Connacher Announces Q4 2016 And Year-End 2016 Results

Announced Date :  Apr 20, 2017


Connacher Oil and Gas Limited (Connacher) announces its financial and operating results for the quarter- and year-ended December 31, 2016
Operations

As oil prices increased in the second half 2016 and 2017, the Company restored production on 16 of the 18 wells at Pod One which were previously suspended. Based on field estimates, Q1 2017 production was approximately 12,000 bbl/d.

The Company is expected to complete a turnaround at Algar by the end of Q2 2017.

Q4 2016 Highlights

Financial

Q4 2016 revenue, net of royalties, decreased 10% to $36.8 million (Q4 2015 - $41.1 million), primarily due to lower sales volumes, partially offset by higher crude oil benchmark pricing

Q4 2016 adjusted EBITDA deficit decreased to $3.4 million (Q4 2015 – deficit of $20.5 million), primarily due to lower input costs, partially offset by lower revenue, net of royalties 

Q4 2016 funds used decreased to $13.6 million (Q4 2015 - funds used of $27.8 million) due to an improved adjusted EBITDA, partially offset by higher interest costs associated with the Company's DIP financing 

In Q4 2016, the Company generated a net gain of $400.7 million (Q4 2015 - net loss of $56.0 million). The net gain is primarily due to the reversal of impairment of $435.0 million related to the Company's property, plant and equipment ("PP&E") and an improved adjusted EBITDA 

In Q4 2016, capital expenditures totaled $2.4 million (Q4 2015 - $9.1 million) and were focused on facility enhancements and well servicing in order to restore production

Connacher closed Q4 2016 with a cash balance of $17.1 million (including restricted cash of $7.1 million) (Q4 2015 - $47.2 million)

Operational

Q4 2016 production decreased 28% to 10,086 bbl/d (Q4 2015 - 13,919 bbl/d) due to the Company's strategic decision to reduce production in the low commodity price environment

Q4 2016 blending costs decreased 28% to $10.8 million (Q4 2015 - $14.9 million), primarily due to lower total diluent volumes associated with decreased bitumen production, partially offset by higher diluent pricing 

Q4 2016 transportation and handling costs decreased 67% to $6.7 million (Q4 2015 - $20.1 million), primarily due to a reduction in sales to rail-based destinations and an increase in plant-gate sales

In Q4 2016, production and operating expense decreased 14% to $18.6 million (Q4 2015 - $21.5 million), primarily due to the realization of operating cost reduction initiatives

YE 2016 Highlights

Financial

YTD 2016 revenue, net of royalties decreased 54% to $103.1 million (2015 - $224.3 million), primarily due to the decline in crude oil benchmark pricing and lower sales volumes associated with the Company's strategic decision to reduce production in the low commodity price environment

YTD 2016 adjusted EBITDA deficit decreased to $48.9 million (2015 - deficit of $50.8 million), primarily due to lower input costs, partially offset by lower revenue, net of royalties

YTD 2016 funds used decreased to $84.4 million (2015 - funds used of $101.8 million) due to lower interest as the $350 million principal amount of 8¾% senior secured notes of Connacher due August 1, 2018 and the US$550 million principal amount of 8½% senior secured notes of Connacher due August 1, 2019 were exchanged for common shares as part of the Company's recapitalization in 2015

In 2016, net loss totaled $46.3 million (2015 - net loss of $42.3 million). YTD 2016 included foreign exchange gains, lower finance charges, and a reversal of impairment associated with the Company's PP&E assets. YTD 2015 net loss included significant accounting gains associated with the Company's 2015 recapitalization

YTD 2016 capital expenditures totaled $4.3 million (2015 - $21.1 million) and were focused on non-discretionary maintenance capital, facility enhancements, and well servicing

Operational

YTD 2016 production decreased 41% to 8,597 bbl/d (2015 - 14,547 bbl/d) due to the Company's strategic decision to reduce production in the low commodity price environment

YTD 2016 blending costs decreased 52% to $34.7 million (2015- $72.4 million), primarily due to lower total diluent volumes associated with decreased bitumen production volumes and lower diluent pricing

YTD 2016 transportation and handling costs decreased 66% to $29.9 million (2015 - $88.2 million), primarily due to a reduction in sales to rail-based destinations and an increase in plant-gate sales, partially offset by penalties for non-delivery incurred in the first half of 2016

YTD 2016 production and operating expenses decreased 23% to $67.3 million (2015 - $87.3 million), primarily as a result of lower natural gas costs and the realization of operating cost reduction initiatives.

Companies' Creditors Arrangement Act ("CCAA") Announcement and Status

On May 17, 2016, the Company sought and obtained creditor protection under the Companies' Creditors Arrangement Act ("CCAA") pursuant to an order (the "Initial Order") granted by the Court of Queen's Bench of Alberta, Judicial Centre of Calgary (the "Court"). The Court granted CCAA protection for an initial period expiring on June 16, 2016. Since the Initial Order, five Court-ordered extensions of the stay period in the Initial Order have been obtained, with the most recent extending the stay of proceedings until and including June 30, 2017 (the "CCAA Stay Period").

Under the Initial Order, Ernst & Young Inc. was appointed by the Court as the monitor (the "Monitor").

The CCAA is a federal insolvency statute that allows an insolvent company which owes creditors in excess of $5 million to restructure its business and financial affairs and stays creditors and others from enforcing rights against the insolvent company.

The Initial Order also approved and authorized the Company and the Monitor to conduct a sale and investment solicitation process (the "SISP"), as set out in Schedule "A" to the Initial Order, to identify one or more purchasers and/or investors in the Company's business and/or property.

As authorized and approved by the Initial Order, the Company secured interim financing in the form of a senior secured debtor-in-possession credit facility (the "Interim Financing Credit Facility" or "DIP") from certain existing lenders certain of which are also significant shareholders of the Company (the "Interim Lenders") for up to US$20 million, with initial commitments of up to US$11.5 million (the "Initial Commitments").

On October 26, 2016, the Company entered into a Waiver, Approval, and Modification Agreement (the "Agreement") with the Interim Lenders related to the DIP. Pursuant to the Agreement, the Interim Lenders agreed to waive certain limited defaults under the DIP related to the CCAA SISP timelines and provided the Company with access to an additional amount of approximately US$5.0 million of the US$20 million DIP initially authorized by the Court to support the Company's continuing operations.

On December 16, 2016, the Company entered into a further Approval and Modification Agreement (the "Second Amendment Agreement") with the Interim Lenders related to the DIP. The Second Amendment Agreement extended the maturity date under the DIP from May 17, 2017 to December 31, 2017 and amends certain provisions of the DIP in order to provide the Company with greater flexibility to enter into hedging agreements and other long-term contracts.

The aforementioned obligations, subject to potential compromise, represent the amounts expected to be resolved through the CCAA proceeding and remain subject to future, potentially material, adjustments. On August 24, 2016, the Court granted a claims procedure order establishing a process for the filing of claims against the Company and its directors and officers by September 26, 2016 (the "Claims Bar Date"). The Company received 89 claims by the Claims Bar Date.

The liabilities that are not subject to the CCAA proceeding are excluded from the liabilities subject to potential compromise and include certain non-restructuring liabilities incurred subsequent to May 17, 2016.

The Company continues to investigate, evaluate, and consider possible sale and restructuring alternatives.

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