1. business and industrial
2. energy
3. natural gas

2015 FIRST QUARTER REPORT
For the three months ended
March 31, 2015
Q1
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
CORPORATE PROFILE
C
A
N
A
D
A
Bellatrix Exploration Ltd.
is an exploration and production oil
BRITISH
COLUMBIA
and gas company based in Calgary,
Alberta, Canada. Bellatrix has a
ALBERTA
significant multi-year inventory of
SASKATCHEWAN
drilling locations in Alberta,
British Columbia and
Calgary
Saskatchewan.
TABLE OF
CONTENTS
1
2
Highlights
4
Report to Shareholders
8
Management’s Discussion and Analysis
33
Condensed Consolidated Financial Statements
33
Condensed Consolidated Balance Sheets
34
Condensed Consolidated Statements of Comprehensive Income
35
Condensed Consolidated Statements of Shareholders’ Equity
36
Condensed Consolidated Statements of Cash Flows
37
Notes to the Condensed Consolidated Financial Statements
50
Corporate Information
GLOSSARY
AECO
/d
boe
a storage and pricing hub for Canadian natural gas markets
per day
barrels of oil equivalent
(6 mcf of natural gas = 1 barrel of oil equivalent)
bbl or bbls barrels
GORR
gross overriding royalty
mboe
thousand boe
mcf
thousand cubic feet
mmboe
million barrels of oil equivalent
mmbtu
million British thermal units
mmcf
million cubic feet
NGL
natural gas liquids (ethane, propane, butane, and condensate)
WTI
West Texas Intermediate, a benchmark
crude oil used for pricing comparison
NI 51-101 National Instrument 51-101
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
HIGHLIGHTS
Forward-Looking Statements
This financial report, including the report to shareholders, contains forward-looking statements. Please refer to our cautionary language on forward-looking
statements and the other matters set forth at the beginning of the management's discussion and analysis (the “MD&A”) attached to this financial report.
Three months ended March 31,
2015
2014
SELECTED FINANCIAL RESULTS
(CDN$000s except net wells, share, and per share amounts)
Total revenue(2)
Funds flow from operations (3)
Per basic share (6)
Per diluted share (6)
Cash flow from operating activities
Per basic share(6)
Per diluted share (6)
Net profit (loss)
Per basic share (6)
Per diluted share (6)
Capital - exploration and development
Capital - corporate assets
Property acquisitions
Capital expenditures - cash
Property dispositions - cash
Total net capital expenditures - cash
Other non-cash items
Total capital expenditures - net (5)
Long-term debt
Adjusted working capital deficiency (4)
Total net debt (4)
Total assets
Total shareholders' equity
SELECTED OPERATING RESULTS
Average daily sales volumes
Crude oil, condensate, and NGLs (bbls/d)
Natural gas (mcf/d)
Total oil equivalent (boe/d)
Average realized prices
Crude oil and condensate ($/bbl)
NGLs (excluding condensate) ($/bbl)
Crude oil, condensate, and NGLs ($/bbl)
Crude oil, condensate, and NGLs (including risk management (1)) ($/bbl)
Natural gas ($/mcf)
Natural gas (including risk management (1)) ($/mcf)
Total oil equivalent ($/boe)
Total oil equivalent (including risk management (1)) ($/boe)
Net wells drilled
Selected key operating statistics
Operating netback (5) ($/boe)
Operating netback (5) (including risk management (1)) ($/boe)
Transportation ($/boe)
Production expenses ($/boe)
General and administrative ($/boe)
Royalties as a % of sales (after transportation)
90,186
24,858
$0.13
$0.13
22,553
$0.12
$0.12
(12,688)
($0.07)
($0.07)
81,344
1,154
701
83,199
(20)
83,179
7,475
90,654
622,648
73,800
696,448
2,264,748
1,237,216
163,585
77,642
$0.45
$0.45
84,300
$0.49
$0.48
25,167
$0.15
$0.14
152,686
2,956
260
155,902
(39)
155,863
4,990
160,853
335,118
137,970
473,088
1,707,929
933,670
12,644
190,582
44,408
12,405
135,865
35,049
49.67
18.17
32.72
34.05
2.99
3.03
22.13
22.68
3.2
98.27
57.50
80.41
74.67
5.88
4.88
51.27
45.36
25.6
9.03
9.58
1.22
8.56
1.83
18%
33.45
27.54
1.61
8.12
1.75
17%
2
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
HIGHLIGHTS
Three months ended March 31,
2015
2014
COMMON SHARES
Common shares outstanding
Share options outstanding
Fully diluted common shares outstanding
Weighted average shares (6)
SHARE TRADING STATISTICS
TSX and Other (7)
191,957,243
10,783,003
202,740,246
191,953,095
172,761,228
9,472,505
182,233,733
174,321,930
4.46
2.38
3.08
2,921,719
9.44
7.64
9.35
1,848,581
3.81
1.86
2.43
888,245
8.55
6.93
8.43
156,011
(CDN$, except volumes) based on intra-day trading
High
Low
Close
Average daily volume
NYSE
(US$, except volumes) based on intra-day trading
High
Low
Close
Average daily volume
(1) The Company has entered into various commodity price risk management contracts which are considered to be economic hedges. Per unit metrics after risk
management include only the realized portion of gains or losses on commodity contracts. The Company does not apply hedge accounting to these contracts.
As such, these contracts are revalued to fair value at the end of each reporting date. This results in recognition of unrealized gains or losses over the term of
these contracts which is reflected each reporting period until these contracts are settled, at which time realized gains or losses are recorded. These
unrealized gains or losses on commodity contracts are not included for purposes of per unit metrics calculations disclosed.
(2) Total revenue is considered to be a non-GAAP measure. Therefore reference to the non-GAAP measure of total revenue may not be comparable with the
calculation of similar measures for other entities. The Company's calculation of total revenue includes petroleum and natural gas sales and other income, and
excludes commodity price risk management. Management believes this measure is a useful supplementary measure of the revenue generated by the
Company.
(3) The term funds flow from operations is an additional GAAP measure which should not be considered an alternative to, or more meaningful than, cash flow from
operating activities as determined in accordance with GAAP as an indicator of the Company's performance. Therefore reference to the additional GAAP
measures of funds flow from operations, or funds flow from operations per share may not be comparable with the calculation of similar measures for other
entities. Management uses funds flow from operations to analyze operating performance and leverage and considers funds flow from operations to be a key
measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. The reconciliation
between cash flow from operating activities and funds flow from operations can be found in the MD&A. Funds flow from operations per share is calculated
using the weighted average number of common shares for the period.
(4) Total net debt is considered to be an additional GAAP measure. Therefore reference to the additional GAAP measure of total net debt may not be comparable
with the calculation of similar measures for other entities. The Company's calculation of total net debt excludes deferred lease inducements,
decommissioning liabilities, the long-term finance lease obligation, deferred lease inducements, and the deferred tax liability. Total net debt includes the
adjusted working capital deficiency (excess). The adjusted working capital deficiency (excess) is an additional GAAP measure calculated as net working
capital deficiency (excess) excluding short-term commodity contract assets and liabilities, current finance lease obligation, and deferred lease inducements.
A reconciliation between total liabilities under GAAP and total net debt as calculated by the Company is found in this MD&A.
(5) Operating netbacks and total capital expenditures – net are considered non-GAAP measures. Operating netbacks are calculated by subtracting royalties,
transportation, and operating costs from total revenue. Total capital expenditures – net includes the cash impact of capital expenditures and property
dispositions, as well as the non-cash capital impacts of corporate acquisitions, property acquisitions, adjustments to the Company's decommissioning
liabilities, and share based compensation. The detailed calculations of operating netbacks are found in the MD&A.
(6) Basic weighted average shares for the three months ended March 31, 2015 were 191,953,095 (2014: 171,626,707).
In computing weighted average diluted profit (loss) per share, weighted average diluted cash flow from operating activities per share, and weighted average
diluted funds flow from operations per share for the three months ended March 31, 2015, a total of nil (2014: 2,695,223) common shares were added to the
denominator as a consequence of applying the treasury stock method to the Company's outstanding share options, resulting in diluted weighted average
common shares of 191,953,095 (2014: 174,321,930).
(7) TSX and Other includes the trading statistics for the TSX and other Canadian trading markets.
3
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
REPORT TO SHAREHOLDERS
Bellatrix remains committed to successfully navigating the current pricing environment while sustaining long term value for our
shareholders. Bellatrix's low cost structure and high quality asset base provide considerable benefits during challenging periods within
the commodity price cycle.
First quarter 2015 activity was focused on three principal initiatives. Firstly, the Company efficaciously executed on several critical
path items on construction of Phase 1 of the Bellatrix O'Chiese Nees-Ohpawganu'ck deep-cut gas plant in the Alder Flats area of Alberta
(“Bellatrix Alder Flats Plant”) and the plant remains firmly on schedule to meet our previous guidance for start-up on or before July 1,
2015. Secondly, drilling and completion activity was directed toward high rate of return wells, including a greater focus on our high
impact and low finding cost Spirit River opportunities which will attract the majority of drilling and completion capital in 2015. Finally,
Bellatrix remains committed to maintaining its position as a low cost finder and operator, continuing our emphatic approach to reduce
costs and improve our full cycle corporate profitability.
Capital spending on exploration and development activities of $81.3 million included $54.7 million on facilities and equipment, which
represented the highest forecast capital spending quarter of 2015 as we near completion of the Bellatrix Alder Flats Plant. Net capital
spending in the second quarter is forecast at approximately $30 million. Bellatrix remains highly focused on key business objectives of
maintaining financial strength and optimizing capital investments which it seeks to attain through a disciplined approach to capital
spending, a flexible investment program, and financial stewardship. Bellatrix is actively engaged in exploring several capital funding
alternatives designed to sustain or reduce year-end net debt in 2015 when compared to 2014 year-end net debt of $638 million, while
maintaining delivery of the 2015 full year average production guidance of 43,000 to 44,000 boe/d, representing 14% year over year
average production growth. Bellatrix will revisit its capital budget on a continuous basis, will strategically review all sources and costs
of capital available to the Company including monetization of assets, and will further curtail capital spending, if necessary, in order to
preserve its balance sheet until commodity prices firmly recover. In the first quarter of 2015, Bellatrix proactively obtained
amendments to certain of the financial covenants governing the existing bank credit facilities thereby providing Bellatrix enhanced
flexibility to successfully navigate through 2015 and optimize its capital decisions. The Company remains committed to preserving the
long term strategic value of its assets through this challenging commodity price environment for the benefit of all shareholders.
OPERATIONS HIGHLIGHTS
Production in the quarter averaged 44,408 boe/d (72% natural gas weighted) solidly at the top end of our full year average guidance
range of 43,000 to 44,000 boe/d. The first quarter 2015 production increased 27% from an average of 35,049 boe/d realized in the
first quarter of 2014.
Capital spending on exploration and development activities of $81.3 million included $54.7 million on facilities and equipment as
we near completion of the construction of Phase 1 of the Bellatrix Alder Flats Plant.
During the first quarter of 2015, Bellatrix drilled and/or participated in 6 gross (3.2 net) wells, consisting of 3 gross (1.2 net) Cardium
oil wells and 3 gross (2.0 net) Spirit River liquids-rich gas wells.
As at March 31, 2015, Bellatrix had approximately 379,165 net undeveloped acres of land in Alberta, British Columbia, and
Saskatchewan.
NEARING COMPLETION OF PHASE 1 OF THE BELLATRIX ALDER FLATS DEEP-CUT GAS PLANT
Significant activity and critical path items were completed on Phase 1 of the Bellatrix Alder Flats Plant during the first quarter of 2015.
All major components were delivered and installed in January. All pipe welding and installation was completed by the end of the
quarter. Additionally, electrical power supply to the site is completed and energized.
Subsequent to the end of the first quarter, pressure testing of pipe was materially completed as was electrical commissioning.
4
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
REPORT TO SHAREHOLDERS
The Company completed three major bores for pipelines associated with the deep cut plant including a successful 2.4 kilometre bore
under the North Saskatchewan River to accommodate three pipelines (a 16” pipe, an 8” pipe, and a 4” pipe). The total length of major
pipeline installed was 13.5 kilometres of 16” natural gas lines, 20 kilometres of 8” fuel gas lines, and 13.5 kilometres of 4” condensate
lines.
Completion of Phase 1 of the Bellatrix Alder Flats Plant remains firmly on budget and on schedule for start-up on or before July 1, 2015.
EXPECTED CAPITAL EFFICIENCY IMPROVEMENT FOLLOWING LARGE SCALE INFRASTRUCTURE
BUILD-OUT
Bellatrix has invested over $245 million in facilities and infrastructure over the past two calendar years with approximately $70 million
additional spending planned in 2015. The investment in the Bellatrix Alder Flats Plant, pipelines, compressor stations, and oil batteries
provides significant competitive advantages within our greater Ferrier region. From a long term perspective, these strategic
infrastructure assets anchor a reduced operating cost profile. Additionally these fixed assets are expected to improve operational
reliability given enhanced flexibility and access to multiple processing facilities in addition to key receipt points along the Canadian
mainline gas transmission system.
Upon completion of Phase 1 of the Bellatrix Alder Flats Plant, Bellatrix will have unfettered processing capacity to grow production
volumes to approximately 60,000 boe/d without the need for material spending on infrastructure. Beginning in 2014, infrastructure
spending has averaged between 35% to 40% of total capital spending, however starting in the second half of 2015 we anticipate
infrastructure related spending will decline to approximately 20% or less of total capital spending going forward. Reduced
infrastructure investment is expected to drive improved corporate capital efficiency metrics, finding and development costs, and result
in enhanced corporate profitability.
SERVICE COST DEFLATION AND OVERALL COST REDUCTION INITIATIVES
The entrepreneurial spirit of our team and consistent focus on improving results and reducing costs remain core competencies within
the Bellatrix culture. During the first quarter of 2015 the Company remained steadfast in its approach to reduce costs within all aspects
of its operations. Reduced industry activity and improved efficiencies has enabled Bellatrix to work with its drilling and completion
vendors to obtain average costs savings of up to 15%. These cost savings initiatives have meaningfully impacted year to date activity
highlighted by our first quarter Spirit River drilling and completion program which came in 20% lower than our original cost projections.
Additional cost saving initiatives captured in the first quarter included a renegotiation of all major compressor rental agreements,
providing an estimated cost savings annually of $3.5 million. The Company has also initiated a multitude of cost saving strategies to
reduce general and administrative costs that will be realized throughout 2015. We anticipate further cost savings from our corporate
initiatives across our business as we progress through this year.
PLAN TO ACCESS UP TO $85 MILLION IN JOINT VENTURE PARTNER CAPITAL IN 2015
Bellatrix intends on accessing up to $85 million in joint venture (“JV”) capital in 2015 principally sourced from our JV partnership with
Grafton Energy Co I Ltd. ("Grafton"). Pursuant to the JV terms, Grafton contributes 82% of the drill, complete, equip and tie-in costs to
earn 54% of Bellatrix's working interest before payout, reverting to a 33% working interest after payout (convertible to a 17.5% gross
overriding royalty). Access to JV capital in 2015 provides significant benefits to Bellatrix including insulation against weak commodity
prices given enhanced rate of return expectations, and improved capital efficiencies on wells drilled.
5
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
REPORT TO SHAREHOLDERS
FINANCIAL HIGHLIGHTS
Net loss for the three months ended March 31, 2015 was $12.7 million. The reduction in earnings in the first quarter 2015
compared to the fourth quarter of 2014 was primarily due to the continued weak commodity price environment which has resulted
from the over-supply in the market. Realized prices in the first quarter 2015 decreased by 31% in crude oil and condensate, 42% in
NGL and 25% in natural gas from fourth quarter 2014.
Total revenue decreased by 45% to $90.2 million for the three months ended March 31, 2015, compared to $163.6 million realized
in the first quarter of 2014. Total crude oil, condensate, and NGL revenues contributed 41% of total revenue realized in the first
quarter of 2015, compared to 55% in the first quarter of 2014.
Funds flow from operations generated in the three months ended March 31, 2015 was $24.9 million ($0.13 per basic share), a
decrease of 68% from $77.6 million ($0.45 per basic share) in the first quarter of 2014.
Production expenses totaled $34.2 million ($8.56/boe) for the three months ended March 31, 2015, compared to $25.6 million
($8.12/boe) in the first quarter of 2014. Production expenses increased on a per boe basis between the first quarters of 2015 and
2014 due to one-time adjustments related to prior periods of $0.62/boe primarily attributable to third party realized facility
equalizations. Excluding these one-time adjustments, production expenses per boe for the three months ended March 31, 2015
were $7.94/boe.
The corporate operating netback realized for the three months ended March 31, 2015 decreased by 73% to $9.03/boe compared to
$33.45/boe in the first quarter of 2014. After including commodity risk management contracts, the corporate operating netback for
the first quarter of 2015 was $9.58/boe, compared to $27.54/boe in the first quarter of 2014.
General and administrative (“G&A”) expenses net of capitalized G&A and recoveries for the three months ended March 31, 2015
were $7.3 million ($1.83/boe), compared to $5.5 million ($1.75/boe) in the first quarter of 2014.
Increased commodity price risk management contracts during the first quarter 2015. The risk management program for the April 1,
2015 through October 31, 2015 period represents approximately 90% of forecast natural gas volumes (before royalties) over the
duration of the contract period, compared with the midpoint of full year 2015 average production guidance range.
Announced amendments to the financial covenants governing the existing bank credit facilities thereby providing Bellatrix
enhanced flexibility to successfully navigate through the current challenging commodity price environment.
As at March 31, 2015, Bellatrix had $101.6 million undrawn on its total $725 million credit facilities.
Total net debt as of March 31, 2015 was $696.4 million.
At March 31, 2015, Bellatrix had approximately $1.70 billion in tax pools available for deduction against future income.
6
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
REPORT TO SHAREHOLDERS
OUTLOOK
As we near completion on Phase 1 of the Bellatrix Alder Flats Plant, it is important to reflect on the strategic drivers behind our decision
to construct the facility. The first and arguably most important consideration is control. The Bellatrix Alder Flats Plant provides control
over the ability and timing of production growth, reliability of processing capacity, and firm service processing capacity. Furthermore,
the enhanced natural gas liquids recovery at the Bellatrix Alder Flats Plant provides an estimated 14% uplift in revenue from the same
gas stream currently processed through third party plants. Finally, the operating cost savings are significant as we forecast a 55%
reduction in unit operating costs attributed to natural gas volumes processed through the plant relative to third party processed volumes
currently. The contribution of the deep-cut plant is expected to anchor an overall reduction in average 2015 corporate operating costs.
In conjunction with our decision to construct the plant, Bellatrix secured firm takeaway capacity on the Canadian mainline gas
transmission system to align with the incremental gross sales capacity of both Phase 1 and Phase 2 of our Bellatrix Alder Flats Plant.
Bellatrix's firm takeaway capacity on the mainline system will grow from approximately 220 mmcf/d currently, to approximately 330
mmcf/d upon completion of Phase 1 of our plant, with subsequent growth to 430 mmcf/d upon completion of Phase 2. Current takeaway
constraints have placed pressure on many producers across the Basin as interruptible capacity has been significantly reduced, and at
times restricted completely. Bellatrix also put in place long term firm transportation and fractionation agreements with an established
midstream company ensuring takeaway, processing and marketing of all NGL and condensate products produced at the plant.
Bellatrix's foresight to build, control, and secure additional firm takeaway capacity has put the Company in an enviable position to be
able to profitably grow production in the years ahead with significantly reduced infrastructure constraints.
Raymond G. Smith, P. Eng.
President and CEO
May 4, 2015
7
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
May 4, 2015 – The following Management's Discussion and Analysis of financial results (“MD&A”) as provided by the management of Bellatrix Exploration Ltd. (“Bellatrix” or the
“Company”) should be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company for the three months ended March 31, 2015
and 2014, and the audited consolidated financial statements of the Company for the years ended December 31, 2014 and 2013, and the related MD&A. Disclosure which is
unchanged from the MD&A for the year ended December 31, 2014 may not be repeated herein. This commentary is based on information available to, and is dated as of, May 4,
2015. The financial data presented is in Canadian dollars, except where indicated otherwise.
CONVERSION: The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one
barrel of oil equivalent (6 mcf/bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the
wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a
conversion on a 6:1 basis may be misleading as an indication of value. All boe conversions in this report are derived from converting gas to oil in the ratio of six thousand cubic feet
of gas to one barrel of oil.
ADDITIONAL GAAP MEASURES: This MD&A contains the term “funds flow from operations” which should not be considered an alternative to, or more meaningful than “cash
flow from operating activities” as determined in accordance with generally accepted accounting principles (“GAAP”) as an indicator of the Company's performance. Therefore
reference to funds flow from operations or funds flow from operations per share may not be comparable with the calculation of similar measures for other entities. Management
uses funds flow from operations to analyze operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the Company's
ability to generate the cash necessary to fund future capital investments and to repay debt. The reconciliation between cash flow from operating activities and funds flow from
operations can be found in this MD&A. Funds flow from operations per share is calculated using the weighted average number of shares for the period.
This MD&A also contains the terms “total net debt” and “adjusted working capital deficiency (excess)”, which also are not recognized measures under GAAP. Therefore
reference to the additional GAAP measures of total net debt or adjusted working capital deficiency (excess) may not be comparable with the calculation of similar measures for
other entities. The Company's calculation of total net debt excludes deferred lease inducements, decommissioning liabilities, the long-term finance lease obligation, and the
deferred tax liability. Total net debt includes the adjusted working capital deficiency (excess). The adjusted working capital deficiency (excess) is an additional GAAP measure
calculated as net working capital deficiency (excess) excluding current finance lease obligation and current deferred lease inducements. Management believes these measures
are useful supplementary measures of the total amount of current and long-term debt.
NON-GAAP MEASURES: This MD&A and contains the terms of “operating netbacks” and “total capital expenditures – net”, which are not recognized measures under GAAP.
Operating netbacks are calculated by subtracting royalties, transportation, and operating expenses from total revenue. Management believes this measure is a useful
supplemental measure of the amount of revenues received after transportation, royalties and operating expenses. Readers are cautioned, however, that this measure should not
be construed as an alternative to net profit or loss determined in accordance with GAAP as a measure of performance. Bellatrix's method of calculating this measure may differ
from other entities, and accordingly, may not be comparable to measures used by other companies. Total capital expenditures - net includes the cash impact of capital
expenditures and property dispositions, as well as the non-cash capital impacts of corporate acquisitions, adjustments to the Company's decommissioning liabilities, and share
based compensation.
This MD&A also contains the term “total revenue”, which is not a recognized measure under GAAP. Therefore reference to the non-GAAP measure of “total revenue” may not be
comparable with the calculation of similar measures for other entities. The Company's calculation of total revenue includes petroleum and natural gas sales and other income,
and excludes commodity price risk management. Management believes this measure is a useful supplementary measure of the revenue generated by the Company.
DISCLOSURES: Due to immateriality, the Company has combined the previously separated disclosure of “Heavy Oil” revenue, volumes, pricing, production expenses and
royalties into “Crude Oil and condensate” revenue, volumes, pricing, production expenses and royalties for the three months ending March 31, 2015. Prior period comparative
values have been adjusted for comparative purposes.
JOINT ARRANGEMENTS: Bellatrix is a partner in the Grafton Joint Venture, the CNOR Joint Venture, the Daewoo and Devonian Partnership, and the Troika Joint Venture (all as
defined below), which have all been separately assessed and classified under International Financial Reporting Standards (“IFRS”) as joint operations. This classification is on
the basis that the arrangement is not conducted through a separate legal entity and the partners are legally obligated to pay their share of costs incurred and take their share of
output produced from the various production areas, and all partners have rights to the assets and obligations for the liabilities resulting from the joint operations. The Company
considered these factors as well as the terms of the individual agreements in determining the classification of a joint operation to be appropriate for each arrangement. For
purposes of disclosure throughout the MD&A and financial statements, Bellatrix has referred to these arrangements by the common oil and gas industry term of joint ventures.
GRAFTON JOINT VENTURE – During the second quarter of 2014, Bellatrix announced that Grafton Energy Co I Ltd. (“Grafton”) elected to exercise an option to increase
committed capital investment to the joint venture (the “Grafton Joint Venture”) with Grafton established during 2013 by an additional $50 million, for a total commitment of
$250 million. The funding period of the Grafton Joint Venture was extended to the third anniversary of the program's effective date for wells relating to the exercised option.
All other terms and conditions of the commitment increase are the same as the previously announced Grafton Joint Venture. The Grafton Joint Venture properties are in the
Willesden Green and Brazeau areas of West-Central Alberta, whereby Grafton will contribute 82%, or $250 million, to the joint venture to participate in a Notikewin/Falher and
Cardium well program. Under the agreement, Grafton will earn 54% of Bellatrix's working interest (“WI”) in each well drilled in the well program until payout (being recovery
of Grafton's capital investment plus an 8% internal rate of return) on the total program, reverting to 33% of Bellatrix's WI after payout. At any time after payout of the entire
program, Grafton shall have the option to elect to convert all wells from the 33% WI to a 17.5% Gross Overriding Royalty (“GORR”) on Bellatrix's pre-Grafton Joint Venture WI.
CNOR JOINT VENTURE – During the third quarter of 2014, Bellatrix announced that the Company and Canadian Non-Operated Resources Corp. ("CNOR"), a non-operated oil
and gas company managed by Grafton Asset Management Inc., had completed the formation of a new multi-year joint venture arrangement (the “CNOR Joint Venture”),
pursuant to which CNOR has committed $250 million in capital towards future accelerated development of a portion of Bellatrix's extensive undeveloped land holdings. Under
the terms of the agreement, CNOR will pay 50% of the drilling, completion, equipping and tie-in capital expenditures associated with development plans to be proposed by
Bellatrix and approved by a management committee comprised of representatives of Bellatrix and CNOR in order to earn 33% of Bellatrix's working interest before payout and
automatically converting to a 10.67% GORR on Bellatrix's pre-joint venture working interest after payout (being recovery of CNOR's capital investment plus an 8% return on
investment).
8
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
DAEWOO AND DEVONIAN PARTNERSHIP – Bellatrix has a joint venture arrangement (the “Daewoo and Devonian Partnership”) with Canadian subsidiaries of two Korean
entities, Daewoo International Corporation (“Daewoo”) and Devonian Natural Resources Private Equity Fund (“Devonian”) in the Baptiste area of West-Central Alberta,
whereby Daewoo and Devonian own a combined 50% of Bellatrix's WI share of producing assets, an operated compressor station and gathering system and related land
acreage.
TROIKA JOINT VENTURE – Bellatrix has a joint venture (the “Troika Joint Venture”) with TCA Energy Ltd. ("TCA") in the Ferrier Cardium area of West-Central Alberta, whereby
Troika will contribute 50% towards a capital program for which they will receive a 35% WI until payout (being recovery of TCA's capital investment plus a 15% internal rate of
return) on the total program, and thereafter reverting to 25% of Bellatrix's WI.
Additional information relating to the Company, including the Bellatrix's Annual Information Form, is available on SEDAR at www.sedar.com and on the Company's website at
www.bellatrixexploration.com. The Company's EDGAR filings and forms are available through the U.S. Securities and Exchange Commission at www.sec.gov.
Certain information contained herein may contain forward looking statements including management's assessment of future plans, operations and strategy, including completion
of construction of Phase 1 of the Bellatrix Alder Flats Plant on or before July 1, 2015, capital allocation toward high rate of return wells, the profitability of the Company's Spirit
River drilling opportunities, plans to maintain the Company's position as a low cost finder and operator, expectations of year-end total net debt, expected 2015 average
production, forecast second quarter 2015 and full-year capital spending, plans and expected timing related to Phase 2 of the Bellatrix Alder Flats Plant, the competitive
advantages within the Company's greater Ferrier region, the ability of the Company's strategic infrastructure assets to anchor a reduced operating cost profile, the Company's
access to multiple processing facilities in addition to key receipt points along the Canadian mainline gas transmission system, the ability of the Company to have unfettered
processing capacity to grow production volumes to approximately 60,000 boe/d without the need for material spending on infrastructure, the ability of the Company to reduce
infrastructure related spending to approximately 20% or less of total capital spending going forward, and the ability for this reduced infrastructure investment to drive improved
corporate capital efficiency metrics, finding and development costs, and result in enhanced corporate profitability going forward, the Company's ability to realize operating cost
and G&A expense savings as anticipated, plans to access to joint venture capital and the expected benefits therefrom, the Company's ability to control the timing of production
growth, reliability of processing capacity, and firm service transportation and processing capacity, expected enhanced natural gas liquids recovery from the Bellatrix Alder Flats
Plant, the ability to profitably grow production in the years ahead, and plans to direct the majority of the Company's drilling and completion capital for the remainder of 2015 to
Spirit River opportunities and continue to lever joint venture capital, and details of the Company's future strategy may constitute forward-looking statements under applicable
securities laws. To the extent that any forward-looking information contained herein constitute a financial outlook, they were approved by management on May 4, 2015 and are
included herein to provide readers with an understanding of the anticipated funds available to Bellatrix to fund its operations and readers are cautioned that the information may
not be appropriate for other purposes. Forward-looking statements necessarily involve risks, including, without limitation, risks associated with oil and gas exploration,
development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates,
environmental risks, competition from other producers, inability to retain drilling rigs and other services, incorrect assessment of the value of acquisitions, failure to realize the
anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external
sources. Events or circumstances may cause actual results to differ materially from those predicted, as a result of the risk factors set out and other known and unknown risks,
uncertainties, and other factors, many of which are beyond the control of Bellatrix. In addition, forward looking statements or information are based on a number of factors and
assumptions which have been used to develop such statements and information but which may prove to be incorrect and which have been used to develop such statements and
information in order to provide shareholders with a more complete perspective on Bellatrix's future operations. Such information may prove to be incorrect and readers are
cautioned that the information may not be appropriate for other purposes. Although the Company believes that the expectations reflected in such forward looking statements or
information are reasonable, undue reliance should not be placed on forward looking statements because the Company can give no assurance that such expectations will prove to
be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the impact of increasing
competition; the general stability of the economic and political environment in which the Company operates; the timely receipt of any required regulatory approvals; the ability of
the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company
has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Company to obtain financing on acceptable terms; field production rates and decline
rates; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility
construction and expansion and the ability of the Company to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; the
regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and the ability of the Company to successfully
market its oil and natural gas products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used. As a consequence,
actual results may differ materially from those anticipated in the forward-looking statements. Additional information on these and other factors that could affect Bellatrix's
operations and financial results are included in reports on file with Canadian and US securities regulatory authorities and may be accessed through the SEDAR website
(www.sedar.com), through the SEC website (www.sec.gov), and at Bellatrix's website (www.bellatrixexploration.com). Furthermore, the forward looking statements contained
herein are made as at the date hereof and Bellatrix does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a
result of new information, future events or otherwise, except as may be required by applicable securities laws.
The reader is further cautioned that the preparation of financial statements in accordance with GAAP requires management to make certain judgments and estimates that affect
the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions
based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as
further information becomes available, and as the economic environment changes.
9
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OVERVIEW AND DESCRIPTION OF THE BUSINESS
Bellatrix Exploration Ltd. (“Bellatrix” or the “Company”) is a western Canadian based growth oriented oil and gas company engaged in
the exploration for, and the acquisition, development and production of, oil and natural gas reserves in the provinces of Alberta, British
Columbia and Saskatchewan.
Common shares of Bellatrix trade on the Toronto Stock Exchange and on the New York Stock Exchange under the symbol “BXE”.
FIRST QUARTER 2015 ACTIVITIES
NEARING COMPLETION OF PHASE 1 OF THE BELLATRIX ALDER FLATS DEEP-CUT GAS PLANT
Significant activity and critical path items were completed on Phase 1 of the Bellatrix O'Chiese Nees-Ohpawganu'ck deep-cut gas plant
in the Alder Flats area of Alberta (“Bellatrix Alder Flats Plant”) during the first quarter of 2015. All major components were delivered and
installed in January. All pipe welding and installation was completed by the end of the first quarter. Additionally, electrical power
supply to the site was completed and energized. Subsequent to the end of the first quarter, pressure testing of pipe was materially
completed as well as the electrical commissioning.
The Company completed three major bores for pipelines associated with the deep cut plant including a successful 2.4 kilometre bore
under the North Saskatchewan river to accommodate three pipelines (a 16” pipe, an 8” pipe, and a 4” pipe). The total length of major
pipeline installed was 13.5 kilometres of 16” natural gas lines, 20 kilometres of 8” fuel gas lines, and 13.5 kilometres of 4” condensate
lines.
Completion of Phase 1 of the Bellatrix Alder Flats Plant remains firmly on budget and on schedule for start-up on or before July 1, 2015.
EXPECTED CAPITAL EFFICIENCY IMPROVEMENT FOLLOWING LARGE SCALE INFRASTRUCTURE BUILD-OUT
Bellatrix has invested over $245 million in facilities and infrastructure over the past two calendar years with approximately $70 million
additional spending planned in 2015. The investment in the Bellatrix Alder Flats Plant, pipelines, compressor stations, and oil batteries
provides significant competitive advantages within the greater Ferrier region. From a long term perspective, these strategic
infrastructure assets anchor a reduced operating cost profile. Additionally these fixed assets are expected to improve operational
reliability given enhanced flexibility and access to multiple processing facilities in addition to key receipt points along the Canadian
mainline gas transmission system.
Upon completion of Phase 1 of the Bellatrix Alder Flats Plant, Bellatrix will have unfettered processing capacity to grow production
volumes to approximately 60,000 boe/d without the need for material spending on infrastructure. Beginning in 2014, infrastructure
spending has averaged between 35% to 40% of total capital spending, however starting in the second half of 2015 the Company
anticipates infrastructure related spending will decline to approximately 20% or less of total capital spending going forward. Reduced
infrastructure investment is expected to drive improved corporate capital efficiency metrics, finding and development costs, and result
in enhanced corporate profitability.
SERVICE COST DEFLATION AND OVERALL COST REDUCTION INITIATIVES
The entrepreneurial spirit of the Bellatrix team and consistent focus on improving results and reducing costs remain core competencies
within the Bellatrix culture. During the first quarter of 2015 the Company remained steadfast in its approach to reduce costs within all
aspects of its operations. Reduced industry activity and improved efficiencies has enabled Bellatrix to work with its drilling and
completion vendors to obtain average costs savings of up to 15%. These cost savings initiatives have meaningfully impacted year to
date activity highlighted by the Company's first quarter Spirit River drilling and completion program which came in 20% lower than
original cost projections.
10
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Additional cost saving initiatives captured in the first quarter included a renegotiation of all major compressor rental agreements,
providing an estimated cost savings annually of $3.5 million. The Company has also initiated a multitude of cost saving strategies to
reduce general and administrative costs that will be realized throughout 2015. Bellatrix anticipates further cost savings from Bellatrix's
corporate initiatives across the business as the year progresses.
PLAN TO ACCESS UP TO $85 MILLION IN JOINT VENTURE PARTNER CAPITAL IN 2015
Bellatrix intends on accessing up to $85 million in joint venture (“JV”) capital in 2015 principally sourced from the Grafton Joint Venture.
Access to joint venture capital in 2015 provides significant benefits to Bellatrix including insulation against weak commodity prices
given enhanced rate of return expectations, and improved capital efficiencies on wells drilled.
FIRST QUARTER 2015 FINANCIAL AND OPERATIONAL RESULTS
SALES VOLUMES
Sales volumes for the three months ended March 31, 2015 increased by 27% to an average of 44,408 boe/d compared to 35,049 boe/d
in the first quarter of 2014. Total crude oil, condensate and NGLs averaged approximately 28% of sales volumes for the first three
months of 2015 compared to 35% in the same period in 2014. The increase in total sales volumes between the first quarters of 2014 and
2015 was primarily a result of $23.7 million of net drilling and completion capital expenditures for the three months ended March 31,
2015 and Bellatrix's ongoing successful drilling activity in the Cardium and Spirit River resource plays throughout 2014.
During the first quarter of 2015, the industry experienced system wide curtailment of interruptible transportation on the Canadian
mainline gas transmission system due to ongoing maintenance and pipeline integrity management work and there were also more
specific curtailments at certain facilities utilized by Bellatrix resulting from mainline gas transmission system issues. In spite of these
system constraints, Bellatrix was able to maintain production levels through proactive management of Bellatrix's firm capacity on the
Canadian mainline gas transmission system and utilization of the Bellatrix's infrastructure by providing flexibility to redirect volumes to
unaffected plants and delivery points.
In conjunction with the Company's decision to construct the Bellatrix Alder Flats Plant, the Company secured firm takeaway capacity
along the transmission system to match the incremental gross sales capacity of both Phase 1 and Phase 2 of the Bellatrix Alder Flats
Plant. Bellatrix's firm takeaway capacity on the mainline system will grow from approximately 220 mmcf/d currently, to approximately
330 mmcf/d upon completion of Phase 1 of the Bellatrix Alder Flats Plant, with subsequent growth to 430 mmcf/d upon completion of
Phase 2. Bellatrix also put in place long term firm transportation and fractionation agreements with an established midstream company
ensuring takeaway, processing and marketing of all NGL and condensate products produced at the plant.
Sales Volumes
Crude oil and condensate (bbls/d)
NGLs (excluding condensate) (bbls/d)
Total crude oil, condensate and NGLs (bbls/d)
Natural gas (mcf/d)
Total sales volumes (6:1 conversion) (boe/d)
Three months ended March 31,
2015
2014
5,842
6,973
6,802
5,432
12,644
12,405
190,582
135,865
44,408
35,049
In the three months ended March 31, 2015, Bellatrix posted a 100% success rate, drilling and/or participating in 6 gross (3.2 net) wells,
consisting of 3 gross (2.0 net) Spirit River liquids-rich gas wells, and 3 gross (1.2 net) Cardium oil wells. One operated Cardium well
drilled in the first quarter was included under the Troika Joint Venture and one operated Spirit River liquids-rich gas well was drilled
under the Grafton Joint Venture. The Company anticipates directing the majority of its drilling and completion capital for the remainder
of 2015 to its Spirit River opportunities and to continue levering joint venture capital.
By comparison, during the first quarter of 2014, Bellatrix drilled and/or participated in 44 gross (25.6 net) wells, consisting of 36 gross
(21.9 net) Cardium light oil horizontal wells, 7 gross (3.0 net) Spirit River liquids-rich gas wells, and one gross (0.7 net) Cardium gas well.
Bellatrix's drilling activity in 2014 was weighted 82% towards oil wells, and 18% towards gas wells.
11
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Crude oil, condensate and NGL sales volumes increased by 2% in the three months ended March 31, 2015 averaging 12,644 bbls/d
compared to 12,405 bbls/d in the first three months of 2014.
Sales of natural gas averaged 190.6 mmcf/d during the first quarter of 2015, an increase of 40% compared to 135.9 mmcf/d in the three
months ended March 31, 2014.
DRILLING ACTIVITY
Cardium oil
Spirit River liquids-rich natural gas
Cardium natural gas
Total
Gross
3
3
6
Three months ended
March 31, 2015
Success
Net
Rate
1.2
100%
2.0
100%
100%
3.2
100%
Gross
36
7
1
44
Three months ended
March 31, 2014
Success
Net
Rate
21.9
100%
3.0
100%
0.7
100%
25.6
100%
A net capital budget to not exceed $200 million has been set for fiscal 2015. Based on the timing of proposed expenditures, downtime
for anticipated plant turnarounds and normal production declines, execution of the $200 million 2015 net capital budget is anticipated to
provide 2015 average daily production of approximately 43,000 to 44,000 boe/d.
COMMODITY PRICES
Average Commodity Prices
Exchange rate (US$/CDN$1.00)
Crude oil:
WTI (US$/bbl)
Canadian Light crude blend ($/bbl)
Bellatrix's average realized prices ($/bbl)
Crude oil and condensate
NGLs (excluding condensate)
Total crude oil, and NGLs
Total crude oil, and NGLs (including risk management (1))
Natural gas:
NYMEX (US$/mmbtu)
AECO daily index (CDN$/mcf)
AECO monthly index (CDN$/mcf)
Bellatrix's average realized price ($/mcf)
Bellatrix's average realized price (including risk management (1)) ($/mcf)
2015
0.8066
Three months ended March 31,
2014
% Change
0.9064
(11)
48.57
53.22
98.61
99.76
(51)
(47)
49.67
18.17
32.72
34.05
98.27
57.50
80.41
74.67
(49)
(68)
(59)
(53)
2.81
2.75
2.95
2.99
3.03
4.72
5.71
4.75
5.88
4.88
(40)
(52)
(38)
(49)
(38)
(1) Per unit metrics including risk management include realized gains or losses on commodity contracts and exclude unrealized gains or losses on commodity
contracts.
The global oil markets late in 2014 reacted to the over-supply created from continued production growth from shale plays in the United
States, slower than anticipated global demand growth, and sustained production from the OPEC with significant price deterioration. The
decline in late 2014 of global oil prices was a market reaction to restore the supply-demand balance. The overall weak global commodity
price environment from late 2014 continued through the first quarter 2015. Realized prices in the first quarter 2015 decreased by 31% in
crude oil and condensate, 42% in NGL and 25% in natural gas from the fourth quarter of 2014.
12
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
For crude oil and condensate, Bellatrix realized an average price of $49.67/bbl before commodity price risk management contracts
during the three months ended March 31, 2015, a decrease of 49% from the average price of $98.27/bbl received in the first three
months of 2014. By comparison, the Canadian Light price decreased by 47% and the average West Texas Intermediate (“WTI”) crude
oil benchmark price decreased by 51% between the first quarters of 2014 and 2015.
The average US$/CDN$1.00 foreign exchange rate decreased by 11% to 0.8066 for the three months ended March 31, 2015 from an
average rate of 0.9064 in the first quarter of 2014.
Bellatrix's average realized price for NGLs (excluding condensate) decreased by 68% to $18.17/bbl during the first three months of 2015,
compared to $57.50/bbl received in the first three months of 2014.
Bellatrix's natural gas sales are priced with reference to the daily or monthly AECO indices. Bellatrix's natural gas sold has higher heat
content than the industry average, which results in slightly higher realized prices per mcf than the daily AECO index. During the three
months ended March 31, 2015, the AECO daily reference price decreased by 52% and the AECO monthly reference price decreased by
approximately 38% compared to the same period in 2014. Bellatrix's natural gas average sales price before commodity price risk
management contracts for the first three months of 2015 decreased by 49% to $2.99/mcf compared to $5.88/mcf in the first quarter of
2014. Bellatrix's natural gas average price after including commodity price risk management contracts for the three months ended
March 31, 2015 averaged $3.03/mcf compared to $4.88/mcf in the first quarter of 2014.
REVENUE
Total revenue was $90.2 million for the three months ended March 31, 2015, a decrease of 45% compared to $163.6 million realized in
the first three months of 2014. In the first quarter of 2015, Bellatrix realized lower light oil, condensate, natural gas, and NGL revenues
due primarily to decreased realized average commodity prices in the 2015 period, which were partially offset by a 27% increase in sales
volumes resulting from Bellatrix's successful drilling activity.
Crude oil and NGLs revenue before other income, royalties and commodity price risk management contracts for the three months ended
March 31, 2015 decreased by 59% to $37.2 million from $89.8 million realized during the first quarter of 2014. The decrease in revenue
realized between the periods was the result of significantly reduced realized average crude oil and NGL prices, partially offset by 2%
higher sales volumes in the first quarter of 2015 compared to the same period in 2014.
For the three months ended March 31, 2015, total crude oil, condensate and NGL revenues contributed 42% of petroleum and natural
gas sales, compared to 56% in the first three months of 2014.
Natural gas revenue before other income, royalties and commodity price risk management contracts was $51.2 million in the three
months ended March 31, 2015, a decrease of 29% from $71.9 million realized in the first quarter of 2014. The decrease in realized
revenue was attributable to a 49% decrease in realized gas prices before risk management, partially offset by a 40% increase in sales
volumes between the first three months of 2014 and 2015.
Revenue
($000s)
Crude oil and condensate
NGLs (excluding condensate)
Crude oil and NGLs
Natural gas
Petroleum and natural gas sales
Other income(1)
Total revenue
(1) Other income primarily consists of processing and other third party income.
13
Three months ended March 31,
2015
2014
26,114
61,671
11,123
28,111
37,237
89,782
51,223
71,937
88,460
161,719
1,726
1,866
90,186
163,585
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
COMMODITY PRICE RISK MANAGEMENT
The Company has a formal commodity price risk management policy which permits management to use specified price risk
management strategies including fixed price contracts, collars, and the purchase of floor price options and other derivative financial
instruments and physical delivery sales contracts to reduce the impact of price volatility for a maximum of eighteen months beyond the
transaction date. The program is designed to provide price protection on a portion of the Company's future production in the event of
adverse commodity price movement, while retaining significant exposure to upside price movements. By doing this, the Company
seeks to provide a measure of stability to funds flow from operations, as well as to ensure Bellatrix realizes positive economic returns
from its capital development and acquisition activities. The Company plans to continue its commodity price risk management
strategies focusing on maintaining sufficient cash flow to fund Bellatrix's capital expenditure program. Any remaining production is
realized at market prices.
A summary of the financial commodity price risk management volumes and average prices by quarter, outstanding as of May 4, 2015, is
shown in the following tables:
Natural Gas
Average Volumes (GJ/d)
Fixed (GJ/d)
Q2 2015
180,000
Q3 2015
180,000
Q4 2015
98,777
Q2 2015
2.55
Q3 2015
2.55
Q4 2015
2.56
Q2 2015
3,000
Q3 2015
3,000
Q4 2015
3,000
Q2 2015
70.34
Q3 2015
70.34
Q4 2015
70.34
Average Price ($/GJ AECO C)
Fixed price (CDN$/GJ)
Crude Oil and Liquids
Average Volumes (bbls/d)
Fixed (bbls/d)
Average Price ($/bbl WTI)
Fixed price (CDN$/bbl)
When the Company has outstanding commodity price risk management contracts at a reporting date, the fair value, or mark-to-market
value, of these contracts reflected in its financial statements as an unrealized asset or liability is based on the estimated amount that
would have been received or paid to settle the contracts as at the reporting date and would differ from what would eventually be
realized. Changes in the fair value of the commodity contracts are recognized in the condensed consolidated statements of
comprehensive income (loss) within the financial statements.
The following are summaries of the gain (loss) on commodity contracts for the three months ended March 31, 2015 and 2014 as
reflected in the condensed consolidated statements of comprehensive income (loss):
14
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Commodity Contracts
Three months ended March 31, 2015
($000s)
Realized cash gain on contracts
Unrealized gain (loss) on contracts (1)
Total gain (loss) on commodity contracts
Crude Oil
1,510
2,999
4,509
Natural Gas
672
(1,269)
(597)
Total
2,182
1,730
3,912
Crude Oil
(6,417)
(6,064)
(12,481)
Natural Gas
(12,221)
(17,612)
(29,833)
Total
(18,638)
(23,676)
(42,314)
Three months ended March 31, 2014
($000s)
Realized cash loss on contracts (2)
Unrealized loss on contracts(1)
Total loss on commodity contracts
(1) Unrealized gain (loss) on commodity contracts represents non-cash adjustments for changes in the fair value of these contracts during the period.
(2) In January 2014, the Company settled a 1,500 bbl/d $105.00 US crude call option for the term of February to December 31, 2014 for US $0.5 million.
ROYALTIES
For the three months ended March 31, 2015, royalties incurred totaled $15.0 million compared to $27.4 million incurred in the first
quarter of 2014. Overall royalties as a percentage of revenue (after transportation costs) in the first quarter of 2015 were 18% compared
to 17% in the same period in 2014.
Royalties by Commodity Type
($000s, except where noted)
Crude oil, condensate, and NGLs
$/bbl
Average crude oil, condensate, and NGLs royalty rate (%)
Natural Gas
$/mcf
Average natural gas royalty rate (%)
Total
Total $/boe
Average total royalty rate (%)
Three months ended March 31,
2015
2014
9,001
18,784
7.91
16.82
24
21
5,990
0.35
12
8,603
0.70
12
14,991
3.75
18
27,387
8.68
17
Royalties by Type
($000s)
Crown royalties
Indian Oil and Gas Canada (”IOGC”) royalties
Freehold & GORR
Total
Three months ended March 31,
2015
2014
5,535
8,255
5,376
3,525
4,080
15,607
14,991
27,387
The Company's light crude oil, condensate and NGLs, and natural gas royalties are impacted by lower royalties on more recent wells in
their early years of production under the Alberta royalty incentive program. This is offset by increased royalty rates on wells coming off
initial royalty incentive rates and wells drilled on Ferrier lands with higher combined IOGC and GORR royalty rates.
15
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
EXPENSES
($000s)
Production
Transportation
Royalties
General and administrative
Interest and financing charges(1)
Share-based compensation
Three months ended March 31,
2015
2014
34,219
25,629
4,874
5,037
14,991
27,387
7,330
5,525
6,096
3,727
374
2,509
(1) Does not include financing charges in relation to the Company's accretion of decommissioning liabilities.
EXPENSES PER BOE
($ per boe)
Production
Transportation
Royalties
General and administrative
Interest and financing charges(1)
Share-based compensation
Three months ended March 31,
2015
2014
8.56
8.12
1.22
1.61
3.75
8.68
1.83
1.75
1.53
1.18
0.09
0.80
(1) Does not include financing charges in relation to the Company's accretion of decommissioning liabilities.
PRODUCTION EXPENSES
Production expenses totaled $34.2 million ($8.56/boe) for the three months ended March 31, 2015, compared to $25.6 million
($8.12/boe) in the same period in 2014. Production expenses increased on a per boe basis between the first quarters of 2015 and 2014
due to one-time adjustments related to prior periods of $0.62/boe primarily attributable to third party realized facility equalizations.
Excluding these one-time adjustments, production expenses per boe for the three months ended March 31, 2015 were $7.94/boe.
Bellatrix is targeting production expenses of approximately $131.0 million ($8.25/boe) in the 2015 year, which represents a reduction
on a per unit basis from the $8.64/boe production expenses incurred for the 2014 year. The lower per boe target is based upon
assumptions of estimated 2015 average production of approximately 43,000 to 44,000 boe/d, continued field optimization work, the
start-up of the Bellatrix Alder Flats Plant, and planned capital expenditures in producing areas which are anticipated to lower production
expenses.
Production Expenses by Commodity Type
($000s, except where noted)
Crude oil, condensate and NGLs
$/bbl
Natural gas
$/mcf
Total production pxpenses
Total $/boe
Three months ended March 31,
2015
2014
9,550
9,124
8.39
8.17
24,669
1.44
34,219
8.56
16,505
1.35
25,629
8.12
16
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
TRANSPORTATION
Transportation expenses for the three months ended March 31, 2015 were $4.9 million ($1.22/boe), compared to $5.0 million
($1.61/boe) in the same period in 2014. The decrease in transportation costs per boe between the first quarters of 2014 and 2015 was
due to additional firm service at certain receipt points and increased fuel costs resulting from higher natural gas pricing realized during
the first quarter of 2014.
OPERATING NETBACK
Operating Netback - Corporate (before risk management)
($/boe)
Sales(1)
Production
Transportation
Royalties
Operating netback
Three months ended March 31,
2015
2014
22.56
51.86
(8.56)
(8.12)
(1.22)
(1.61)
(3.75)
(8.68)
9.03
33.45
(1) Sales includes other income.
For the three months ended March 31, 2015, the corporate operating netback (before commodity risk management contracts) was
$9.03/boe, a decrease of 73% compared to $33.45/boe in the first quarter of 2014. The reduced netback realized in the first three
months of 2015 was primarily the result of suppressed average realized commodity prices and higher production expenses, partially
offset by decreased royalty and transportation expenses. After including commodity risk management contracts, the corporate
operating netback for the three months ended March 31, 2015 was $9.58/boe, compared to $27.54/boe in the first quarter of 2014. Per
unit metrics including risk management include realized gains or losses on commodity contracts and exclude unrealized gains or losses
on commodity contracts.
Operating Netback - Crude Oil, Condensate, and NGLs (before risk management)
($/bbl)
Sales
Production
Transportation
Royalties
Operating netback
Three months ended March 31,
2015
2014
32.72
80.41
(8.39)
(8.17)
(1.32)
(1.89)
(7.91)
(16.82)
15.10
53.53
Operating netback for crude oil, condensate, and NGLs decreased by 72% to $15.10/bbl for the three months ended March 31, 2015
from $53.53/bbl realized in the same period in 2014. The lower netback was primarily attributable to lower crude oil, condensate, and
NGL commodity prices and higher production expenses, partially offset by reduced royalty and transportation expenses. After
including commodity price risk management contracts, operating netback for crude oil, condensate, and NGLs for the three months
ended March 31, 2015 was $16.43/bbl compared to $47.78/bbl in the first quarter of 2014.
17
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Operating Netback - Natural Gas (before risk management)
($/mcf)
Sales
Production
Transportation
Royalties
Operating netback
Three months ended March 31,
2015
2014
2.99
5.88
(1.44)
(1.35)
(0.20)
(0.24)
(0.35)
(0.70)
1.00
3.59
For the three months ended March 31, 2015, Bellatrix realized an operating netback for natural gas of $1.00/mcf, a decrease of 72% from
$3.59/mcf realized in the first three months of 2014. The reduction to the netback realized between the first quarters of 2014 and 2015
reflected reduced natural gas prices and increased production expenses, partially offset by decreased royalty and transportation
expenses. After including commodity risk management contracts, operating netback for natural gas for the first quarter of 2015 was
$1.04/mcf compared to $2.59/mcf in the same period in 2014.
GENERAL AND ADMINISTRATIVE
G&A expenses (after capitalized G&A and recoveries) for the three months ended March 31, 2015 were $7.3 million ($1.83/boe),
compared to $5.5 million ($1.75/boe) in the first quarter of 2014. The higher G&A expenses incurred in the first three months of 2015
were primarily reflective of higher compensation costs and related staffing costs as Bellatrix's headcount increased by 26% between
the periods to manage the increased operational and production activities as well as lower capitalization of G&A and recoveries from
partners associated with lower capital spending. The Company has initiated a multitude of cost saving strategies to reduce G&A
expenses that will be realized throughout 2015.
General and Administrative Expenses
($000s, except where noted)
Gross expenses
Capitalized
Recoveries
G&A expenses
G&A expenses, per unit ($/boe)
Three months ended March 31,
2015
2014
13,099
13,902
(2,258)
(3,887)
(3,511)
(4,490)
7,330
5,525
1.83
1.75
INTEREST AND FINANCING CHARGES
For the three months ended March 31, 2015, Bellatrix recorded $6.1 million ($1.53/boe) of interest and financing charges related to bank
debt, compared to $3.7 million ($1.18/boe) during the same period in 2014.
The overall increase in interest and financing charges between the first quarters of 2014 and 2015 was primarily due to higher interest
charges as the Company carried a higher average debt balance during the first three months of 2015 relative to the same period in 2014
and is supported by the expansion of Bellatrix's credit facility to $725 million.
Bellatrix's total net debt at March 31, 2015 of $696.4 million included $622.6 million of bank debt and an adjusted working capital
deficiency of $73.8 million.
Interest and Financing Charges(1)
($000s, except where noted)
Interest and financing charges
Interest and financing charges ($/boe)
Three months ended March 31,
2015
2014
6,096
3,727
1.53
1.18
(1) Does not include financing charges in relation to the Company's accretion of decommissioning liabilities.
18
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Debt to Funds Flow from Operations Ratio
($000s, except where noted)
Shareholders' equity
Three months ended March 31,
2015
2014
1,237,216
933,670
Long-term debt
Adjusted working capital deficiency (2)
Total net debt (2) at period end
622,648
73,800
696,448
335,118
137,970
473,088
Debt to funds flow from operations ratio (annualized)(1)(3)
Funds flow from operations (1) (annualized)
Total net debt (2) at period end
Total net debt to periods funds flow from operations ratio (annualized) (3)
99,432
696,448
7.0x
310,568
473,088
1.5x
Debt to funds flow from operations ratio (trailing)(1)(4)
Funds flow from operations (1) trailing (4)
Total net debt (2) at year-end
Total net debt (2) to funds flow from operations ratio (trailing)(1)(4)
217,969
696,448
3.2x
229,091
473,088
2.1x
(1) As detailed previously in this MD&A, funds flow from operations is an additional GAPP term that does not have any standardized meaning under GAAP. Funds
flow from operations is calculated as cash flow from operating activities, excluding decommissioning costs incurred, changes in non-cash working capital
incurred and transaction costs. Refer to the reconciliation of cash flow from operating activities to funds flow from operations appearing elsewhere herein.
(2) Total net debt is considered to be an additional GAAP measure. Therefore reference to the additional GAAP measure of total net debt may not be comparable
with the calculation of similar measures for other entities. The Company's calculation of total net debt excludes deferred lease inducements,
decommissioning liabilities, the long-term finance lease obligation, deferred lease inducements, and the deferred tax liability. Total net debt includes the
adjusted working capital deficiency (excess). The adjusted working capital deficiency (excess) is an additional GAAP measure calculated as net working
capital deficiency (excess) excluding short-term commodity contract assets and liabilities, current finance lease obligation, and deferred lease inducements.
A reconciliation between total liabilities under GAAP and total net debt as calculated by the Company is found below in this MD&A.
(3) For the three months ended March 31, 2015 and 2014, total net debt to funds flow from operations ratio (annualized) is calculated based upon first quarter
funds flow from operations annualized.
(4) Trailing periods funds flow from operations ratio annualized is based upon the twelve-month periods ended March 31, 2015 and March 31, 2014.
Reconciliation of Total Liabilities to Total Net Debt
($000s)
Total liabilities per financial statements
Current liabilities (included within working capital calculation below)
Decommissioning liabilities
Finance lease obligation
Deferred lease inducements
Deferred taxes
Adjusted working capital
Current assets
Current liabilities
Current portion of finance lease
Current portion of deferred lease inducements
Current portion of commodity contract asset
Current portion of commodity contract liability
Total net debt
19
2015
1,027,532
(218,736)
(96,028)
(9,671)
(2,642)
(77,807)
As at March 31,
2014
774,259
(318,301)
(71,479)
(11,262)
(2,493)
(35,606)
(144,735)
218,736
(1,591)
(340)
2,999
(1,269)
73,800
696,448
(137,924)
318,301
(1,514)
(285)
(40,608)
137,970
473,088
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
SHARE-BASED COMPENSATION
For the three months ended March 31, 2015, non-cash share-based compensation expense was $0.4 million compared to $2.5 million
in the same period in 2014. The decrease in non-cash share-based compensation expense was composed of a recovery of $0.5 million
for Deferred Share Units ("DSUs") (2014: $0.9 million expense), a recovery of $0.2 million (2014: expense of $0.9 million) for Restricted
Awards ("RAs"), and a recovery of $0.1 million (2014: expense of $0.4 million) for Performance Awards ("PAs"), partially offset by a
higher expense for the Company's outstanding share options of $1.6 million (2014: $1.3 million) and lower capitalized share-based
compensation of $0.4 million (2014: $1.0 million). The recovery for DSUs, RAs, and PAs recognized during the first quarter of 2015 was
primarily due to the revaluation of DSUs, RAs, and PAs to a lower weighted average share trading price at March 31, 2015 than March
31, 2014.
DEPLETION, DEPRECIATION AND IMPAIRMENT
Depletion and depreciation expense (excluding impairment) for the three months ended March 31, 2015 was $48.4 million ($12.11/boe)
compared to $36.4 million ($11.54/boe) recognized in the first quarter of 2014. The increase in depletion and depreciation expense
between the periods was primarily a result of a higher cost base impacted by net facility and equipping capital expenditures, which
excludes $79.2 million of facilities under construction and related pipelines, and increased future development costs and higher
production in the 2015 period.
For the three months ended March 31, 2015, Bellatrix has included a total of $1.19 billion (2014: $1.07 billion) for future development
costs in the depletion calculation and excluded from the depletion calculation a total of $83.3 million (2014: $69.9 million) for estimated
salvage.
Depletion and Depreciation
($000s, except where noted)
Depletion and depreciation
Per unit ($/boe)
Three months ended March 31,
2015
2014
48,382
36,405
12.11
11.54
Impairment
As at March 31, 2015, Bellatrix determined there were no impairment indicators requiring an impairment test to be performed.
INCOME TAXES
Deferred income taxes arise from differences between the accounting and tax basis of the Company's assets and liabilities. For the
three months ended March 31, 2015, the Company recognized a deferred income tax recovery of $3.8 million, compared to an expense
of $8.6 million during the first three months of 2014. The deferred income tax recovery recognized in the first quarter of 2015 compared
to the deferred income tax expense recognized in the first quarter of 2014 was attributable to a net loss recognized in the 2015 period
compared to a net profit after adjusting for non-deductible tax items realized during the first quarter of 2014.
At March 31, 2015, the Company had a total deferred tax liability balance of $77.8 million.
20
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
At March 31, 2015, Bellatrix had approximately $1.70 billion in tax pools available for deduction against future income as follows:
($000s)
Intangible resource pools:
Canadian exploration expenses
Canadian development expenses
Canadian oil and gas property expenses
Foreign resource expenses
Alberta non-capital losses greater than
Federal non-capital losses
Undepreciated capital cost (1)
Non-capital losses (expire through 2030)
Financing costs
Rate %
March 31,
2015
March 31,
2014
100
30
10
10
117,300
793,000
194,900
700
99,800
787,500
74,500
800
(Alberta) 100
6 - 55
100
20 S.L.
16,100
409,800
162,300
9,300
1,703,400
16,100
218,300
94,500
9,900
1,301,400
(1) Approximately $384.9 million of undepreciated capital cost pools are class 41, which is claimed at a 25% rate.
CASH FLOW FROM OPERATING ACTIVITIES, FUNDS FLOW FROM OPERATIONS AND NET PROFIT (LOSS)
As detailed previously in this MD&A, funds flow from operations is a non-GAAP measure that does not have any standardized meaning
under GAAP. Bellatrix's method of calculating funds flow from operations may differ from that of other companies, and accordingly, may
not be comparable to measures used by other companies. Funds flow from operations is calculated as cash flow from operating
activities before decommissioning costs incurred, changes in non-cash working capital incurred, and transaction costs.
Reconciliation of Cash Flow from Operating Activities to Funds Flow from Operations
($000s)
Cash flow from operating activities
Decommissioning costs incurred
Change in non-cash working capital
Funds flow from operations
Three months ended March 31,
2015
2014
22,553
84,300
703
64
1,602
(6,722)
24,858
77,642
Bellatrix's cash flow from operating activities for the three months ended March 31, 2015 decreased by 73% to $22.6 million ($0.12 per
basic and diluted share) from $84.3 million ($0.49 per basic share and $0.48 per diluted share) generated during the first quarter of 2014.
Bellatrix generated funds flow from operations of $24.9 million ($0.13 per basic and diluted share) in the three months ended March 31,
2015, a decrease of 68% from $77.6 million ($0.45 per basic share and $0.45 per diluted share) generated in the first three months of
2014. The decrease in funds flow from operations between the first quarters of 2014 and 2015 was principally due to reduced realized
crude oil, condensate, NGL, and natural gas prices and increased general and administrative and finance expenses, partially offset by a
27% increase in sales volumes between the periods and a net realized gain on commodity contracts in the first quarter of 2015
compared to a net realized loss in the first quarter of 2014 and lower royalty and transportation expenses.
Bellatrix maintains a commodity price risk management program to provide a measure of stability to funds flow from operations.
Unrealized mark-to-market gains or losses are non-cash adjustments to the fair market value of the contract over its entire term and are
included in the calculation of net profit (loss).
For the three months ended March 31, 2015, Bellatrix recognized a net loss of $12.7 million ($0.07 per basic and diluted share),
compared to a net profit of $25.2 million ($0.15 per basic share and $0.14 per diluted share) in the same period in 2014. The net loss
recorded in the first quarter of 2015 compared to the net profit recognized in the first quarter of 2014 was primarily the result of lower
funds from operating activities as noted above, increased depletion and depreciation expense, and a lower gain on dispositions in the
first quarter of 2015 compared to the first quarter of 2014 due to decreased drilling activity with joint venture capital. These negative
impacts were partially offset by a lower stock-based compensation expense recognized in the first quarter of 2015.
21
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Cash Flow from Operating Activities, Funds Flow from Operations and Net Profit (Loss)
($000s, except per share amounts)
Funds flow from operations
Basic ($/share)
Diluted ($/share)
Cash flow from operating activities
Basic ($/share)
Diluted ($/share)
Net profit (loss)
Basic ($/share)
Diluted ($/share)
Three months ended March 31,
2015
2014
24,858
77,642
0.13
0.45
0.13
0.45
22,553
84,300
0.12
0.49
0.12
0.48
(12,688)
25,167
(0.07)
0.15
(0.07)
0.14
CAPITAL EXPENDITURES
Bellatrix invested $81.3 million in exploration and development capital projects, excluding property acquisitions and dispositions during
the three months ended March 31, 2015, compared to $152.7 million in the first quarter of 2014. Included in first quarter of 2015
facilities and equipment spending was approximately $5.7 million of capital spent on an outlet condensate pipeline which will connect
the Bellatrix Alder Flats Plant with third party fractionation facilities. The Company has entered into an arrangement to transfer
ownership of the constructed pipeline once commissioned, to a third party at project cost, subject to normal terms and conditions
agreeable to both parties estimated to occur during the second quarter of 2015. Exploration and development capital spending during
the quarter, net of this transaction, was approximately $75.6 million.
Capital Expenditures
($000s)
Lease acquisitions and retention
Geological and geophysical
Drilling and completion costs
Facilities and equipment
Capital - exploration and development (1)
Capital - corporate assets (2)
Property acquisitions
Total capital expenditures - cash
Property dispositions - cash
Total net capital expenditures - cash
Other - non-cash(3)
Total non-cash
Total capital expenditures - net(4)
Three months ended March 31,
2015
2014
2,356
2,473
603
745
23,701
100,380
54,684
49,088
81,344
152,686
1,154
2,956
701
260
83,199
155,902
(20)
(39)
83,179
155,863
7,475
4,990
7,475
4,990
90,654
160,853
(1) Excludes capitalized costs related to decommissioning liabilities expenditures incurred during the period.
(2) Capital - corporate assets includes office leasehold improvements, furniture, fixtures and equipment before recoveries realized from landlord lease
inducements.
(3) Other includes non-cash adjustments for the current period's decommissioning liabilities and share based compensation.
(4) Total capital expenditures - net is considered to be a non-GAAP measure. Total capital expenditures - net includes the cash impact of capital expenditures and
property dispositions, as well as the non-cash capital impacts of corporate acquisitions, property acquisitions, adjustments to the Company's
decommissioning liabilities, and share based compensation.
During the first quarter of 2015, Bellatrix continued the construction of the Bellatrix Alder Flats Plant. The Bellatrix Alder Flats Plant will
be developed in two phases with a total sales gas capacity of 220 mmcf/d. Phase I of the Bellatrix Alder Flats Plant remains on budget
and on schedule for a July 2015 start-up, with $79.2 million total (including partners' share and excluding related pipelines) spent to
date.
22
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Bellatrix's $83.2 million capital program for the three months ended March 31, 2015 was financed from a combination of funds flow from
operations and bank debt.
Based on the current economic conditions and Bellatrix's operating forecast for 2015, the Company has budgeted a net capital program
to not exceed $200 million funded from the Company's cash flows and to the extent necessary, bank indebtedness. The 2015 capital
budget is expected to be directed primarily towards horizontal drilling and completions activities in the Spirit River formations and
completion of Phase I of the Bellatrix Alder Flats Plant.
Dispositions
In the three months ended March 31, 2015, a total net gain on dispositions of $6.1 million (2014: $19.1 million) was recognized relating
to gains on wells drilled under the Grafton Joint Venture and the Troika Joint Venture which were completed and tied-in during the first
three months of 2015. A gain on disposition for each well is recognized to account for the disposal of the pre-payout working interest
earned by the joint venture partner on the well, which results from the difference between the percentage of all capital costs contributed
for the drilling, completion, equipping and tie-in of the well by the joint venture partner and the pre-payout working interest allocated to
the joint venture partner by the Company. The gain on disposition for a well is recognized during the quarter in which the well was
completed and tied-in.
Under the Grafton Joint Venture, Grafton contributes 82% of the total capital costs required for each well and in return earns 54% of
Bellatrix's WI in each well drilled in the well program until payout.
Under the Troika Joint Venture, Troika contributes 50% of the total capital costs required for each well and in return earns 35% of
Bellatrix's WI in each well drilled in the well program until payout.
DECOMMISSIONING LIABILITIES
At March 31, 2015, Bellatrix recorded decommissioning liabilities of $96.0 million compared to $88.6 million at December 31, 2014, for
future abandonment and reclamation of the Company's properties. During the three months ended March 31, 2015, decommissioning
liabilities increased by a net $7.4 million as a result of $0.2 million incurred in relation to development activities, $6.8 million resulting
from changes in estimates, and $0.4 million as a result of charges for the unwinding of the discount rates used for assessing liability fair
values. The $6.8 million increase as a result of changes in estimates was primarily due to reduced market interest rates which resulted
in decreases to discount rates applied to the valuation of liabilities between December 31, 2014 and March 31, 2015.
LIQUIDITY AND CAPITAL RESOURCES
As an oil and gas business, Bellatrix has a declining asset base and therefore relies on ongoing development and acquisitions to replace
production and add additional reserves. Future oil and natural gas production and reserves are highly dependent upon the success of
exploiting the Company's existing asset base and in acquiring additional reserves. To the extent Bellatrix is successful or unsuccessful
in these activities, cash flow could be increased or decreased.
Bellatrix is focused on growing oil and natural gas production from its diversified portfolio of existing and emerging resource plays in
Western Canada. Bellatrix remains highly focused on key business objectives of maintaining financial strength and optimizing capital
investments which it seeks to attain through a disciplined approach to capital spending, a flexible investment program and financial
stewardship. Natural gas prices are primarily driven by North American supply and demand, with weather being the key factor in the
short term. Bellatrix believes that natural gas represents an abundant, secure, long-term supply of energy to meet North American
needs. Bellatrix's results are affected by external market and risk factors, such as fluctuations in the prices of crude oil and natural gas,
movements in foreign currency exchange rates and inflationary pressures on service costs. Bellatrix continually monitors its capital
spending program in light of the recent volatility with respect to commodity prices and Canadian dollar exchange rates with the aim of
ensuring the Company will be able to meet future anticipated obligations incurred from normal ongoing operations with funds flow from
operations and draws on Bellatrix's credit facility, as necessary.
23
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Even though the Company experienced continual operational success in 2014, volatility in oil and gas prices has resulted in a
challenging environment for the energy sector. In response to this volatility and to preserve liquidity and capital resources, Bellatrix
announced a reduction to its 2015 net capital budget to not exceed $200 million on January 29, 2015. This represents a 71% reduction
from actual 2014 capital spending. Bellatrix has the ability to fund its 2015 capital program to not exceed $200 million by utilizing cash
flow and to the extent necessary, bank indebtedness. Bellatrix anticipates annual 2015 production growth of approximately 14%
relative to estimated 2014 average production despite this reduced capital spending program. Bellatrix continues to focus on
management of all aspects of capital, operating and general and administrative cost structures and commitment to ongoing risk
management efforts to protect future cash flows and capital programs.
Liquidity risk is the risk that Bellatrix will not be able to meet its financial obligations as they become due. Bellatrix actively manages its
liquidity through daily and longer-term cash, debt and equity management strategies. Such strategies encompass, among other
factors: having adequate sources of financing available through its bank credit facilities, estimating future cash generated from
operations based on reasonable production and pricing assumptions, analysis of economic risk management opportunities, and
maintaining sufficient cash flows for compliance with its credit facility financial covenants. Bellatrix was fully compliant with all of its
credit facility financial covenants as at March 31, 2015.
Bellatrix generally relies upon its operating cash flows and its credit facilities to fund capital requirements and provide liquidity. Future
liquidity depends primarily on cash flow generated from operations, existing credit facilities and the ability to access debt and equity
markets. From time to time, the Company accesses capital markets to meet its additional financing needs and to maintain flexibility in
funding its capital programs. There can be no assurance that future debt or equity financing, or cash generated by operations will be
available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be
on terms acceptable to Bellatrix.
Credit risk is the risk of financial loss to Bellatrix if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from Bellatrix's trade receivables from joint venture partners, petroleum and natural gas marketers,
and financial derivative counterparties.
A substantial portion of Bellatrix's accounts receivable are with customers and joint interest partners in the petroleum and natural gas
industry and are subject to normal industry credit risks. Bellatrix currently sells substantially all of its production to nine primary
purchasers under standard industry sale and payment terms. The most significant 60 day exposure to a single counterparty is
approximately $16.4 million. Purchasers of Bellatrix's natural gas, crude oil and natural gas liquids are subject to a periodic internal
credit review to minimize the risk of non-payment. Bellatrix has continued to closely monitor and reassess the creditworthiness of its
counterparties, including financial institutions. This has resulted in Bellatrix mitigating its exposures to certain counterparties by
obtaining financial assurances or reducing credit where it is deemed warranted and permitted under contractual terms.
Bellatrix may be exposed to third party credit risk through its contractual arrangements with its current or future partners and joint
venture partners, marketers of its petroleum and natural gas production, derivative counterparties and other parties. In the event such
entities fail to meet their contractual obligations to Bellatrix, such failures may have a material adverse effect on the Company's
business, financial condition, results of operations and prospects. In addition, poor credit conditions in the industry and of joint venture
partners may impact a joint venture partner's willingness to participate in Bellatrix's ongoing capital program, potentially delaying the
program and the results of such program until Bellatrix finds a suitable alternative partner.
As at March 31, 2015, the Company has the ability to offer to sell up to an additional $577.4 million on the $750 million Shelf Prospectus.
Total net debt levels of $696.4 million at March 31, 2015 increased by $58.7 million from $637.7 million at December 31, 2014. The
increase to total net debt was primarily due to capital expenditures for the three months ended March 31, 2015 made as the Company
executed its $83.2 million first quarter 2015 capital program. Total net debt levels at March 31, 2015 include the net balance of an
adjusted working capital deficiency of $73.8 million, which incorporated $56.6 million in advances from joint venture partners, the
majority of which represents drilling obligations predominantly under the Company's joint venture obligations with TCA and Grafton, and
under the Daewoo and Devonian Partnership. Total net debt excludes unrealized commodity contract assets and liabilities, deferred
taxes, finance lease obligations, deferred lease inducements and decommissioning liabilities.
24
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Funds flow from operations provided 30% of the funding requirements for Bellatrix's net capital expenditures for the three months ended
March 31, 2015.
As of March 31, 2015, the Company's credit facilities are available on an extendible revolving term basis and consist of a $75 million
operating facility provided by a Canadian bank and a $650 million syndicated facility provided by nine financial institutions, subject to a
borrowing base test.
Amounts borrowed under the credit facilities will bear interest at a floating rate based on the applicable Canadian prime rate, U.S. base
rate, CDOR rate or LIBOR margin rate, plus between 0.8% to 3.75% (expanded to 4.75% in connection with recent amendments
described below), depending on the type of borrowing and the Company's senior debt to EBITDA ratio. A standby fee is charged of
between 0.405% and 0.84375% (expanded to 1.06875% in connection with recent amendments described below) on the undrawn
portion of the credit facilities, depending on the Company's senior debt to EBITDA ratio. The credit facilities are secured by a $1.0 billion
debenture containing a first ranking charge and security interest. Bellatrix has provided a negative pledge and undertaking to provide
fixed charges over its properties in certain circumstances.
The revolving period for the revolving term credit facility will end on May 30, 2017, unless extended for a further period of up to 3 years.
Should the facility not be extended, the outstanding balance is due upon maturity. The borrowing base will be subject to redetermination on or before May 31 and November 30 in each year prior to maturity, with the next semi-annual redetermination occurring
on or before May 31, 2015.
The Company's credit facilities contain market standard terms and conditions, and include, for instance, restrictions on asset
dispositions and hedging. Generally, dispositions of properties to which the Company is given lending value in the determination of the
borrowing base require lender approval if the net present value (discounted at 10%) attributed to all properties sold in a fiscal year
exceeds 5% of the borrowing base in effect at the time of such disposition. In addition, asset dispositions are generally not permitted
unless there would be no borrowing base shortfall as a result of such properties being sold. Hedging transactions must not be done for
speculative purposes, and the term of any hedging contract cannot exceed 3 years for commodity swaps, interest rate or exchange rate
swaps. The aggregate amount hedged under all oil and gas commodity swaps cannot exceed 70% of the Company's average daily sales
volume for the first year of a rolling 3 year period, 60% for the second year of such period or 50% for the third year of such period, with the
average daily sales volume being based on the Company's production for the previous fiscal quarter. The aggregate amount hedged
under all interest rate swaps cannot exceed the outstanding principal amount of any unsecured note debt or have a term exceeding the
remaining term of the unsecured note debt. For interest rate swaps unrelated to any unsecured note debt, the aggregate amount
hedged cannot exceed 60% of the amount of the commitment under the credit facilities or exceed a term of 3 years. The aggregate
amount hedged under all exchange rate swaps cannot exceed the outstanding principal amount of any unsecured note debt or have a
term exceeding the remaining term of the unsecured note debt. For exchange rate swaps unrelated to any unsecured note debt, the
aggregate amount hedged cannot exceed 60% of Bellatrix's US dollar revenue over the previous 3 months or exceed a term of 3 years.
Bellatrix's credit facilities are subject to a number of covenants, all of which were met as at March 31, 2015. Bellatrix calculates its
financial covenants quarterly. The calculation for each financial covenant is based on specific definitions, are not in accordance with
IFRS and cannot be readily replicated by referring to Bellatrix's condensed consolidated financial statements. As at March 31, 2015, the
major financial covenants are:
Position at March 31, 2015
Total Debt(1) must not exceed 4.0 times EBITDA(2) for the last four fiscal quarters
2.79x
Senior Debt(3) must not exceed 3.5 times EBITDA for the last four fiscal quarters
2.79x
EBITDA must not be less than 3.5 times interest expense for the last four fiscal quarters
10.96x
(1) "Total Debt" is defined as the sum of the bank loan, the principal amount of long-term debt and certain other liabilities defined in the agreement governing the
credit facilities.
(2) "EBITDA" refers to earnings before interest, taxes, depreciation and amortization. EBITDA is calculated based on terms and definitions set out in the
agreement governing the credit facilities which adjusts net income for financing costs, certain specific unrealized and non-cash transactions, and acquisition
and disposition activity and is calculated based on a trailing twelve month basis.
(3) "Senior Debt" is defined as Total Debt, excluding any unsecured or subordinated debt. Bellatrix currently does not have any subordinated or unsecured debt.
25
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
In the absence of a material acquisition, Total Debt to EBITDA and Senior Debt to EBITDA covenants must not exceed 3.5 and 3.0 times
EBITDA, respectively. In the event of a material acquisition, the Total Debt to EBITDA and Senior Debt to EBITDA covenants are relaxed
for two fiscal quarters after the close of the acquisition. Due to material acquisitions in the quarter ended December 31, 2014, the Total
Debt to EBITDA and Senior Debt to EBITDA covenants were temporarily increased until June 30, 2015 to not exceed 4.0 and 3.5 times,
respectively.
Effective March 11, 2015, the Company's banking syndicate agreed to amendments to certain of the financial covenants in response to
the recent decline in commodity prices. The Total Debt to EBITDA and Senior Debt to EBITDA financial covenants have been revised
such that they each must not exceed:
- 4.75 times for the fiscal quarters ending September 30, 2015, December 31, 2015, March 31, 2016 and June 30, 2016; and
- 4.0 times for the fiscal quarters ending September 30, 2016, December 31, 2016 and March 31, 2017.
During the periods in which these revised financial covenants are in place, the additional automatic relaxation of the debt to EBITDA
financial covenants following a material acquisition will not apply. Commencing with the second quarter of 2017, the maximum Senior
Debt to EBITDA covenant will return to 3.0 times (3.5 times for the two fiscal quarters immediately following a material acquisition) and
the maximum Total Debt to EBITDA covenant will return to 3.5 times (4.0 times for the two fiscal quarters immediately following a
material acquisition).
The minimum EBITDA to interest expense ratio of 3.5 times remains unchanged.
As a corollary to these revised financial covenants, the applicable margin rate will range from 0.8% to 4.75%, depending on the type of
borrowing and the Company's Senior Debt to EBITDA ratio and the standby fee will range from 0.405% to 1.06875% on the undrawn
portion of the credit facilities, depending on the Company's Senior Debt to EBITDA ratio.
Failing a financial covenant may result in cancellation of the credit facilities and/or all or any part of the outstanding loans with all
accrued and unpaid interest to be immediately due and payable. Including $0.7 million of outstanding letters of credit that reduce the
amount otherwise available to be drawn on the syndicated facility, as at March 31, 2015, approximately $101.6 million or 14% of unused
and available bank credit under its credit facilities was available to fund Bellatrix's ongoing capital spending and operational
requirements.
Bellatrix currently has commitments associated with its credit facilities outlined above and the commitments outlined under the
"Commitments" section.
As at May 4, 2015, Bellatrix had outstanding a total of 9,650,503 options exercisable at an average exercise price of $6.54 per share and
191,957,243 common shares.
COMMITMENTS
As at March 31, 2015, Bellatrix committed to drill 8 gross (3.8 net) wells pursuant to farm-in agreements. Bellatrix expects to satisfy
these drilling commitments at an estimated net cost of approximately $14.3 million.
26
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
In addition, Bellatrix entered into a joint operating agreement during the 2011 year which includes a minimum commitment for the
Company to drill a specified number of wells each year over the term of the agreement. The details of the agreement are provided in the
table below:
Joint Operating Agreement
Commitment term
Minimum wells per year (gross and net)
Minimum total wells (gross and net)
Estimated total cost ($ millions)
Remaining wells to drill at March 31, 2015
Remaining estimated total cost ($ millions)
Feb. 1, 2011
2011 to 2015
3
15
$ 56.3
3
$ 11.3
Bellatrix also has certain drilling commitments relating to the Grafton Joint Venture, the Daewoo and Devonian Partnership, and the
Troika Joint Venture. In meeting the drilling commitments under these agreements, Bellatrix will satisfy some of the drilling
commitments under the joint operating agreements described above.
During September 2014, the CNOR Joint Venture was formed with CNOR a non-operated oil and gas company managed by Grafton
Asset Management Inc. Through the joint venture, CNOR has committed $250 million in capital towards future accelerated
development of a portion of Bellatrix's undeveloped land holdings. Bellatrix is not currently subject to any formal well or cost
commitments in relation to the CNOR Joint Venture.
Daewoo and
Agreement
Grafton (2)
Devonian
Troika(3)
Commitment term
2013 to 2016
2013 to 2016
2013 to 2015
Minimum total wells (gross) (1)
85
70
63
Minimum total wells (net) (1)
16.9
30.4
31.5
Estimated total cost ($millions) (gross) (1)
$ 305.0
$ 200.0
$ 240.0
Estimated total cost ($millions) (net) (1)
$ 55.0
$ 100.0
$ 120.0
Remaining wells to drill at March 31, 2015 (gross) (1)
37
22
6
Remaining wells to drill at March 31, 2015 (net) (1)
7.5
11
3
Remaining estimated total cost ($millions) (gross) (1)
$ 152.1
$ 88.9
$ 24.6
Remaining estimated total cost ($millions) (net) (1)
$ 30.5
$ 44.4
$ 12.3
(1) Gross and net estimated total cost values and gross and net minimum estimated total wells for the Troika and Grafton Joint Ventures represent Bellatrix's total
capital and well commitments pursuant to the Troika and Grafton joint venture agreements. Gross and net minimum total wells for the Daewoo and Devonian
Partnership represent Bellatrix's total well commitments pursuant to the Daewoo and Devonian Partnership agreement. Gross and net estimated total cost
values for the Daewoo and Devonian Partnership represent Bellatrix's estimated cost associated with its well commitments under the Daewoo and Devonian
Partnership agreement. Remaining estimated total cost (gross) for the Daewoo and Devonian Partnership is based on initial Daewoo Devonian Partnership
gross capital divided by initial total gross capital including third parties.
(2) During April 2014, Grafton elected to exercise an option to increase committed capital investment to the Grafton Joint Venture established during 2013 by an
additional $50 million, for a total commitment of $250 million. The funding period of the Grafton Joint Venture was extended to the third anniversary of the
program's effective date for wells relating to the exercised option. All other terms and conditions of the commitment increase are the same as the previously
announced Grafton Joint Venture.
(3) The commitment term of the Troika Joint Venture has been extended to 2015 for the wells remaining to be drilled.
27
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
The Company had the following liabilities as at March 31, 2015:
Liabilities ($000s)
Accounts payable and accrued liabilities (1)
Advances from joint venture partners
Long-term debt - principal (2)
Decommissioning liabilities (3)
Finance lease obligation
Deferred lease inducements
Total
Total
158,931
56,605
622,648
96,028
11,262
2,982
948,456
< 1 Year
158,931
56,605
1,591
340
217,467
1-3 Years
622,648
735
3,074
680
627,137
3-5 Years
3,772
1,464
680
5,916
More than
5 years
91,521
5,133
1,282
97,936
(1) Includes $0.8 million of accrued interest payable in relation to the credit facilities is included in accounts payable and accrued liabilities.
(2) Bank debt is based on a three year facility, fully revolving until maturity, and extendable annually at the Company's option (subject to lender approval),
provided that the term after any extension would not be more than three years. Interest due on the bank credit facility is calculated based upon floating rates.
(3) Amounts represent the inflated, discounted future abandonment and reclamation expenditures anticipated to be incurred over the life of the Company's
properties (between 2018 and 2065).
Off-Balance Sheet Arrangements
The Company has certain fixed-term lease agreements, including primarily office space leases, which were entered into in the normal
course of operations. All leases have been treated as operating leases whereby the lease payments are included in operating expenses
or G&A expenses depending on the nature of the lease. The lease agreements do not currently provide for early termination. No asset
or liability value has been assigned to these leases in the balance sheet as of March 31, 2015.
BUSINESS PROSPECTS AND OUTLOOK
Bellatrix remains committed to successfully navigating the current pricing environment while sustaining long term value for its
shareholders. Bellatrix's low cost structure and high quality asset base provide considerable benefits during challenging periods within
the commodity price cycle.
First quarter 2015 activity was focused on three principal initiatives. Firstly, the Company efficaciously executed on several critical
path items on construction of Phase 1 of the Bellatrix Alder Flats Plant and the plant remains firmly on schedule to meet previously
disclosed guidance for start-up on or before July 1, 2015. Secondly, drilling and completion activity was directed toward high rate of
return wells, including a greater focus on Bellatrix's high impact and low finding cost Spirit River opportunities which will attract the
majority of drilling and completion capital in 2015. Finally, Bellatrix remains committed to maintaining its position as a low cost finder
and operator, continuing its emphatic approach to reduce costs and improve full cycle corporate profitability.
Capital spending on exploration and development activities of $81.3 million included $54.7 million on facilities and equipment, which
represented the highest forecast capital spending quarter of 2015 as the Company nears completion of the Bellatrix Alder Flats Plant.
Net capital spending in the second quarter is forecast at approximately $30 million. Bellatrix remains highly focused on key business
objectives of maintaining financial strength and optimizing capital investments which it seeks to attain through a disciplined approach
to capital spending, a flexible investment program, and financial stewardship. Bellatrix is actively engaged in exploring several capital
funding alternatives designed to sustain or reduce year-end net debt in 2015 when compared to 2014 year-end net debt of $638 million,
while maintaining delivery of the 2015 full year average production guidance of 43,000 to 44,000 boe/d, representing 14% year over
year average production growth. Bellatrix will revisit its capital budget on a continuous basis, will strategically review all sources and
costs of capital available to the Company including monetization of assets, and will further curtail capital spending, if necessary, in order
to preserve its balance sheet until commodity prices firmly recover. In the first quarter of 2015, Bellatrix proactively obtained
amendments to certain of the financial covenants governing the existing bank credit facilities thereby providing Bellatrix enhanced
flexibility to successfully navigate through 2015 and optimize its capital decisions. The Company remains committed to preserving the
long term strategic value of its assets through this challenging commodity price environment for the benefit of all shareholders.
28
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
2015 Guidance
Average daily production (boe/d)
Low range
High range
Average product mix
Crude oil, condensate and NGLs (%)
Natural gas (%)
Capital spending ($ millions)(1)
Expenses ($/boe)
Production
General and administrative (after capitalized G&A and recoveries)
43,000
44,000
33
67
200
8.25
1.50
(1) Capital spending is up to $200 million and includes exploration and development capital projects and corporate assets, and excludes property acquisitions
and dispositions.
CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING POLICIES
The reader is advised that the critical accounting estimates, policies, and practices described in the Company's MD&A for the year
ended December 31, 2014 continue to be critical in determining Bellatrix's unaudited financial results as of March 31, 2015. There were
no changes in accounting policies during the three months ended March 31, 2015.
A summary of future accounting pronouncements is found in the Company's MD&A for the year ended December 31, 2014. A copy of
the Company's MD&A for the year ended December 31, 2014 is available at www.sedar.com or as part of the Company's annual report
on Form 40-F for the year ended December 31, 2014, which may be found at www.sec.gov.
LEGAL, ENVIRONMENTAL REMEDIATION AND OTHER CONTINGENT MATTERS
The Company is involved in various claims and litigation arising in the normal course of business. While the outcome of these matters is
uncertain and there can be no assurance that such matters will be resolved in the Company's favor, the Company does not currently
believe that the outcome of adverse decisions in any pending or threatened proceeding related to these and other matters or any amount
which it may be required to pay by reason thereof would have a material adverse impact on its financial position or results of operations.
The Company reviews legal, environmental remediation and other contingent matters to both determine whether a loss is probable
based on judgment and interpretation of laws and regulations and determine that the loss can reasonably be estimated. When the loss
is determined, it is charged to earnings. The Company's management monitor known and potential contingent matters and makes
appropriate provisions by charges to earnings when warranted by the circumstances.
With the above risks and uncertainties the reader is cautioned that future events and results may vary substantially from that which
Bellatrix currently foresees.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's President and Chief Executive Officer and Executive Vice President and Chief Financial Officer have designed, or caused
to be designed under their supervision, disclosure controls and procedures to provide reasonable assurance that: (i) material
information relating to the Company is made known to the Company's President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer by others, particularly during the period in which the annual and interim filings are being prepared;
and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation.
29
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Internal Control over Financial Reporting
The Company's President and Chief Executive Officer and Executive Vice President and Chief Financial Officer have designed, or caused
to be designed under their supervision, internal control over financial reporting to provide reasonable assurance regarding the reliability
of the Company's financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
The Company is required to disclose herein any change in the Company's internal control over financial reporting that occurred during
the period beginning on January 1, 2015 and ended on March 31, 2015 that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting. No material changes in the Company's internal control over financial
reporting were identified during such period that has materially affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
It should be noted that a control system, including the Company's disclosure and internal controls and procedures, no matter how well
conceived, can provide only reasonable, but not absolute, assurance that the objectives of the control system will be met and it should
not be expected that the disclosure and internal controls and procedures will prevent all errors or fraud.
SENSITIVITY ANALYSIS
The table below shows sensitivities to funds flow from operations as a result of product price, exchange rate, and interest rate changes.
This is based on actual average prices received for the first quarter of 2015 and average production volumes of 44,408 boe/d during that
period, as well as the same level of debt outstanding as at March 31, 2015. Diluted weighted average shares are based upon the first
quarter of 2015. These sensitivities are approximations only, and not necessarily valid under other significantly different production
levels or product mixes. Commodity price risk management activities can significantly affect these sensitivities. Changes in any of
these parameters will affect funds flow as shown in the table below:
Funds Flow from Operations(1)
(Annualized)
Sensitivity Analysis
Change of US $1/bbl WTI (2)
Change of $0.10/ mcf (2)
Change of US $0.01 CDN/ US exchange rate
Change in prime of 1%
Funds Flow from Operations(1)
(Per Diluted Share)
($000s)
($)
4,300
6,100
900
6,200
0.02
0.03
0.01
0.03
(1) The term "funds flow from operations" should not be considered an alternative to, or more meaningful than cash flow from operating activities as determined in
accordance with GAAP as an indicator of the Company's performance. Therefore reference to additional GAAP measures of funds flow from operations or
funds flow from operations per diluted share may not be comparable with the calculation of similar measures for other entities. Management uses funds flow
from operations to analyze operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the
Company's ability to generate the cash necessary to fund future capital investments and to repay debt. The reconciliation between cash flow from operating
activities and funds flow from operations can be found elsewhere herein. Funds flow from operations per share is calculated using the weighted average
number of common shares for the period.
(2) Commodity price risk management activities are excluded from funds flow from operations sensitivity calculations.
30
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
SELECTED QUARTERLY CONSOLIDATED INFORMATION
The following table sets forth selected consolidated financial information of the Company for the quarters in 2015, 2014, and 2013.
2015 - Quarter ended (unaudited)
($000s, except per share amounts)
Total revenue(1)
Funds flow from operations (1)
Funds flow from operations per share (1)
Basic
Diluted
Cash flow from operating activities
Cash flow from operating activities per share
Basic
Diluted
Net profit (loss)
Net profit (loss) per share
Basic
Diluted
Total net capital expenditures - cash
March 31
90,186
24,858
$0.13
$0.13
22,553
$0.12
$0.12
(12,688)
($0.07)
($0.07)
83,179
2014 - Quarter ended (unaudited)
($000s, except per share amounts)
Total revenue (1)
Funds flow from operations (1)
Funds flow from operations per share (1)
Basic
Diluted
Cash flow from operating activities
Cash flow from operating activities per share
Basic
Diluted
Net profit
Net profit per share
Basic
Diluted
Total net capital expenditures - cash
March 31
163,585
77,642
June 30
152,311
71,014
Sept. 30
137,411
60,341
Dec. 31
130,160
61,757
$0.45
$0.45
84,300
$0.40
$0.39
60,063
$0.32
$0.31
60,006
$0.32
$0.32
90,459
$0.49
$0.48
25,167
$0.34
$0.33
38,252
$0.31
$0.31
44,874
$0.47
$0.47
54,830
$0.15
$0.14
155,863
$0.22
$0.21
125,955
$0.23
$0.23
167,790
$0.29
$0.29
232,641
March 31
65,543
35,527
June 30
74,564
29,611
Sept. 30
68,329
25,295
Dec. 31
83,455
38,025
$0.33
$0.30
37,545
$0.27
$0.25
36,563
$0.23
$0.22
30,002
$0.30
$0.29
39,349
$0.35
$0.32
4,561
$0.34
$0.31
15,466
$0.28
$0.25
29,453
$0.31
$0.30
22,195
$0.04
$0.04
91,614
$0.14
$0.13
46,699
$0.27
$0.25
49,452
$0.17
$0.17
99,199
2013 - Quarter ended (unaudited)
($000s, except per share amounts)
Total revenue (1)
Cash flow from operating activities
Cash flow from operating activities per share
Basic
Diluted
Funds flow from operations (1)
Funds flow from operations per share (1)
Basic
Diluted
Net profit
Net profit per share
Basic
Diluted
Total net capital expenditures - cash
(1) Refer to “Additional GAAP Measures” in respect of the terms “funds flow from operations,” “funds flow from operations per share,” “total net debt,” and to
“Non-GAAP Measures” in respect of the term “total revenue.”
31
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Bellatrix's first quarter 2015 results were impacted by a weak global commodity price environment which continued from the fourth
quarter of 2014 through the first quarter of 2015. The negative impacts of the recent pricing environment were partially offset by a 27%
increase in production over the first quarter of 2014, which resulted from the success of Bellatrix's first quarter 2015 drilling program
and Bellatrix's ongoing successful drilling activity in the Cardium and Spirit River resource plays throughout 2014. First quarter 2015
results are compared in detail to first quarter 2014 results throughout this MD&A.
In the fourth quarter of 2014, Bellatrix increased its borrowing base and credit facilities by $100 million to $725 million from $625 million.
In the three months ended December 31, 2014, Bellatrix's net cash capital expenditures totaled $232.6 million, compared to $99.2
million in the fourth quarter of 2013. The Company drilled and/or participated in 12 gross (7.1 net) wells in the fourth quarter of 2014,
compared to 35 gross (21.4 net) wells in the comparative 2013 quarter. Sales volumes increased by 79% to 42,945 boe/d from 23,968
boe/d between the fourth quarters of 2013 and 2014. Bellatrix's total revenue increased by 56% to $130.2 million in the fourth quarter of
2014 from $83.5 million in the comparative quarter in 2013 as a result of the increase in sales volumes between the quarters, in
conjunction with higher realized natural gas commodity prices.
During the third quarter of 2014, Bellatrix completed several asset acquisitions including a tuck-in acquisition of working interests. In
the third quarter of 2014, the Company incurred $167.8 million of net cash capital expenditures, compared to $49.5 million in the third
quarter of 2013, and drilled and/or participated in 35 gross (17.5 net) wells, compared to 19 gross (8.6 net) wells in the third quarter of
2013. Bellatrix realized a 73% increase in sales volumes from 21,852 boe/d in the third quarter of 2013 to 37,838 boe/d in the
comparative 2014 period. Bellatrix's total revenue increased by 101% to $137.4 million in the third quarter of 2014 from $68.3 million in
the comparative quarter in 2013 as a result of the increase in sales volumes between the quarters, in conjunction with higher natural gas
prices which were partially offset by reduced crude oil and NGL commodity prices realized in the 2014 third quarter.
In the second quarter of 2014, Grafton elected to exercise an option to increase committed capital under the Grafton Joint Venture by
$50 million, resulting in a total commitment of $250 million at the end of that quarter. In addition to the expansion of the Grafton Joint
Venture, the Company experienced additional successes through the $172.6 million bought deal financing, the expansion of its
borrowing base and credit facilities to $625 million from $500 million, and the commissioning of the Blaze Pipeline on April 1, 2014.
Bellatrix's net cash capital spending in the second quarter of 2014 totaled $134.6 million, compared to $46.7 million during the
comparative 2013 period. During the second quarter of 2014, the Company drilled and/or participated in 19 gross (9.0 net) wells,
compared to 5 gross (5.0 net) wells in the same quarter of 2013 and realized a 64% increase in sales volumes to 36,342 boe/d in the
second quarter of 2014 from 22,102 boe/d in the second quarter of 2013. The Company realized total revenue of $152.3 million in the
second quarter of 2014, an increase of 104% from $74.6 million in the comparative quarter in 2013. The increased revenue was the
result of the increase in sales volumes between the second quarters of 2013 and 2014, in conjunction with higher realized natural gas,
crude oil and NGL prices realized in the second quarter of 2014 compared to the second quarter of 2013.
During the first quarter of 2014, Bellatrix's net cash capital expenditures totaled $155.6 million, compared to $91.6 million in the first
quarter of 2013. The Company drilled and/or participated in 44 gross (25.6 net) wells in the first quarter of 2014, compared to 21 gross
(17.1 net) wells in the comparative 2013 quarter. Sales volumes increased by 81% to 35,049 boe/d from 19,343 boe/d between the
2013 and 2014 first quarters. The Company's total revenue increased by 150% to $163.6 million in the first quarter of 2014 from $65.5
million in the comparative quarter in 2013 as a result of the increase in sales volumes between the quarters, in conjunction with higher
realized crude oil, NGL, and natural gas commodity prices.
32
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(unaudited, expressed in Canadian dollars)
As at
March 31,
2015
($000s)
ASSETS
Current assets
Restricted cash
Accounts receivable (note 13)
Deposits and prepaid expenses
Current portion of commodity contract asset (note 13)
Exploration and evaluation assets (note 3)
Property, plant and equipment (note 4)
Total assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
Advances from joint venture partners
Current portion of finance lease obligation
Current portion of deferred lease inducements
Current portion of commodity contract liability (note 13)
Long-term debt (note 5)
Finance lease obligation
Deferred lease inducements
Decommissioning liabilities
Deferred taxes (note 9)
Total liabilities
SHAREHOLDERS' EQUITY
Shareholders' capital (note 6)
Contributed surplus
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
COMMITMENTS (note 12)
See accompanying notes to the condensed consolidated financial statements.
33
$
December 31,
2014
21,907
111,474
8,355
2,999
144,735
120,102
1,999,911
$ 2,264,748
$
25,504
110,118
6,926
142,548
123,639
1,947,298
$ 2,213,485
$
158,931
56,605
1,591
340
1,269
218,736
$ 154,094
76,388
1,574
340
232,396
622,648
9,671
2,642
96,028
77,807
1,027,532
549,792
10,063
2,727
88,605
81,585
965,168
1,000,071
45,859
191,286
1,237,216
$ 2,264,748
1,000,041
44,302
203,974
1,248,317
$ 2,213,485
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
CONDENSED CONSOLIDATED
STATEMENTS OF
COMPREHENSIVE INCOME
(unaudited, expressed in Canadian dollars)
For the three months ended March 31,
2015
2014
88,460
1,726
(14,991)
75,195
$ 161,719
1,866
(27,387)
136,198
2,182
1,730
79,107
(18,638)
(23,676)
93,884
34,219
4,874
7,330
374
48,382
(6,101)
89,078
25,629
5,037
5,525
2,509
36,405
(19,114)
55,991
(9,971)
37,893
Finance expenses (note 10)
6,495
4,157
NET PROFIT (LOSS) BEFORE TAXES
(16,466)
33,736
3,778
(8,569)
($000s, except per share amounts)
REVENUES
Petroleum and natural gas sales
Other income
Royalties
Total revenue net of royalties
Realized gain (loss) on commodity contracts
Unrealized gain (loss) on commodity contracts
EXPENSES
Production
Transportation
General and administrative
Share-based compensation (note 7)
Depletion and depreciation (note 4)
Gain on property dispositions and swaps (note 4)
NET PROFIT (LOSS) BEFORE FINANCE AND TAXES
TAXES
Deferred tax (expense) recovery (note 9)
NET PROFIT (LOSS) AND COMPREHENSIVE INCOME (LOSS)
Net profit (loss) per share (note 11)
Basic
Diluted
$
$ (12,688)
($0.07)
($0.07)
$
25,167
$0.15
$0.14
See accompanying notes to the condensed consolidated financial statements.
34
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
CONDENSED CONSOLIDATED
STATEMENTS OF
SHAREHOLDERS’ EQUITY
(unaudited, expressed in Canadian dollars)
For the three months ended March 31,
($000s, except per share amounts)
SHAREHOLDERS' CAPITAL (note 6)
Common shares (note 6)
Balance, beginning of year
Issued for cash on exercise of share options
Share issue costs adjustment, net of tax
Contributed surplus transferred on exercised options
Balance, end of period
CONTRIBUTED SURPLUS
Balance, beginning of year
Share-based compensation expense
Adjustment of share-based compensation expense for forfeitures
of unvested share options
Transfer to share capital for exercised options
Balance, end of period
RETAINED EARNINGS
Balance, beginning of year
Net profit (loss)
Balance, end of period
TOTAL SHAREHOLDERS' EQUITY
See accompanying notes to the condensed consolidated financial statements.
35
2015
$ 1,000,041
23
7
1,000,071
2014
$
824,065
3,251
32
725
828,073
44,302
1,678
38,958
1,428
(114)
(7)
45,859
(82)
(725)
39,579
203,974
(12,688)
191,286
40,851
25,167
66,018
$ 1,237,216
$ 933,670
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
CONDENSED CONSOLIDATED
STATEMENTS OF
CASH FLOWS
(unaudited, expressed in Canadian dollars)
For the three months ended March 31,
2015
($000s)
2014
Cash provided from (used in):
CASH FLOW FROM (USED IN) OPERATING ACTIVITIES
Net profit (loss)
Adjustments for:
Depletion and depreciation (note 4)
Finance expenses (note 10)
Share-based compensation (note 7)
Unrealized (gain) loss on commodity contracts (note 13)
Gain on property dispositions and swaps
Deferred tax expense (recovery) (note 9)
Decommissioning costs incurred
Change in non-cash working capital (note 8)
$
(12,688)
$
25,167
48,382
399
374
(1,730)
(6,101)
(3,778)
(703)
(1,602)
22,553
36,405
430
2,509
23,676
(19,114)
8,569
(64)
6,722
84,300
23
1,010,324
(937,468)
(375)
(85)
1,089
73,508
3,251
34
485,800
(437,774)
(356)
(71)
(190)
50,694
(1,992)
(81,207)
20
(12,882)
(96,061)
(800)
(155,102)
39
20,869
(134,994)
Change in cash
-
-
Cash, beginning of period
-
-
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES
Issuance of share capital (note 6)
Issue costs on share capital (note 6)
Advances from loans and borrowings
Repayment of loans and borrowings
Obligations under finance lease
Deferred lease inducements
Change in non-cash working capital (note 8)
CASH FLOW FROM (USED IN) INVESTING ACTIVITIES
Expenditure on exploration and evaluation assets (note 3)
Additions to property, plant and equipment
Proceeds on sale of property, plant and equipment
Change in non-cash working capital (note 8)
Cash, end of period
Cash paid:
Interest
Taxes
$
-
$
-
$
5,588
-
$
3,480
-
See accompanying notes to the condensed consolidated financial statements.
36
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
1. CORPORATE INFORMATION
Bellatrix Exploration Ltd. (the “Company” or “Bellatrix”) is a growth oriented, publicly traded exploration and production oil and gas
company.
Bellatrix was incorporated in Canada and the Company's registered office and principal place of business is located at 1920, 800 – 5th
Avenue SW, Calgary, Alberta, Canada T2P 3T6.
2. BASIS OF PREPARATION
a.
Statement of Compliance
These condensed consolidated financial statements (“interim financial statements”) were authorized by the Board of Directors on May
4, 2015. The Company prepared these interim financial statements in accordance with IAS 34 Interim Financial Reporting. The interim
financial statements do not include all information and disclosures normally provided in annual financial statements and should be read
in conjunction with the Company's year ended December 31, 2014 audited consolidated financial statements, available at
www.sedar.com and through the U.S. Securities and Exchange Commission at www.sec.gov. The Company has prepared these
interim financial statements using the same accounting policies and critical accounting estimates applied in the Company's year ended
December 31, 2014 audited consolidated financial statements, except as noted below.
b.
Basis of Measurement
The interim financial statements are presented in Canadian dollars, the Company's functional currency, and have been prepared on the
historical cost basis except for derivative financial instruments and liabilities for cash-settled share-based payment arrangements
measured at fair value. The interim financial statements have, in management's opinion, been properly prepared using careful judgment
and reasonable limits of materiality. These interim financial statements are prepared within the framework of the same significant
accounting policies, critical judgments, accounting estimates, accounting policies and methods of computation as the consolidated
financial statements for the fiscal year ended December 31, 2014. The interim financial statement note disclosures do not include all of
those required by International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”) applicable for annual financial statements. Accordingly, the interim financial statements should be read in conjunction with the
consolidated financial statements and notes thereto as at and for the year ended December 31, 2014.
3. EXPLORATION AND EVALUATION ASSETS
($000s)
Cost
Balance, December 31, 2013
Acquisitions through business combinations
Additions
Transfer to oil and natural gas properties
Disposals (1)
Balance, December 31, 2014
Additions
Transfer to oil and natural gas properties
Balance, March 31, 2015
(1) Disposals include swaps.
37
$ 132,971
4,596
6,788
(20,685)
(31)
123,639
1,992
(5,529)
$ 120,102
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
4. PROPERTY, PLANT AND EQUIPMENT
($000s)
Oil and
Natural Gas
Properties
Cost
Balance, December 31, 2013
Acquisitions through business combinations
Additions
Transfer from exploration and evaluation assets
Joint venture wells
Transfers
Disposals (1)
Balance, December 31, 2014
Additions
Transfer from exploration and evaluation assets
Joint venture wells
Disposals (1)
Balance, March 31, 2015
$ 1,629,027
230,366
563,015
20,685
53,169
(32,921)
(9,809)
2,453,532
88,252
5,529
6,147
(87)
$ 2,553,373
$
$
$
Accumulated Depletion, Depreciation and Impairment Losses
Balance, December 31, 2013
Charge for time period
Impairment loss
Balance, December 31, 2014
Charge for time period
Balance, March 31, 2015
Office
Furniture and
Equipment
$
11,585
11,164
22,749
1,154
23,903
344,962
167,914
10,813
523,689
47,470
571,159
$
2,241
3,053
5,294
912
6,206
$ 1,929,843
$ 1,982,214
$
$
17,455
17,697
$
Total
$ 1,640,612
230,366
574,179
20,685
53,169
(32,921)
(9,809)
2,476,281
89,406
5,529
6,147
(87)
$ 2,577,276
$
$
347,203
170,967
10,813
528,983
48,382
577,365
(1) Disposals include swaps.
Carrying amounts
At December 31, 2014
At March 31, 2015
$ 1,947,298
$ 1,999,911
Bellatrix has included $1.19 billion (2014: $1.07 billion) for future development costs and excluded $83.3 million (2014: $69.9 million)
for estimated salvage from the depletion calculation for the three months ended March 31, 2015. Facilities under construction
associated capital of $79.2 million was excluded from the depletable base for the depletion calculation for the three months ended
March 31, 2015.
In the three months ended March 31, 2015, a total net gain on dispositions of $6.1 million was recognized relating to gains on wells
drilled under the Grafton Joint Venture and the Troika Joint Venture which were completed and tied-in during the three month period
ending March 31, 2015. A gain on disposition for each well is recognized to account for the disposal of the pre-payout working interest
("WI") earned by the joint venture partner on the well, which results from the difference between the percentage of all capital costs
contributed for the drilling, completion, equipping and tie-in of the well by the joint venture partner and the pre-payout WI allocated to
the joint venture partner by the Company. The gain on disposition for a well is recognized during the quarter in which the well was
completed and tied-in.
Under the Grafton Joint Venture Agreement, Grafton contributes 82% of the total capital costs required for each well under the Grafton
Joint Venture Agreement, and in return earns 54% of Bellatrix's WI in each well drilled until payout.
Under the Troika Joint Venture Agreement, Troika contributes 50% of the total capital costs required for each well under the Troika Joint
Venture Agreement, and in return earns 35% of Bellatrix's WI in each well until payout.
38
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
For the three months ended March 31, 2015, the Company capitalized $2.3 million (2014: $3.9 million) of general and administrative
expenses and $0.5 million (2014: $1.0 million) of share-based compensation expense directly related to exploration and development
activities.
Bellatrix's credit facilities are secured against all of the assets of the Corporation by a $1.0 billion debenture containing a first ranking
floating charge and security interest. The Corporation has provided a negative pledge and undertaking to provide fixed charges over
major petroleum and natural gas reserves in certain circumstances.
5. LONG-TERM DEBT
As of March 31, 2015, the Company's credit facilities are available on an extendible revolving term basis and consist of a $75 million
operating facility provided by a Canadian bank and a $650 million syndicated facility provided by nine financial institutions.
Amounts borrowed under the credit facilities will bear interest at a floating rate based on the applicable Canadian prime rate, U.S. base
rate, CDOR rate or LIBOR margin rate, plus between 0.8% to 3.75% (expanded to 4.75% in connection with recent amendments
described below), depending on the type of borrowing and the Company's senior debt to EBITDA ratio. A standby fee is charged of
between 0.405% and 0.84375% (expanded to 1.06875% in connection with recent amendments described below) on the undrawn
portion of the credit facilities, depending on the Company's senior debt to EBITDA ratio. The credit facilities are secured by a $1.0 billion
debenture containing a first ranking charge and security interest. Bellatrix has provided a negative pledge and undertaking to provide
fixed charges over its properties in certain circumstances.
The revolving period for the revolving term credit facility will end on May 30, 2017, unless extended for a further period of up to three
years. Should the facility not be extended, the outstanding balance is due upon maturity. The borrowing base will be subject to redetermination on or before May 31 and November 30 in each year prior to maturity, with the next semi-annual redetermination occurring
on or before May 31, 2015.
The Company's credit facilities contain market standard terms and conditions, and include, for instance, restrictions on asset
dispositions and hedging. Generally, dispositions of properties to which the Company is given lending value in the determination of the
borrowing base require lender approval if the net present value (discounted at 10%) attributed to all properties sold in a fiscal year
exceeds 5% of the borrowing base in effect at the time of such disposition. In addition, asset dispositions are generally not permitted
unless there would be no borrowing base shortfall as a result of such properties being sold. Hedging transactions must not be done for
speculative purposes, and the term of any hedging contract cannot exceed 3 years for commodity swaps, interest rate or exchange rate
swaps. The aggregate amount hedged under all oil and gas commodity swaps cannot exceed 70% of the Company's average daily sales
volume for the first year of a rolling 3 year period, 60% for the second year of such period or 50% for the third year of such period, with the
average daily sales volume being based on the Company's production for the previous fiscal quarter. The aggregate amount hedged
under all interest rate swaps cannot exceed the outstanding principal amount of any unsecured note debt or have a term exceeding the
remaining term of the unsecured note debt. For interest rate swaps unrelated to any unsecured note debt, the aggregate amount
hedged cannot exceed 60% of the amount of the commitment under the credit facilities or exceed a term of 3 years. The aggregate
amount hedged under all exchange rate swaps cannot exceed the outstanding principal amount of any unsecured note debt or have a
term exceeding the remaining term of the unsecured note debt. For exchange rate swaps unrelated to any unsecured note debt, the
aggregate amount hedged cannot exceed 60% of Bellatrix's US dollar revenue over the previous 3 months or exceed a term of 3 years.
39
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
Bellatrix's credit facilities are subject to a number of covenants, all of which were met as at March 31, 2015. Bellatrix calculates its
financial covenants quarterly. The calculation for each financial covenant is based on specific definitions which are not in accordance
with IFRS and cannot be readily replicated by referring to Bellatrix's condensed consolidated financial statements. As at March 31,
2015, the major financial covenants are:
Total Debt (1) must not exceed 4.0 times EBITDA(2) for the last four fiscal quarters
Senior Debt (3) must not exceed 3.5 times EBITDA for the last four fiscal quarters
EBITDA must not be less than 3.5 times interest expense for the last four fiscal quarters
Position at March 31, 2015
2.79x
2.79x
10.96x
(1) "Total Debt" is defined as the sum of the bank loan, the principal amount of long-term debt and certain other liabilities defined in the agreement governing the
credit facilities.
(2) "EBITDA" refers to earnings before interest, taxes, depreciation and amortization. EBITDA is calculated based on terms and definitions set out in the
agreement governing the credit facilities which adjusts net income for financing costs, certain specific unrealized and non-cash transactions, and acquisition
and disposition activity and is calculated based on a trailing twelve month basis.
(3) "Senior Debt" is defined as Total Debt, excluding any unsecured or subordinated debt. Bellatrix currently does not have any subordinated or unsecured debt.
In the absence of a material acquisition, Total Debt to EBITDA and Senior Debt to EBITDA covenants must not exceed 3.5 and 3.0 times
EBITDA, respectively. In the event of a material acquisition, the Total Debt to EBITDA and Senior Debt to EBITDA covenants are relaxed
for two fiscal quarters after the close of the acquisition. Due to material acquisitions in the quarter ended December 31, 2014, the Total
Debt to EBITDA and Senior Debt to EBITDA covenants are temporarily increased until June 30, 2015 to not exceed 4.0 and 3.5 times,
respectively.
Effective March 11, 2015, the Company's banking syndicate agreed to amendments to certain of the financial covenants in response to
the recent decline in commodity prices. The Total Debt to EBITDA and Senior Debt to EBITDA financial covenants have been revised
such that they each must not exceed:
- 4.75 times for the fiscal quarters ending September 30, 2015, December 31, 2015, March 31, 2016 and June 30, 2016; and
- 4.0 times for the fiscal quarters ending September 30, 2016, December 31, 2016 and March 31, 2017.
During the periods in which these revised financial covenants are in place, the additional automatic relaxation of the debt to EBITDA
financial covenants following a material acquisition will not apply. Commencing with the second quarter of 2017, the maximum Senior
Debt to EBITDA covenant will return to 3.0 times (3.5 times for the two fiscal quarters immediately following a material acquisition) and
the maximum Total Debt to EBITDA covenant will return to 3.5 times (4.0 times for the two fiscal quarters immediately following a
material acquisition).
The minimum EBITDA to interest expense ratio of 3.5 times remains unchanged.
As a corollary to these revised financial covenants, the applicable margin rate will range from 0.8% to 4.75%, depending on the type of
borrowing and the Company's Senior Debt to EBITDA ratio and the standby fee will range from 0.405% to 1.06875% on the undrawn
portion of the credit facilities, depending on the Company's Senior Debt to EBITDA ratio.
In the event that the Company is not able to comply with these covenants, as amended, the banking syndicate may not be willing to
agree to a further amendment to the financial covenants and as a result the Company's access to capital could be restricted or
repayment could be required.
As at March 31, 2015, the Company had outstanding letters of credit totaling $0.7 million that reduce the amount otherwise available to
be drawn on the syndicated facility.
As at March 31, 2015, the Company had approximately $101.6 million or 14% of unused and available bank credit under its credit
facilities.
40
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
6.
SHAREHOLDER'S CAPITAL
Bellatrix is authorized to issue an unlimited number of common shares. All shares issued are fully paid and have no par value. The
common shareholders are entitled to dividends declared by the Board of Directors; no dividends were declared by the Board of Directors
during the three months ended March 31, 2015.
2015
2014
Number
Amount
Number
Amount
($000s)
Common shares, opening balance
Share issue costs adjustment, net of tax effect
Shares issued for cash on exercise of options
Contributed surplus transferred on
exercised options
Balance, end of period
7.
191,950,576
6,667
191,957,243
$
$
($000s)
1,000,041
23
170,990,605
1,770,623
7
1,000,071
172,761,228
$
$
824,065
32
3,251
725
828,073
SHARE-BASED COMPENSATION PLANS
The following table provides a summary of the Company's share-based compensation plans for the three months ended March 31,
2015:
Share
Deferred
Restricted
Performance
($000s)
Options
Share Units
Awards
Awards
Total
Expense (recovery) for the three months
ended March 31, 2015 (1)
$ 1,058
$ (496)
$ (152)
$
(36)
$ 374
Liability balance, March 31, 2015
$
$ 2,262
$
415
$ 1,000
$ 3,677
(1) The expense for share options is net of adjustments for forfeitures of $0.1 million, and capitalization of $0.5 million. The recovery for restricted awards is net of
adjustments for forfeitures of $0.1 million.
The following table provides a summary of the Company's share-based compensation plans for the three months ended March 31,
2014:
Share
Deferred
Restricted
Performance
($000s)
Options
Share Units
Awards
Awards
Total
Expense for the three months
ended March 31, 2014 (1)
$ 813
$
867
$
583
$ 246
$ 2,509
Liability balance, March 31, 2014
$
$ 4,912
$ 1,890
$ 850
$ 7,652
(1) The expense for share options is net of adjustments for forfeitures of $0.1 million, and capitalization of $0.5 million. The expense for restricted awards is net of
capitalization of $0.3 million. The expense for performance awards is net of capitalization of $0.2 million.
a.
Share Option Plan
During the three months ended March 31, 2015, Bellatrix granted 103,000 (2014: 228,000) share options. The fair values of all share
options granted are estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average fair market
value of share options granted during the three months ended March 31, 2015 and 2014, and the weighted average assumptions used in
their determination are as noted below:
2015
2014
Inputs:
Share price
$
3.26
$
8.55
Exercise price
$
3.26
$
8.55
Risk free interest rate (%)
0.6
1.2
Option life (years)
2.8
2.8
Option volatility (%)
51
45
Results:
Weighted average fair value of each share option granted
$
1.09
$
2.63
41
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
Bellatrix calculates volatility based on historical share price. Bellatrix incorporates an estimated forfeiture rate between 3% and 10%
(2014: 3% to 10%) for stock options that will not vest, and adjusts for actual forfeitures as they occur.
The weighted average trading price of the Company's common shares on the Toronto Stock Exchange ("TSX") for the three months
ended March 31, 2015 was $3.23 (2014: $8.41).
The following tables summarize information regarding Bellatrix's Share Option Plan:
Share Options Continuity
Weighted Average
Exercise Price
$ 6.30
$ 3.26
$ 3.39
$ 6.70
$ 6.27
Balance, December 31, 2014
Granted
Exercised
Forfeited
Balance, March 31, 2015
Number
10,913,337
103,000
(6,667)
(226,667)
10,783,003
As of March 31, 2015, a total of 19,195,724 common shares were reserved for issuance on exercise of share options, leaving an
additional 8,412,721 available for future share option grants.
Share Options Outstanding, March 31, 2015
Outstanding
Exercise Price
$ 3.07 - $ 3.81
$ 3.82 - $ 4.03
$ 4.04 - $ 5.22
$ 5.23 - $ 7.24
$ 7.25 - $ 7.87
$ 7.88 - $ 9.16
$ 9.17 - $10.04
$ 3.07 - $10.04
b.
At
March 31, 2015
1,556,669
1,288,167
1,249,501
1,795,000
946,666
1,537,500
2,409,500
10,783,003
Weighted
Average
Exercise Price
$ 3.34
$ 3.89
$ 4.21
$ 5.68
$ 7.59
$ 8.08
$ 9.25
$ 6.27
Exercisable
Weighted
Average
Remaining
Contractual Life
(years)
2.2
0.3
3.8
1.7
3.8
3.8
4.2
2.9
At
March 31, 2015
983,005
1,221,499
317,333
1,533,654
276,965
507,654
4,840,110
Exercise Price
$ 3.38
$ 3.89
$ 4.63
$ 5.47
$ 7.59
$ 8.07
$ 4.98
Deferred Share Unit Plan
During the three months ended March 31, 2015, the Company granted 53,200 (2014: 14,115) Deferred Share Units ("DSUs"), and had
706,718 DSUs outstanding as at March 31, 2015 (2014: 547,021). A total of $2.3 million (December 31, 2014: $2.8 million) was
included in accounts payable and accrued liabilities as at March 31, 2015 in relation to the DSUs.
42
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
c.
Incentive Plan
On August 7, 2013, the Directors of Bellatrix approved an Incentive Plan where the Company may grant Restricted Awards ("RAs") and
Performance Awards ("PAs") to officers, employees, and other service providers. Unless approved by the TSX (or such other stock
exchange on which the common shares may be listed) and the shareholders, the Incentive Plan does not provide for the issuance of
common shares to holders of PAs or RAs, but rather RAs and PAs are settled in cash in lieu of such common shares.
During the three months ended March 31, 2015, the Company granted nil (2014: nil) RAs, settled nil (2014: nil) RAs, and had 754,051
RAs outstanding as at March 31, 2015 (2014: 490,300). A total of 13,000 RAs were forfeited during the three months ended March 31,
2015 (2014: 18,000). A total of $0.4 million (December 31, 2014: $0.6 million) was included in accounts payable and accrued liabilities
as at March 31, 2015 in relation to the RAs.
During the three months ended March 31, 2015, the Company granted nil (2014: nil) PAs, and had 751,450 PAs outstanding as at March
31, 2015 (2014: 452,700). A total of nil PAs were forfeited during the three months ended March 31, 2015 (2014: 18,000). A total of
$1.0 million (December 31, 2014: $1.1 million) was included in accounts payable and accrued liabilities as at March 31, 2015 in relation
to the PAs.
8.
SUPPLEMENTAL CASH FLOW INFORMATION
Change in Non-cash Working Capital
($000s)
Changes in non-cash working capital items:
Restricted cash
Accounts receivable
Deposits and prepaid expenses
Accounts payable and accrued liabilities
Advances from joint venture partners
Three months ended March 31,
2015
2014
$
$
Changes related to:
Operating activities
Financing activities
Investing activities
$
$
9.
3,597
(1,356)
(1,429)
5,576
(19,783)
(13,395)
(1,602)
1,089
(12,882)
(13,395)
$
$
$
$
18,405
(23,376)
(4,498)
55,212
(18,342)
27,401
6,722
(190)
20,869
27,401
INCOME TAXES
Bellatrix is a corporation as defined under the Income Tax Act (Canada) and is subject to Canadian federal and provincial taxes. Bellatrix
is subject to provincial taxes in Alberta, British Columbia, and Saskatchewan as the Company operates in those jurisdictions.
Deferred taxes reflect the tax effects of differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reported for tax purposes. As at March 31, 2015, Bellatrix had approximately $1.70 billion in tax pools
available for deduction against future income. Included in this tax basis are estimated non-capital loss carry forwards of approximately
$162.3 million that expire in years through 2030.
43
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
10. FINANCE INCOME AND EXPENSES
($000s)
Interest on long-term debt
Accretion on decommissioning liabilities (non-cash)
Finance expense
Three months ended March 31,
2015
2014
$
6,096
$
3,727
399
430
$
6,495
$
4,157
11. PER SHARE AMOUNTS
The calculation of profit (loss) per basic share for the three months ended March 31, 2015 was based on a net loss of $12.7 million
(2014: net profit of $25.2 million).
Basic common shares outstanding
Fully dilutive effect of:
Share options outstanding
Fully diluted common shares outstanding
Weighted average shares outstanding
Dilutive effect of share options (1)
Diluted weighted average shares outstanding
Three months ended March 31,
2015
2014
191,957,243
172,761,228
10,783,003
202,740,246
191,953,095
191,953,095
9,472,505
182,233,733
171,626,707
2,695,223
174,321,930
(1) For the three months ended March 31, 2015, a total of 10,783,003 (2014: 6,777,282) share options were excluded from the calculation as they were antidilutive.
12. COMMITMENTS
The Company is committed to payments under fixed term operating leases which do not currently provide for early termination.
As at March 31, 2015, Bellatrix committed to drill 8 gross (3.8 net) wells pursuant to farm-in agreements. Bellatrix expects to satisfy
these drilling commitments at an estimated net cost of approximately $14.3 million.
In addition, Bellatrix entered into a joint operating agreement during the 2011 year which includes a minimum commitment for the
Company to drill a specified number of wells each year over the term of the agreement. The details of the agreement are provided in the
table below:
Joint Operating Agreement
Commitment term
Minimum wells per year (gross and net)
Minimum total wells (gross and net)
Estimated total cost ($ millions)
Remaining wells to drill at March 31, 2015
Remaining estimated total cost ($ millions)
Feb. 1, 2011
2011 to 2015
3
15
$ 56.3
3
$ 11.3
Bellatrix also has certain drilling commitments relating to the Grafton Joint Venture, the Daewoo and Devonian Partnership, and the
Troika Joint Venture. In meeting the drilling commitments under these agreements, Bellatrix will satisfy some of the drilling
commitments under the joint operating agreements described above.
44
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
During September 2014, the CNOR Joint Venture was formed with CNOR a non-operated oil and gas company managed by Grafton
Asset Management Inc. Through the joint venture, CNOR has committed $250 million in capital towards future accelerated
development of a portion of Bellatrix's undeveloped land holdings. Bellatrix is not currently subject to any formal well or cost
commitments in relation to the CNOR Joint Venture.
Daewoo and
Agreement
Grafton (2)
Devonian
Troika(3)
Commitment term
2013 to 2016
2013 to 2016
2013 to 2015
Minimum total wells (gross) (1)
85
70
63
Minimum total wells (net) (1)
16.9
30.4
31.5
Estimated total cost ($millions) (gross) (1)
$ 305.0
$ 200.0
$ 240.0
Estimated total cost ($millions) (net) (1)
$ 55.0
$ 100.0
$ 120.0
Remaining wells to drill at March 31, 2015 (gross) (1)
37
22
6
Remaining wells to drill at March 31, 2015 (net) (1)
7.5
11
3
Remaining estimated total cost ($millions) (gross) (1)
$ 152.1
$ 88.9
$ 24.6
Remaining estimated total cost ($millions) (net) (1)
$ 30.5
$ 44.4
$ 12.3
(1) Gross and net estimated total cost values and gross and net minimum estimated total wells for the Troika and Grafton Joint Ventures represent Bellatrix's total
capital and well commitments pursuant to the Troika and Grafton joint venture agreements. Gross and net minimum total wells for the Daewoo and Devonian
Partnership represent Bellatrix's total well commitments pursuant to the Daewoo and Devonian Partnership agreement. Gross and net estimated total cost
values for the Daewoo and Devonian Partnership represent Bellatrix's estimated cost associated with its well commitments under the Daewoo and Devonian
Partnership agreement. Remaining estimated total cost (gross) for the Daewoo and Devonian Partnership is based on initial Daewoo Devonian Partnership
gross capital divided by initial total gross capital including third parties.
(2) During April 2014, Grafton elected to exercise an option to increase committed capital investment to the Grafton Joint Venture established during 2013 by an
additional $50 million, for a total commitment of $250 million. The funding period of the Grafton Joint Venture was extended to the third anniversary of the
program's effective date for wells relating to the exercised option. All other terms and conditions of the commitment increase are the same as the previously
announced Grafton Joint Venture.
(3) The commitment term of the Troika Joint Venture has been extended to 2015 for the wells remaining to be drilled.
13. FINANCIAL RISK MANAGEMENT
a.
Overview
The Company has exposure to the following risks from its use of financial instruments:
- Credit risk
- Liquidity risk
- Market risk
This note presents information about the Company's exposure to each of the above risks, the Company's objectives, policies and
processes for measuring and managing risk, and the Company's management of capital. Further quantitative disclosures are included
throughout these financial statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The
Board has implemented and monitors compliance with risk management policies.
The Company's risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and adherence to market conditions and the Company's activities.
45
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
b.
Credit Risk
As at March 31, 2015, accounts receivable was comprised of the following:
Aging ($000s)
Joint venture and other trade accounts receivable
Amounts due from government agencies
Revenue and other accruals
Less: Allowance for doubtful accounts
Total accounts receivable
Not Past Due
(less than 90 days)
$ 64,194
2,241
34,634
$ 101,069
Past Due
(90 days or more)
$ 7,080
545
3,110
(330)
$ 10,405
Total
$ 71,274
2,786
37,744
(330)
$ 111,474
Amounts due from government agencies include GST and royalty adjustments. Accounts payable due to same partners includes
amounts which may be available for offset against certain receivables.
In order to determine the allowance for doubtful accounts, the Company conducts a qualitative analysis of each account comprising the
individual balances within its accounts receivable, including the counterparty's identity, customary pay practices, and the terms of the
contract under which the obligation arose. Based on the review of the individual balances within the accounts receivable balance at
March 31, 2015 and specifically the balances greater than 90 days, a provision of $0.3 million was made.
The carrying amount of accounts receivable and derivative assets represents the maximum credit exposure.
c.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company's approach
to managing liquidity is to make reasonable efforts to sustain sufficient liquidity to meet its liabilities when they become due, under both
normal and stressed conditions, without incurring unacceptable losses or risking harm to the Company's reputation.
The Company prepares annual capital expenditure budgets which are regularly monitored and updated as necessary. Further, the
Company utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditures.
To facilitate the capital expenditure program, the Company has a revolving reserve-based credit facility, as outlined in note 5, which is
reviewed semi-annually by the lender. The Company attempts to match its payment cycle with the collection of petroleum and natural
gas revenues on the 25th of each month. The Company also mitigates liquidity risk by maintaining an insurance program to minimize
exposure to insurable losses.
The following are the contractual maturities of liabilities as at March 31, 2015:
Liabilities ($000s)
Accounts payable and accrued liabilities (1)
Advances from joint venture partners
Long-term debt - principal (2)
Decommissioning liabilities (3)
Finance lease obligation
Deferred lease inducements
Total
Total
$ 158,931
56,605
622,648
96,028
11,262
2,982
$ 948,456
< 1 Year
$ 158,931
56,605
1,591
340
$ 217,467
1-3 Years
$
622,648
735
3,074
680
$ 627,137
3-5 Years
$
3,772
1,464
680
$ 5,916
More than
5 years
$
91,521
5,133
1,282
$ 97,936
(1) Includes $0.8 million of accrued interest payable in relation to the credit facilities is included in accounts payable and accrued liabilities.
(2) Bank debt is based on a three year facility, fully revolving until maturity, and extendable annually at the Company's option (subject to lender approval),
provided that the term after any extension would not be more than three years. Interest due on the bank credit facility is calculated based upon floating rates.
(3) Amounts represent the inflated, discounted future abandonment and reclamation expenditures anticipated to be incurred over the life of the Company's
properties (between 2018 and 2065).
46
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
d.
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect the
Company's net profit or the value of financial instruments. The objective of market risk management is to manage and control market
risk exposures within acceptable limits, while maximizing returns.
e.
Commodity Price Risk
Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices.
Commodity prices for petroleum and natural gas are impacted by not only the relationship between the Canadian and United States
dollar, as outlined above, but also world economic events that dictate the levels of supply and demand.
The Company utilizes both financial derivatives and physical delivery sales contracts to manage commodity price risks. All such
transactions are conducted in accordance with the commodity price risk management policy that has been approved by the Board of
Directors.
The Company's formal commodity price risk management policy permits management to use specified price risk management
strategies including fixed price contracts, costless collars and the purchase of floor price options, other derivative financial instruments,
and physical delivery sales contracts to reduce the impact of price volatility and ensure minimum prices for a maximum of eighteen
months beyond the current date. The program is designed to provide price protection on a portion of the Company's future production in
the event of adverse commodity price movement, while retaining significant exposure to upside price movements. By doing this, the
Company seeks to provide a measure of stability to cash flows from operating activities, as well as, to ensure Bellatrix realizes positive
economic returns from its capital developments and acquisition activities.
As at March 31, 2015, the Company has entered into commodity price risk management arrangements as follows:
Type
Oil fixed
Oil fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
Natural gas fixed
f.
Period
February 1, 2015 to Dec. 31, 2015
February 1, 2015 to Dec. 31, 2015
April 1, 2015 to October 31, 2015
April 1, 2015 to October 31, 2015
April 1, 2015 to October 31, 2015
April 1, 2015 to October 31, 2015
April 1, 2015 to October 31, 2015
April 1, 2015 to October 31, 2015
April 1, 2015 to October 31, 2015
April 1, 2015 to October 31, 2015
April 1, 2015 to October 31, 2015
April 1, 2015 to October 31, 2015
March 1, 2015 to December 31, 2015
March 1, 2015 to December 31, 2015
March 1, 2015 to December 31, 2015
Volume
2,000 bbl/d
1,000 bbl/d
20,000 GJ/d
20,000 GJ/d
2,500 GJ/d
15,000 GJ/d
5,000 GJ/d
20,000 GJ/d
10,000 GJ/d
10,000 GJ/d
10,000 GJ/d
10,000 GJ/d
20,000 GJ/d
20,000 GJ/d
17,500 GJ/d
Price Floor
$ 70.27 CDN
$ 70.48 CDN
$ 2.50 CDN
$ 2.50 CDN
$ 2.53 CDN
$ 2.50 CDN
$ 2.80 CDN
$ 2.53 CDN
$ 2.54 CDN
$ 2.59 CDN
$ 2.59 CDN
$ 2.58 CDN
$ 2.56 CDN
$ 2.58 CDN
$ 2.56 CDN
Price Ceiling
$ 70.27 CDN
$ 70.48 CDN
$ 2.50 CDN
$ 2.50 CDN
$ 2.53 CDN
$ 2.50 CDN
$ 2.80 CDN
$ 2.53 CDN
$ 2.54 CDN
$ 2.59 CDN
$ 2.59 CDN
$ 2.58 CDN
$ 2.56 CDN
$ 2.58 CDN
$ 2.56 CDN
Index
WTI
WTI
AECO
AECO
AECO
AECO
AECO
AECO
AECO
AECO
AECO
AECO
AECO
AECO
AECO
Capital Management
The Company's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the
future development of the business. The Company manages its capital structure and makes adjustments to it in the light of changes in
economic conditions and the risk characteristics of the underlying petroleum and natural gas assets. The Company considers its capital
structure to include shareholders' equity, bank debt, and working capital. In order to maintain or adjust the capital structure, the
Company may from time to time issue common shares, issue convertible debentures, adjust its capital spending, and/or dispose of
certain assets to manage current and projected debt levels.
47
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
The Company monitors capital based on the ratio of total net debt to annualized funds flow from operations (the "ratio"). This ratio is
calculated as total net debt, defined as outstanding bank debt, plus the liability component of any outstanding convertible debentures,
plus or minus working capital (excluding commodity contract assets and liabilities, the current portion of finance lease obligations and
deferred lease inducements, and deferred tax assets or liabilities), divided by funds flow from operations (cash flow from operating
activities before changes in non-cash working capital and deductions for decommissioning costs) for the most recent calendar quarter,
annualized (multiplied by four). The total net debt to annualized funds flow from operations ratio may increase at certain times as a
result of acquisitions, fluctuations in commodity prices, timing of capital expenditures and other factors. In order to facilitate the
management of this ratio, the Company prepares annual capital expenditure budgets which are reviewed and updated as necessary
depending on varying factors including current and forecast prices, successful capital deployment and general industry conditions. The
annual and updated budgets are approved by the Board of Directors. Bellatrix does not pay dividends.
The Company's capital structure and calculation of total net debt and total net debt to funds flow ratios as defined by the Company is as
follows:
Debt to Funds Flow from Operations Ratio
Three months ended March 31,
2015
2014
1,237,216
933,670
($000s, except where noted)
Shareholders' equity
Long-term debt
Adjusted working capital deficiency (2)
Total net debt (2) at period end
622,648
73,800
696,448
335,118
137,970
473,088
Debt to funds flow from operations ratio (annualized)(1)(3)
Funds flow from operations (1) (annualized)
Total net debt (2) at period end
Total net debt to periods funds flow from operations ratio (annualized) (3)
99,432
696,448
7.0x
310,568
473,088
1.5x
217,969
696,448
3.2x
229,091
473,088
2.1x
(1) (4)
Debt to funds flow from operations ratio (trailing)
Funds flow from operations (1) trailing (4)
Total net debt (2) at period end
Total net debt (2) to funds flow from operations ratio (trailing)(1)(4)
(1) As detailed previously in this MD&A, funds flow from operations is an additional GAAP term that does not have any standardized meaning under GAAP. Funds
flow from operations is calculated as cash flow from operating activities, excluding decommissioning costs incurred, changes in non-cash working capital
incurred and transaction costs. Refer to the reconciliation of cash flow from operating activities to funds flow from operations appearing elsewhere herein.
(2) Total net debt is considered to be an additional GAAP measure. Therefore reference to the additional GAAP measure of total net debt may not be comparable
with the calculation of similar measures for other entities. The Company's calculation of total net debt excludes deferred lease inducements,
decommissioning liabilities, the long-term finance lease obligation, deferred lease inducements, and the deferred tax liability. Total net debt includes the
adjusted working capital deficiency (excess). The adjusted working capital deficiency (excess) is an additional GAAP measure calculated as net working
capital deficiency (excess) excluding short-term commodity contract assets and liabilities, current finance lease obligation, and deferred lease inducements.
A reconciliation between total liabilities under GAAP and total net debt as calculated by the Company is found below in this MD&A.
(3) For the three months ended March 31, 2015 and 2014, total net debt to funds flow from operations ratio (annualized) is calculated based upon first quarter
funds flow from operations annualized.
(4) Trailing periods funds flow from operations ratio annualized is based upon the twelve-month periods ended March 31, 2015 and March 31, 2014.
48
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
NOTES TO THE
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited, expressed in Canadian dollars)
g.
Fair Value
The Company's financial instruments as at March 31, 2015 include restricted cash, accounts receivable, deposits and prepaid
expenses, commodity contract asset, accounts payable and accrued liabilities, advances from joint venture partners, deferred lease
inducements, finance lease obligations, and long-term debt. The fair value of accounts receivable, deposits, accounts payable and
accrued liabilities approximate their carrying amounts due to their short-terms to maturity.
The fair value of commodity contracts is determined by discounting the difference between the contracted price and published forward
price curves as at the balance sheet date, using the remaining contracted petroleum and natural gas volumes. The fair value of
commodity contracts as at March 31, 2015 was $1.7 million (December 31, 2014: nil). The commodity contracts are classified as level
2 within the fair value hierarchy.
Long-term bank debt bears interest at a floating market rate and the credit and market premiums therein are indicative of current rates;
accordingly the fair market value approximates the carrying value.
($000s)
Commodity contract asset
Commodity contract liability
Net commodity contract asset
March 31,
2015
$
2,999
(1,269)
$
1,730
December 31,
2014
$
$
-
The Company's long-term bank debt bears interest at a floating market rate and the credit and market premiums therein are indicative of
current rates; accordingly the fair market value approximates the carrying value.
49
2015 FIRST QUARTER REPORT
BELLATRIX EXPLORATION LTD.
CORPORATE INFORMATION
BOARD OF DIRECTORS
OFFICERS
STOCK EXCHANGE LISTING
W.C. (Mickey) Dunn, Chairman
Independent Businessman
Edmonton, Alberta
Raymond G. Smith, P. Eng.
President and CEO
The Toronto Stock Exchange
Trading symbol: BXE
Edward J. Brown, CA
Executive Vice President, Finance
and CFO
The New York Stock Exchange
Trading symbol: BXE
John H. Cuthbertson, Q.C.
Partner, Burnet, Duckworth & Palmer LLP
Calgary, Alberta
Murray B. Todd, B. Sc., P. Eng.
President, Canada Hibernia Holding Corporation
Calgary, Alberta
Raymond G. Smith, P. Eng.
President and CEO, Bellatrix Exploration Ltd.
Calgary, Alberta
Murray L. Cobbe
Chairman, Trican Well Service Ltd.
Calgary, Alberta
Doug N. Baker, FCA
Independent Businessman
Calgary, Alberta
Daniel S. Lewis, B.Sc.
Managing Partner, Orange Capital LLC
New York City, New York
Keith E. Macdonald, CA
Independent Businessman
Calgary, Alberta
Steven J. Pully, Esq., CPA, CFA
Independent Businessman
Dallas, Texas
Melvin M. Hawkrigg, BA, FCA, LL.D (Hon.)
Chairman, Orlick Industries Limited
Waterdown, Ontario
Robert A. Johnson, P. Geol.
Independent Businessman
Calgary, Alberta
Keith S. Turnbull, B.Sc., CA
Independent Businessman
Calgary, Alberta
LEGAL COUNSEL
Brent A. Eshleman, P. Eng.
Executive Vice President and COO
Timothy A. Blair
Vice President, Land
Burnet, Duckworth & Palmer LLP
AUDITORS
KPMG LLP
Chris D. Curry, CA
Vice President and Controller
Leanne K. Gress-Blue, CA
Vice President, Finance
Charles R. Kraus, Esq.
Vice President, General Counsel
and Corporate Secretary
David R. Laing
Vice President, Production
Kelly M. Nichol
Vice President,
Business Development
Russell G. Oicle, P. Geol.
Vice President, Exploration
BANKERS
National Bank of Canada
Alberta Treasury Branches
HSBC Bank Canada
Canadian Imperial Bank of Commerce
The Bank of Nova Scotia
Bank of Montreal
The Toronto-Dominion Bank
Union Bank, Canada Branch
Wells Fargo Bank, N.A., Canadian Branch
EVALUATION ENGINEERS
Sproule Associates Limited
REGISTRAR AND TRANSFER AGENT
Computershare Trust Company of Canada
Mark L. Stephen, P. Eng.
Vice President, Operations
HEAD OFFICE
Steve G. Toth, CFA
Vice President, Investor Relations
Garrett K. Ulmer, P. Eng.
Vice President, Engineering
1920, 800 - 5th Avenue S.W.
Calgary, Alberta, Canada T2P 3T6
Phone: (403) 266-8670
Fax: (403) 264-8163
Email: general.info@bellatrixexp.com
Website: www.bellatrixexploration.com
50
1920, 800 - 5th Avenue S.W.
Calgary, Alberta, Canada T2P 3T6
Phone: (403) 266-8670
Fax: (403) 264-8163
www.bellatrixexploration.com