28th Jan 2015 09:56
LONDON (Alliance News) - Edge Resources Inc said it is hoping oil prices will recover in 2015, but is planning for a sustained period of low and volatile prices and will therefore cut costs and aggressively protect its balance sheet.
In a statement, the oil producer said current cash flow is expected to be lower than the previously reported quarter due to revenue decreasing faster than expenses. However, it said it will benefit from higher production, a lower Canadian versus US dollar, an improved heavy oil differential, lower general and administrative expenses, lower operating costs and lower royalties.
"Given the macroeconomic view, it is obvious that any previously published guidance is no longer in-line with expectations. The unavoidable truth is that revenues and projected cash flows for the majority of the world's E&P companies will decrease if world oil prices remain at current levels, which may lead to lower reserve values; and thus, lower lending values across the industry," the company said in a statement.
However, it doesn't expect to get into any financial difficulties, saying it has had several encouraging conversations with its lenders who have expressed continued support for the company and its strategy.
The West Texas Intermediate oil price has fallen to below USD48 a barrel in January, from USD105 a barrel in June last year.
However, with new handling facilities now completed at its Eye Hill East site that will lower operational costs, Edge expects that Eye Hill's break-even operating profit price is equivalent to USD30 a barrel, while company-wide estimates demonstrate that Edge should be able to maintain positive cash flow from operations at or above approximately USD32 a barrel.
Edge said it has now completed its water and natural gas handling facility and 6,000 meters of natural gas and water pipelines in Eye Hill East, allowing it to drastically cut trucking and waste water disposal costs while optimising output from the wells. It expects the new facility to add at least USD1.1 million in cash flow in the first year, and increase further when new wells are drilled.
Edge also said current production is approximately 650 barrels of oil equivalent a day, with 65% of that oil, and an additional 100 barrels of oil equivalent a day is temporarily shut-in, but can be restarted at any time. It said it has cut general and administrative expended by 9% in the first half of its financial year.
"The colossal decrease in world oil prices will hurt all oil and gas companies. Those that are prepared for the outcomes, as we believe Edge is, should benefit enormously and emerge from this downturn bigger, stronger and more efficient than ever before," Chief Executive Brad Nichol said in a statement.
"This is the market in which strong companies should look to acquire heavily discounted assets versus drilling up their inventory," he added.
Still, Edge Resources shares were down 4.0% at 3.00 pence in London Wednesday morning.
By Steve McGrath; [email protected]; @stevemcgrath1
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