planned capital expenditures for the balance of the year to bring our total capital budget (including acquisitions mentioned) to approximately $125 million. The exploration and development portion will be increased to $85 million to better match cash flow. Vero has increased its planned gross well count for the year to between 43 and 46. Vero will also increase spending on facilities, land, seismic and infrastructure in conjunction with the planned, additional drilling.
In the second quarter Vero was able to drill and complete more wells than in 2007 despite the wet weather in the second half of the quarter that made it difficult to access for completions, tie-ins, and for services to access wells that needed maintenance. Production was shut-in at an unscheduled non-operated facility turnaround, and production to that facility was and still is currently restricted. Even though Vero encountered typical breakup operational issues during the quarter, the Company was able to show year over year and quarterly growth of 42% and 5.5% respectively. Vero's currently production, based on field estimates is approximately 5,650 boe/d, with 500 boe/d restricted and 950 boe/d behind pipe. This production is expected to come on by the end of August. The company is planning to reroute some of the restricted production to our recently built Edson facility. In addition, we are planning to add another 12 mmcfd gas compression and dehydration facility by the end of the third quarter. Currently there are two operated drilling rigs in the field, with two to three operated drilling rigs expected to remain busy for the remainder of the year.
We are also extremely pleased to announce the recent addition to our management team of Leslie Kende. Mr. Kende is a professional engineer with a Masters of Business Administration and has been appointed to the position of Vice President of Engineering. Mr. Kende has 18 years of broad technical and business development experience. From 2003 to 2007 he was a Director and Vice President of Acquisitions and Divestitures at one of the larger investment banking firms in Calgary. In 2007 he took on the role of Vice President of New Ventures with one of the major trusts. Prior to 2003 Mr. Kende held a variety of reservoir and production engineering roles of increasing responsibility with both junior and large cap oil and gas companies. -- www.cnxmarketlink.com
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