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Eagle Energy Inc. Announces Second Quarter 2017 Results, Succession Plan and Cost Reduction Initiatives

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Eagle Energy Inc. Announces Second Quarter 2017 Results, Succession Plan and Cost Reduction Initiatives

Eagle Energy Inc. Announces Second Quarter 2017 Results, Succession Plan and Cost Reduction Initiatives

CALGARY, ALBERTA--(Marketwired - Aug 10, 2017) - Eagle Energy Inc. (TSX:EGL) ("Eagle") is pleased to report its financial and operating results for the second quarter ended June 30, 2017 as well as provide an update on additional cost reduction initiatives.

Richard Clark, Eagle's Chief Executive Officer, stated, "I am pleased with our technical team's progress toward commencing drilling on our North Texas asset. We now own over 24,000 net acres in North Texas. This land position is focused and well-supported by offset production and 3D seismic. As I mentioned previously, this is not a high risk exploratory play; rather, it is a development drilling project with solid well control and production history. It falls completely within Eagle's core competency and successful track record of horizontal well development. Eagle will be the first to exploit this asset with horizontal wells using current completion techniques."

Mr. Clark continued, "This year we closed a refinancing, which gives us sufficient capital and the time to do our work despite volatile commodity prices. Eagle's loan is within the new industry norm for junior oil and gas companies, given the current market. Several of Eagle's peers recently entered into financing transactions with loan terms that are comparable to Eagle's. Some have more stringent terms with higher interest rates and a material equity component, which Eagle's financing does not have. We believe Eagle's assets and financial partnership with our lender provide a solid foundation to execute our drilling plan."

Succession Plan Announced

The following changes will be occurring at Eagle, all effective September 1, 2017:

  • Wayne Wisniewski, currently President and Chief Operating Officer, will replace Richard Clark as CEO. Mr. Wisniewski will hold the position of President and CEO.
  • Richard Clark, founder of Eagle and CEO since its inception, will be appointed to the position of Executive Chairman of the Board of Directors of Eagle.
  • David Fitzpatrick, who has been the Chairman of Eagle since its inception, will be appointed to the position of Lead Independent Director of Eagle.

Mr. David Fitzpatrick, Chairman of Eagle stated, "We are pleased Mr. Wisniewski will assume the role of CEO. He has demonstrated outstanding leadership and performance, transforming Eagle into an operations-focused business, overseeing solid cost control, building a strong technical team and meeting our production forecasts consistently since he became Eagle's Chief Operating Officer in August of 2015. The transition of Mr. Clark to the position of Executive Chairman has been under consideration for some time, and will see him remain involved in setting the strategic direction and providing oversight of Eagle going forward."

Update on Additional Cost Reduction Initiatives - Total Executive Compensation Reduced by 50%

On June 15, 2017, Eagle announced that, in response to significantly weaker current oil prices than originally assumed in its 2017 budget, it would embark on additional comprehensive general and administrative cost reduction initiatives. As a first step, Eagle is implementing material reductions in executive compensation.

Eagle's 2016 aggregate executive compensation (cash and non-cash) was $2.8 million. Effective September 1, 2017, Eagle's aggregate executive compensation (cash and non-cash on an annualized basis) has been reduced by 50%. Specifically, Mr. Clark's total compensation has been reduced by 65%. The directors have also taken a reduction of approximately 40% in their total compensation (cash and non-cash on an annualized basis). Eagle reiterates its commitment to cost reductions going forward.

Eagle's unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2017 and related management's discussion and analysis have been filed with the securities regulators and are available online under Eagle's issuer profile on SEDAR at www.sedar.com and on Eagle's website at www.EagleEnergy.com.

This news release contains non-IFRS financial measures and statements that are forward-looking. Investors should read "Non-IFRS Financial Measures" and "Note about Forward-Looking Statements" near the end of this news release. Figures within this news release are presented in Canadian dollars unless otherwise indicated.

Highlights for the Three Months ended June 30, 2017

  • Second quarter production of 3,966 barrels of oil equivalent per day ("boe/d"); working interest production up 6% from the first quarter as wells from Eagle's 2017 winter drilling program commence production.
  • Second quarter operating, transportation and marketing expenses of $5.9 million; down $1.3 million from first quarter levels as workover and well servicing activity resumed normal levels.
  • 10% increase in second quarter per boe field netback from first quarter levels despite a 7% drop in the WTI price.
  • Year to date general and administrative charges 18% below the prior year; expecting a 14% drop in full year 2017 general and administrative expenses from 2016 levels.
  • Second quarter funds flow from operations of $4.3 million ($0.10 per share); up $2.7 million from first quarter levels.
  • During the second quarter, Eagle further expanded its land position in the Hardeman area of North Texas through additional purchases, bringing its total acreage in the area to 24,000 net acres. Lease preparation and construction is underway in advance of the North Texas drilling program, scheduled to commence later this year. Eagle now refers to the Hardeman area as North Texas.

2017 Outlook

This outlook section is intended to provide shareholders with information about Eagle's expectations for capital expenditures, average production and operating costs for 2017. Readers are cautioned that the information may not be appropriate for any other purpose. This information constitutes forward-looking information. Readers should note the assumptions, risks and discussions under "Note about Forward-Looking Statements" at the end of this news release.

Due to continuing soft commodity prices, Eagle has decided to take a conservative approach for the remainder of 2017 and has deferred the drilling of one North Texas well from the fourth quarter of 2017 to early 2018. One North Texas well will be drilled as planned in the second half of 2017. Eagle's 2017 capital budget and average production guidance is therefore revised from what Eagle originally announced on March 13, 2017 and is as follows:

Guidance

2017 Revised Guidance 2017 Previous Guidance Notes
Capital Budget $21.0 mm $22.8 mm (1 )
Average Production 3,700 to 3,900 boe/d 3,800 to 4,000 boe/d (2 )
Operating Costs per month $2.1 to $2.3 mm $2.1 to $2.3 mm (3 )

Notes:

(1) The revised 2017 capital budget of $21.0 million (previously $22.8 million) consists of $US 10.0 million for Eagle's operations in the United States and $7.8 million for Eagle's operations in Canada.
(2) Average 2017 production is revised downward by 100 boe/d to a range of 3,700 to 3,900 boe/d. The production mix consists of 84% oil, 3% natural gas liquids ("NGLs") and 13% natural gas. These numbers include working interest and royalty interest volumes.
(3) Operating expense guidance remains the same and is stated on a per month basis rather than per boe basis due to the mostly fixed nature of the costs.

Eagle's Expected Funds Flow from Operations, Ending Net Debt and Field Netback

As a result of guidance revisions and updated commodity price and foreign exchange rate assumptions of management, resulting expected funds flow from operations, ending net debt and field netback and related sensitivities are as follows:

Amount Notes
Funds Flow from Operations $10.7 mm (1 )
Ending Net Debt $69.4 mm
Field Netback (excluding hedges) $19.90 / boe (2 )

Notes:

(1) 2017 funds flow from operations is expected to be approximately $10.7 million (previously $15.2 million) based on the following assumptions:
(a) average production of 3,800 boe/d (the mid-point of the revised guidance range);
(b) pricing at $US 50.00 (previously $US 51.75) per barrel WTI oil, $US 3.05 (previously $US 3.37) per Mcf NYMEX gas, $CA 2.22 (previously $CA 2.79) per Mcf AECO and $US 17.48 (previously $US 18.11) per barrel of NGL (NGL price is calculated as 35% of the WTI price);
(c) differential to WTI is $US 3.18 discount per barrel in Salt Flat, $US 3.50 discount per barrel in North Texas, $CA 11.50 discount per barrel in Dixonville and $CA 8.00 discount per barrel in Twining;
(d) average operating costs of $2.2 million per month ($US 0.8 million per month for Eagle's operations in the United States and $1.2 million per month for Eagle's operations in Canada), the mid-point of the guidance range; and
(e) a foreign exchange rate of $US 1.00 equal to $CA 1.24 (previously $CA 1.35).
(2) This figure assumes average operating costs of $2.2 million per month (the mid-point of the guidance range) and a $US 50.00 (previously $US 51.75) WTI price. Field netback is a non-IFRS financial measure. See "Non-IFRS Financial Measures".

2017 Sensitivities

The following tables show the sensitivity of Eagle's 2017 expected funds flow from operations to changes in commodity prices, production and foreign exchange ("FX") rates:

Funds Flow from Operations 2017 Average Production (3,800 boe/d)
Sensitivity to Commodity Price FX 1.19 FX 1.24 FX 1.29
$US 45.00 WTI $9.4 mm $10.0 mm $10.5mm
$US 50.00 WTI $10.1 mm $10.7 mm $11.3 mm
$US 55.00 WTI $10.9 mm $11.5 mm $12.1 mm
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