Mr. David Reid reports
DELPHI ENERGY RELEASES YEAR-END 2014 RESERVES
Delphi Energy Corp. has released its crude oil and natural gas reserves information for the year ended Dec. 31, 2014.
Corporate highlights:
- Achieved record annualized production of 10,549 barrels of oil
equivalent per day and fourth quarter production of 12,035 boe
per day;
- Achieved finding and development costs, including changes in
future development costs, of $13.67 per boe for proved developed
producing reserves, $12.51 per boe for total proved reserves and
$10.88 per boe for total proved plus probable reserves;
- Achieved finding, development and acquisition costs, including
changes in FDC, of $13.58 per boe for proved developed producing
reserves, $12.12 per boe for total proved reserves and $10.35 per boe
for total proved plus probable reserves;
- Realized an operating netback of $20.82 per boe resulting in recycle
ratios of 1.5, 1.7 and 2.0 for proved developed producing, total
proved and total proved plus probable reserves, respectively;
- Increased proved developed producing reserves by 25 per cent to 18.7
million boe, total proved reserves by 19 per cent to 42.9 million boe and
total proved plus probable reserves by 21 per cent to 74.4 million boe
compared with Dec. 31, 2013;
- Proved developed producing reserve value (before income taxes,
discounted at 10 per cent) down by 5 per cent to $179.7-million,
total proved reserves value (before income taxes, discounted at 10
per cent) down by 5 per cent to $360.3-million and total proved
plus probable reserve value (before income taxes, discounted at 10
per cent) up by 2 per cent to $592.8-million compared with Dec.
31, 2013; reserve values were relatively unchanged from the prior year
as the increase in reserves was offset by a reduced commodity price
forecast used by the independent engineers;
- Replaced 2014 production of 3.9 million boe by 4.3 times with total
proved plus probable reserve additions (including technical revisions
and economic factors) of 16.6 million boe;
- Increased annualized production per share by 26 per cent and proved
developed producing reserves per share by 23 per cent compared with
Dec. 31, 2013.
Montney highlights:
- For the Montney program, Delphi achieved finding and development
costs, including changes in FDC, of $12.98 per boe for proved
developed producing reserves, $11.65 per boe for total proved reserves
and $9.87 per boe for total proved plus probable reserves. With a
realized operating netback of $28.10 per boe, the Montney achieved a
recycle ratio on development capital of 2.2, 2.4 and 2.8 for proved
developed producing, total proved and total proved plus probable,
respectively.
- For the Montney program, Delphi achieved finding, development and
acquisition costs, including changes in FDC, of $14.09 per boe for
proved developed producing reserves, $12.35 per boe for total proved
reserves and $10.12 per boe for total proved plus probable reserves.
With a realized operating netback of $28.10 per boe, the Montney
achieved a recycle ratio on acquisition and development capital of
2.0, 2.3 and 2.8 for proved developed producing, total proved and total
proved plus probable, respectively.
- The company increased proved developed producing Montney reserves by 124 per cent to
9.8 million boe, increased total proved reserves by 50 per cent to 28.0
million boe and total proved plus probable reserves by 53 per cent to
50.7 million boe compared with Dec. 31, 2013.
- Proved developed producing reserve value (before income taxes,
discounted at 10 per cent) for the Montney increased by 82 per cent to
$113.9-million. Total proved reserves value (before income taxes,
discounted at 10 per cent) increased by 30 per cent to $259.1-million and
total proved plus probable reserve value (before income taxes,
discounted at 10 per cent) increased by 34 per cent to $448.2-million
compared with Dec. 31, 2013.
Corporate reserves summary
GLJ Petroleum Consultants Ltd., the company's independent petroleum engineering firm, has evaluated Delphi's crude oil, natural gas and natural gas liquids reserves as at Dec. 31, 2014, and prepared a reserves report in accordance with National Instrument 51-101 (standards of disclosure for oil and gas activities) and the Canadian oil and gas evaluation handbook. GLJ's price forecast dated Jan. 1, 2015, was used in the evaluation.
The attached summary reserves information table contains summary reserves information detailed in the GLJ report at Dec. 31, 2014.
SUMMARY RESERVES INFORMATION
Dec. 31, 2014
Light and Natural gas Natural gas Total oil %
medium oil (MMcf) liquids equivalent of P+P
(Mbbl) (Mbbl) (Mboe)
Reserves
Proved
Producing 19 82,981 4,858 18,708 25
Developed
non- -- 7,194 325 1,524 2
producing
Undeveloped -- 91,447 7,461 22,702 31
Total proved 19 181,622 12,644 42,934 58
Total probable 5 131,709 9,478 31,434 42
Total proved
plus probable 24 313,331 22,122 74,368 100
Net present values of future net revenue
The estimated future net revenue associated with Delphi's reserves at Dec. 31, 2014, based on the GLJ Jan. 1, 2015, price forecast, is summarized in the attached net present values of future net revenue table.
NET PRESENT VALUES OF FUTURE NET REVENUE BEFORE INCOME TAXES
($ thousands)
Discounted at (%/year)
0% 5% 10% 15% 20%
Proved
Producing $286,157 $220,024 $179,701 $152,945 $133,985
Developed non- 26,338 16,021 11,267 8,521 6,702
producing
Undeveloped 425,976 258,960 169,377 115,685 80,819
Total proved 738,471 495,005 360,345 277,152 221,507
Total probable 739,594 381,777 232,472 157,014 113,366
Total proved plus 1,478,065 876,782 592,816 434,165 334,872
probable
UNIT VALUE BEFORE
INCOME TAX DISCOUNTED
AT 10 PER CENT PER YEAR
($ thousands)
$/boe $/Mcfe
Proved
Producing $11.91 $1.98
Developed non-
producing 8.79 1.47
Undeveloped 8.53 1.42
Total proved 9.94 1.66
Total probable 8.78 1.46
Total proved plus
probable 9.45 1.58
Future development costs
The attached future development costs table provides the future development costs, undiscounted, included in the GLJ report for both proved and proved plus probable reserves.
FUTURE DEVELOPMENT COSTS
($ thousands)
2015 2016 2017 2018 2019 Rem Total
Total proved $63,708 $114,882 $12,724 $29,634 $5,271 $5,250 $231,468
Total proved plus
probable 76,933 139,668 83,586 64,026 20,674 6,533 391,420
Forecast prices
The attached forecast prices is a summary of GLJ's Jan. 1, 2015, price forecast used in the evaluation.
FORECAST PRICES
Natural gas
AECO/NIT Nymex
Spot Henry Hub
Year $Cdn/MMBtu $U.S./MMBtu
2015 $3.31 $3.31
2016 3.77 3.75
2017 4.02 4.00
2018 4.27 4.25
2019 4.53 4.50
2020 4.78 4.75
2021 5.03 5.00
2022 5.28 5.25
2023 5.53 5.50
2024 5.71 5.68
Subsequent to 2025 More than More than
2.0%/yr 2.0%/yr
Oil
Edmonton Nymex Pentanes Plus Exchange
light WTI Edmonton Inflation rate
Year $Cdn/bbl $U.S./bbl $Cdn/bbl % $U.S./$Cdn
2015 $64.71 $62.50 $69.24 2.0 $0.850
2016 80.00 75.00 85.60 2.0 0.875
2017 85.71 80.00 91.71 2.0 0.875
2018 91.43 85.00 97.83 2.0 0.875
2019 97.14 90.00 103.94 2.0 0.875
2020 102.86 95.00 110.06 2.0 0.875
2021 106.18 98.54 113.62 2.0 0.875
2022 108.31 100.51 115.89 2.0 0.875
2023 110.47 102.52 118.20 2.0 0.875
2024 112.67 104.57 120.56 2.0 0.875
Subsequent to More than More than More than
2025 2.0%/yr 2.0%/yr 2.0%/yr 2.0 0.875
Reserves reconciliation
The attached reserves reconciliation table of Delphi's reserves compares changes in the company's reserves at Dec. 31, 2013, with the reserves at Dec. 31, 2014, each evaluated in accordance with National Instrument 51-101 definitions.
RESERVES RECONCILIATION
Light and Associated and
medium non-associated Natural gas Total oil
crude oil gas liquids equivalent
Proved (Mbbl) (MMcf) (Mbbl) (Mboe)
Dec. 31, 2013 565 157,150 9,385 36,142
Extensions and improved
recovery -- 33,960 3,048 8,708
Technical revisions 2 5,224 1,149 2,023
Discoveries -- -- -- --
Acquisitions 3 5,651 223 1,167
Dispositions (483) (2,285) (18) (882)
Economic factors (6) (2,117) (15) (374)
Production (62) (15,961) (1,128) (3,850)
Dec. 31, 2014 19 181,622 12,644 42,934
Light and Associated and
medium non-associated Natural gas Total oil
crude oil gas liquids equivalent
Probable (Mbbl) (MMcf) (Mbbl) (Mboe)
Dec. 31, 2013 287 112,301 6,515 25,520
Extensions and improved
recovery -- 23,136 2,064 5,920
Technical revisions (6) (2,875) 392 (94)
Discoveries -- -- -- --
Acquisitions -- 8,683 601 2,048
Dispositions (281) (1,255) (10) (500)
Economic factors 5 (8,280) (85) (1,460)
Production -- -- -- --
Dec. 31, 2014 5 131,709 9,478 31,434
Light and Associated and
medium non-associated Natural gas Total oil
crude oil gas liquids equivalent
Proved plus probable (Mbbl) (MMcf) (Mbbl) (Mboe)
Dec. 31, 2013 853 269,451 15,901 61,662
Extensions and improved
recovery -- 57,096 5,112 14,628
Technical revisions (4) 2,349 1,543 1,929
Discoveries -- -- -- --
Acquisitions 3 14,334 823 3,215
Dispositions (764) (3,540) (29) (1,382)
Economic factors (1) (10,397) (100) (1,834)
Production (62) (15,961) (1,128) (3,850)
Dec. 31, 2014 24 313,332 22,122 74,368
Finding and development costs
Finding and development costs in 2014, 2013 and averages for the three most recent financial years, were as set out in the attached finding and development costs table.
FINDING AND DEVELOPMENT COSTS
2014 2013
Proved Proved plus Proved Proved plus
probable probable
Capital ($ thousands)
Exploration and
development (E&D)
costs $100,851 $100,851 $71,956 $71,956
Change in FDC related to
E&D 28,747 59,313 96,780 121,472
Total E&D costs 129,598 160,164 168,736 193,428
Acquisition costs 17,659 17,659 13,664 13,664
Disposition proceeds (16,615) (16,615) (3,319) (3,319)
Change in FDC related to
acquisitions and
dispositions (A&D) (1,693) 10,199 -- --
Total net A&D costs (650) 11,242 10,345 10,345
Total costs 128,948 171,406 179,081 203,773
Reserves (Mboe)
Reserve additions 10,357 14,723 15,359 21,613
Acquisitions and
dispositions 285 1,833 (5) (5)
Total reserve additions 10,642 16,556 15,354 21,608
Finding and development
costs ($/boe)
E&D including change in
FDC related to E&D
(F&D) 12.51 10.88 10.99 8.95
E&D and A&D including
change in FDC (FD&A) 12.12 10.35 11.66 9.43
2012-2014
Proved Proved plus
probable
Capital ($ thousands)
Exploration and
development (E&D)
costs $256,535 $256,535
Change in FDC related to
E&D 157,171 246,427
Total E&D costs 413,706 502,962
Acquisition costs 31,462 31,462
Disposition proceeds (54,598) (54,598)
Change in FDC related to
acquisitions and
dispositions (A&D) (9,992) 1,900
Total net A&D costs (33,128) (21,236)
Total costs 380,578 481,726
Reserves (Mboe)
Reserve additions 29,888 45,470
Acquisitions and
dispositions (2,141) (1,397)
Total reserve additions 27,746 44,073
Finding and development
costs ($/boe)
E&D including change in
FDC related to E&D
(F&D) 13.84 11.06
E&D and A&D including
change in FDC (FD&A) 13.72 10.93
PRODUCTION PER SHARE
2014 2013 2012
Average annual
production, boe/d 10,549 8,241 8,276
Basic common shares
at year-end 155,477,045 153,253,548 153,047,798
Production per
one million shares 68 54 54
RESERVES (BOE) PER 1,000 BASIC COMMON SHARES
2014 2013 2012
Proved developed producing 120 98 91
Total proved 276 236 155
Total proved plus probable 478 402 281
Net asset value
The estimated net asset value of the company at Dec. 31, 2014, has been calculated using the before-tax net present value of reserves discounted at 10 per cent.
NET ASSET VALUE
($ thousands except share count and per-share value)
Total Total proved
proved plus probable
Estimated future net revenues of reserves $360,345 $592,816
Undeveloped land 105,750 105,750
Mark-to-market value of hedging contracts 20,076 20,076
In-the-money option proceeds 7,665 7,665
Total asset value 493,837 726,308
Bank debt plus working capital deficiency
(unaudited) (173,655) (173,655)
Net asset value 320,182 552,653
Common shares outstanding and in-the-money
options 161,843,298 161,843,298
Net asset value per share 1.98 3.41
Montney reserves summary
Through 2014, the company drilled eight (7.6 net) horizontal Montney wells and acquired eight gross (3.5 net) sections of Montney rights directly offsetting Delphi's current Montney production and recent drilling activity. A realized operating netback of $28.10 per boe, coupled with a proved developed producing finding and development cost of $12.98 per boe (before the impacts of acquisitions), provided for a proved developed producing recycle ratio of 2.2 for the play, supporting the company's focus on this asset.
MONTNEY RESERVES
Proved developed Total proved plus
producing Total proved probable
Reserves BTNPV10 Reserves BTNPV10 Reserves BTNPV10
Mboe MM$ Mboe MM$ Mboe MM$
Dec.
31, 2012 1,178 $18.1 3,375 $23.1 11,006 $91.7
Dec.
31, 2013 4,370 62.4 18,706 199.4 33,100 334.4
Dec.
31, 2014 9,781 113.9 27,999 259.1 50,728 448.2
Since 2012, Delphi's development activity and acquisition focus have been concentrated on the Montney play at Bigstone. Over this two-year period, the production in the Montney has grown from 840 boe per day (10 per cent of total corporate production) in 2012 to 6,344 boe per day (60 per cent of total corporate production) in 2014. Reserves and values have grown significantly over this time period with total proved plus probable reserves attributed to the Montney growing from 26 per cent to 68 per cent of total corporate reserves, and reserves value (before income taxes, discounted at 10 per cent) of total proved plus probable increasing from 25 per cent to 76 per cent of total corporate reserves value.
The increasing production volumes, reserves and reserve values are a result of the intensity and commitment the company is employing in developing the Montney at Bigstone. Because of the superior performance and economics, Delphi will continue to build the Montney at Bigstone into an ever increasing portion of the company.
Montney reserves now account for 52 per cent of proved developed producing reserves, 65 per cent of total proved reserves and 68 per cent of total proved plus probable reserves, which is up from 8 per cent, 14 per cent and 26 per cent at Dec. 31, 2012, respectively.
The Montney reserves (before income taxes, discounted at 10 per cent) account for 63 per cent, 72 per cent and 76 per cent of proved developed producing, total proved and total proved plus probable reserve value, respectively, up from 11 per cent, 11 per cent and 25 per cent at Dec. 31, 2012.
Operations update
Since the end of 2014, Delphi has added another Montney well (0.88 net) to its production base with the 16-27-60-23W5M well coming on production in late January. Over the first 30 days of production, the well has averaged 6.8 million cubic feet per day of raw natural gas and 413 barrels per day of wellhead condensate. The total estimated sales production rate over the initial 30 days of production is 1,659 barrels of oil equivalent per day, including an estimated 40 barrels per million cubic feet of gas-plant-recovered natural gas liquids. The company expects to bring on production one (0.88 net) additional well at 13-27-60-23W5M prior to spring breakup. Delphi has also completed the drilling of its second Montney well of 2015 at 16-24-60-23W5M (16-24). The 16-24 well (83.3-per-cent working interest) was drilled to a total depth of 5,749 metres with a horizontal lateral length of 2,802 metres. A 40-stage liner was installed in 16-24, and completion operations are expected to commence after spring breakup.
Outlook
The Bigstone Montney well performance and contribution to the company's growth profile over the past three years continue to be transformational. In 2014, production from the Bigstone Montney asset grew to 60 per cent of the company's record production of 10,549 boe per day and represented 73 per cent of the company's field cash operating income for the year. The superior cash-generating capability of the Montney production, approximately double that of the declining legacy production, results from robust production rates of both natural gas and condensate, as well as moderating cash costs.
The confidence in the Bigstone Montney type well performance and economics have increased over the past year as the well data set has grown by eight wells to a total of 19 wells drilled, along with production history on some of the wells approaching three years. Payout has been achieved on five of the wells within six to 18 months.
The Bigstone Montney reserve values increased significantly across all reserve categories in 2014 with 37 of the 138 sections of Montney rights at Bigstone having reserves assigned to them. That leaves significant inventory and running room to execute the long-term growth strategies of the company.
Delphi continues to maintain a strong commodity price risk management program for both its natural gas and natural gas liquids production. The attached commodity price risk management contracts table summarizes the company's current commodity price risk management contracts.
COMMODITY PRICE RISK MANAGEMENT CONTRACTS
Natural gas (Cdn) 2015 2016 2017
Volume (MMcf/d) 33.4 10.9 2.4
% hedged 67 22 5
Fixed price (Cdn$/Mcf) $3.61 $3.68 $3.96
Natural gas (U.S.) 2015 2016 2017 2018
Volume (MMcf/d) 6.0 20.0 15.0 10.0
% hedged 12 40 30 20
Fixed price (U.S.$/Mcf) $3.19 $3.61 $3.66 $3.56
For 2015, Delphi has a put option on 1,220 barrels per day of WTI at a floor price of $80 (Canadian) per barrel (net of premium).
With the drop in commodity prices, the company is taking a conservative approach to its capital spending plans in 2015 to preserve its financial flexibility. Through the first half of 2015, Delphi expects to spend cash flow, keeping production and net debt relatively flat to December, 2014, levels. Capital spending for the second half of 2015 will be dependent upon realized commodity prices and the level of service cost reductions. Maintenance capital requirements to keep production relatively flat to December, 2014, rates for the entire year are forecast to be approximately $45-million to $50-million, which is within forecasted cash flow generated at current commodity prices.
Delphi anticipates releasing its audited financial statements for the year ended Dec. 31, 2014, on March 18, 2015, and its annual information form by March 31, 2015, which will include all required National Instrument 51-101 reserves disclosure.
We seek Safe Harbor.
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