Nextraction posts 33% sequential revenue growth in Q3, new strategic focus

Nextraction Energy (CVE:NE) said Wednesday that third quarter revenues rose 33 percent from the second quarter as average oil production increased, and also announced a new strategic focus for the junior oil and gas company.

Total revenues in the quarter rose to $335,722 from $253,098 in the second quarter on a 48 percent increase in average oil production, offset somewhat by an 11 percent decrease in the average realized price of oil, the company said. Revenues in the year-ago period were higher, at $372,929.

Production averaged 74 barrels of oil equivalent (boe) per day in the latest quarter, weighted 42 percent towards light oil and natural gas liquids and 58 towards natural gas, compared to average production of 54 boe per day in the second quarter, weighted 39 percent towards light oil and natural gas liquids and 61 percent towards natural gas.

Higher average production volumes resulted from increased oil production associated with the well re-completion program on the company’s Provost Viking light oil project.

In February of this year, Nextraction formed a a joint venture with Magnum Energy (CVE:MEN) to acquire the 842-hectare Viking property, located in eastern Alberta's Provost Field. The company also produces light oil and liquids rich gas at its Pinedale Anticline property in Wyoming, and has exploratory rights to conduct a seismic survey and development opportunities in the Saturn Project in Montana.

During the third quarter, the company completed its first horizontal well on its Viking light oil prospect.  Production is expected to come on stream in the first quarter of 2012 after construction of a pipeline to tie-in the well is completed, Nextraction said.

Operating netbacks in the field rose to $3.25 per boe in the quarter, way up from $0.19 per boe, as fixed operating and transportation costs were offset against higher production volumes. Operating netback is a measure of oil and gas sales net of royalties, production and transportation expenses, and is used specifically in the oil and gas industry as a benchmark to compare performance between time periods, operations and competitors.

Net loss for the third quarter totaled $5.26 million, or 20 cents per share, compared to a net loss of $0.52 million, or three cents per share, a year earlier.
Included in the loss for the latest quarter is $5.6 million of impairment expense associated with the company’s natural gas property in Pinedale, Wyoming.
Low production volumes resulting from high water in-flow and low reservoir deliverability, coupled with historically low natural gas prices resulted in the impairment charge, the company said.
Nextraction is currently evaluating alternatives to improve production volumes from the Pinedale property.
"The company is disappointed with third quarter results, specifically relating to the Pinedale property and recognizes that future development of the property is not the appropriate manner to create shareholder value as the large scale and capital requirements of the project are beyond the realistic means of the company at this time," Nextraction said in a statement.
"Accordingly, the company is shifting strategic direction to utilize management’s experience in the Western Canadian oil industry. The Western Canadian Basin offers an attractive environment for junior oil and gas companies to acquire and develop projects of an appropriate scale."
Indeed, looking forward, the company said it would acquire land and assets where the company can be operator, and in control of drilling schedules and operations. It also said it would focus on oil-weighted Canadian assets that provide "attractive returns with an appropriate scale of investment".
In connection with the strategic shift, the company also announced that president and CEO Mark Dolar has retired and stepped down from his role, but will remain a director of the company. Eric Carlson has been appointed chairman of the board, while Kent Edney, formerly VP of operations, has been appointed president.
Carlson said: “The Board is excited about the new focus and strategy of the company and is fully supportive of Kent as he takes on his new leadership responsibilities.
"We are looking forward to finding more land, drilling more wells and making money for our shareholders."