Bellatrix Exploration Ltd. (OTCPK:BXEFF) Q4 2018 Earnings Conference Call March 14, 2019 5:30 PM ET
Steve Toth - Vice President, Investor Relations
Brent Eshleman - President and Chief Executive Officer
Garrett Ulmer - Chief Operating Officer
Maxwell Lof - Executive Vice President and Chief Financial Officer
Conference Call Participants
Thank you for standing by. This is the conference operator. Welcome to the Bellatrix Exploration Fourth Quarter 2018 Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]
I would now like to turn the conference over to Steve Toth, Vice President, Investor Relations. Please go ahead.
Thank you, Sinead. Good afternoon, everyone, and thank you for joining us today for the Bellatrix Exploration Fourth Quarter 2018 and Year-End Results Conference Call. Thank you also to those who are participating in today’s call via our live webcast, which can be accessed through our website at www.bxe.com.
On the call today with me is Brent Eshleman, our President and CEO; Max Lof, our CFO; and Garrett Ulmer, our COO. For today's call, management will provide a summary of our fourth quarter results and our 2018 year-end press release, both of which were released earlier this afternoon.
As part of the Company's ongoing debt refinancing efforts, Bellatrix announced on March 1, that the Company remains in ongoing confidential discussions with parties across its capital structure in connection with potential transaction alternative. Bellatrix does not intend to provide updates on the potential transaction alternatives, until the Board of Directors of the company approves a definitive transaction or the company otherwise determines that further disclosure is necessary or appropriate. There's not much more we can share at this time. And as a result, we will not be taking questions on it today, and we'll forgo our customary Q&A period.
During today's conference call, we will make forward-looking statements within the meaning of the applicable Canadian and U.S. securities laws. By their nature, our forward-looking statements involve risks and uncertainties. Please refer to the forward-looking statements disclosure on our press release and periodic filings for additional information.
Brent Eshleman will now lead off today's call with a summary of our fourth quarter 2018 operational and financial performance.
Thank you, Steve. As you look back at 2018, Bellatrix concluded the year with strong reserves growth, low F&D costs and solid operational performance. Our fourth quarter 2018 performance included the following operational and financial achievements: Production volumes in the fourth quarter of 2018 averaged 35,001 boes a day, which was 71% natural gas weighted.
Full-year 2018 average production volumes at 35,635 boes per day, represented 1% outperformance compared with the midpoint of Bellatrix' full-year average production guidance range. Record low production expenses in the fourth quarter of 2018 was an average of $6.59 per boe, down 15% compared with the average production expenses of $7.80 per boe over the first nine months of 2018.
The Company achieved full 2018 average production expenditures as $7.50 per boe, which is 4% below the midpoint of guidance range. Bellatrix continues to improve drilling efficiency and reduce costs. During the fourth quarter of 2018, the average Bellatrix well was 8.7 days from spud to rig release on a single mile horizontal Spirit River natural gas well. This represented a 13% improvement as compared to the first nine months of 2018.
All-in Spirit River well costs continue to track approximately $3.4 million to drill, complete equip and tie-in. Borrowings under our syndicated revolving credit facilities were $47.8 million at December 31, 2018, representing $9.3 million improved liquidity as compared with September 30, 2018 balances.
At December 31, 2018, Bellatrix was approximately 50% undrawn against total commitments of $95 million under the Company's credit facilities before deducting outstanding letters of credit. We are pleased to report that both full-year average production volumes and full-year operating cost performance exceeded guidance expectations.
Garrett will now elaborate on our fourth quarter operational achievements and 2018 year-end reserves.
Thank you, Brent. Bellatrix delivered low cost reserve additions in 2018 with 13% growth in PDP, 1P and 2P reserve categories. Our focused capital program in 2018 added proved developed producing reserves at an all-in finding development and acquisition cost of $3.22 a boe. Bellatrix' 2P FD&A cost in 2018, averaged $1.99 per boe, and our 1P FD&A cost averaged $2.28 a boe.
On a three-year average basis, Bellatrix delivered strong 2P and 1P FD&A costs of $3.05 a boe and $3.57 a boe, respectively. We are extremely proud of the results achieved, which we believe, rank top decile within our industry.
In the fourth quarter, Bellatrix invested $13.7 million, which included drilling four gross or two nets through River wells and one gross non-operated Cardium well. Once the River well is brought on stream in November with the remaining three wells brought on stream in January of 2019. Bellatrix delivered record low production expenses in the fourth quarter of $6.59 per boe, down from $7.81 a boe in the fourth quarter of 2017.
Production expenses decreased on a per boe basis between 2018 and 2017, as a result of the commissioning of Phase II of the Alder Flats gas plant, renegotiation of processing agreements, which reduced take-or-pay fees, effective July 1, 2018, at third-party facilities.
The disposition of higher cost structure non-core properties in 2017, and the acquisition of joint venture partner production in the fourth quarter of 2018, that was produced through key Bellatrix infrastructure.
Total net capital expenditures in 2018 was $51.6 million, in line of the Company’s guidance range of between $50 million to $55 million. The combination of structurally lower capital cost and improved well performance have reduced overall sustaining capital requirements for our business.
All-in average Spirit River well cost, drill, complete, equipped and tie-in have been lowered to approximately $3.4 million per well in 2018 from $3.8 million per well in 2017. In addition to capital cost savings, Bellatrix delivered productivity improvements with average well performance from the Company's 2018 Spirit River well program, outperforming planned results by approximately 35% on an IP180 basis.
Enhanced productivity is led to a reduction and the assumed number of Spirit River wells required to maintain corporate production volumes in the mid-30,000 barrel a day range from 15 wells to 12 wells per year.
The Phase II expansion project of the Alder Flats Plant continues to operate efficiently and has provided a meaningful improvement in corporate NGL recoveries. NGL field yields have increased approximately 18% over the last nine months of the year to 73 barrels per million cubic feet.
The Bellatrix Alder Flats Plant deep-cut process provide enhanced NGL yields of approximately 10 to 35 barrels per million cubic feet over third-party plants in our core area, resulting in an average corporate yield weighting guidance of 28% in 2019.
I now invite Max to discuss our financial and risk management highlights.
Thanks, Garrett. Adjusted funds flow generated in the fourth quarter of 2018 was $15.5 million or $0.21 per basic and diluted share. That compares to $7.7 million or $0.12 per basic and diluted share in the third quarter of 2018. The increase in adjusted funds flow was mainly driven by a 4% increase in production volumes and a 58% increase in realized natural gas prices between the fourth and third quarters.
Bellatrix maintains strong commodity price risk management and market diversification coverage through 2020, which reduces price risk volatility on our business and protects our long-term planning process.
Bellatrix increases exposure to the Dawn, Chicago and Malin markets in the fourth quarter of 2018. These market sales contributed to the realized gain for the company of approximately $7.6 million in the fourth quarter. This long-term diversification strategy reduces Bellatrix' exposure to AECO pricing on approximately 50% of the company’s 2019 projected natural gas volume as compared to the midpoint of 2019 average production guidance.
Bellatrix increased its liquidity by $9.3 million as at December 31, 2018, compared with the previous quarter. Borrowings under our syndicated revolving credit facilities were $48 million, and total net debt was $443 million at year-end.
At December 31, 2018, Bellatrix had approximately $47.2 million of undrawn capacity against total commitments of $95 million under the company's credit facilities. For the quarter ended December 31, 2018, Bellatrix' senior debt-to-EBITDA ratio was 2.88x, well below the financial covenant of 5.0x. And Bellatrix' first lien debt-to-EBITDA ratio was 1.15x, well below the financial covenant of 3.0x.
Now back to you Brent.
Thank you, Max. Bellatrix' first quarter 2019 drilling and completion program includes plans to drill up to five gross operated wells, including four Spirit River wells and a two-mile horizontal Cardium well. Capital investment in the first quarter of 2019 will also include tying in three previously drove wells in the fourth quarter of 2018.
Bellatrix is focused on its key strategic priority of maintaining financial strength and liquidity. This 2018, the company has been advancing efforts and evaluating potential alternatives to optimize its capital structure, improve liquidity, enhanced long-term shareholder value.
Such efforts include among other things, Bellatrix' on going discussions with parties across the company’s capital structure in connection with potential transaction alternatives. As previously mentioned, Bellatrix does not intend to provide updates on the potential transaction alternatives, until the Board of Directors of the company approves a definitive transaction or the company otherwise determines that further disclosure is necessary or appropriate.
Our fourth quarter and full-year 2018 results once again, reinforced the importance that our three foundational pillars provide, which include a high-quality asset base in one of the most profitable natural gas place in North America, underpinned by strategic infrastructure ownership and control and supported by ample takeaway capacity. These elements provide the necessary ingredients, the long-term profitability.
In closing, I'd like to thank our employees, our shareholders, and our stakeholders for their continued support, as we remain focused on preserving long-term value. Thank you.
Sinead, that concludes our conference call this afternoon. Thank you everyone on the line for participating.
This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.