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Jan 14, '14 - News Release
Delphi Energy Corp. has provided the following operations update on its Montney capital program.
South Bigstone
Delphi is pleased to announce completion and cleanup test results on its initial exploration well at 11-17-59-22 W5M on the South Bigstone Montney farm-in lands, part of the company's contiguous 122 section land position in the Bigstone area. The 11-17 Montney horizontal well is located approximately 13 kilometres south of the company's continuing drilling activity at East Bigstone. The well was drilled as a whipstock operation from the Duvernay stratigraphic drill with a horizontal lateral length in the Montney of 1,848 metres (most similar to the initial East Bigstone slickwater evaluation well at 15-10-60-23 W5M with a horizontal lateral length of 1,424 metres).
After placing all 26 stages of the fracture stimulation, the well flowed on cleanup over an eight-day period, recovering approximately 34 per cent of the initial frack load water. During the last 24 hours of cleanup flow, the well averaged 4.4 million cubic feet per day of raw natural gas and 165 barrels per day of field condensate (42 barrels per million cubic feet of sales gas). With estimated natural gas liquids plant recoveries of 35 barrels per million cubic feet of sales gas, total production over this time period was 962 barrels of oil equivalent per day. For comparison purposes, Delphi's 15-10 well produced at an average rate of 957 barrels of oil equivalent per day, consisting of 4.6 million cubic feet per day of raw natural gas, approximately 118 barrels per day of wellhead condensate (47 barrels per million cubic feet of sales gas) and an estimated 151 barrels per day of gas-plant-recovered natural gas liquids over the final 24 continuous hours of its seven-day cleanup test. Total production at 15-10 over the first 30 days was approximately 991 barrels of oil equivalent per day.
The 11-17 well is expected to be pipeline connected and on production in the third quarter of 2014 and consistent with the company's other slickwater fracture stimulated wells and will continue to recover load water over the next several months of production. The test results at 11-17 validate the reservoir rock quality and liquids-rich nature of the production mix as being consistent with East Bigstone, 13 kilometres to the north. Based on this test result, Delphi expects to begin development of the Montney play in South Bigstone in the latter part of 2014, employing the same 2,500- to 3,000-metre horizontal well lengths and 30-stage fracs as employed in the continuing Montney development program at East Bigstone.
East Bigstone
At East Bigstone, Delphi has now drilled a total of 10 horizontal Montney wells, of which nine are extended-reach horizontal laterals with lengths of up to 3,000 metres. Since changing completion techniques from conventional oil fracs on the first three wells to a slickwater hybrid fracturing technique, the Montney wells at East Bigstone have exceeded the company's expectations.
The previously announced 15-30-60-22 W5M well, the most recent to be placed on production, with a horizontal length of 3,014 metres, has produced at a company record high rate of 2,076 barrels of oil equivalent per day over the first 30 days of production. During this initial 30-day period, the 15-30 well produced at an average rate of 8.3 million cubic feet per day of raw gas, 566 barrels per day of wellhead condensate (76 barrels per million cubic feet of sales gas) and an estimated 272 barrels per day of shallow-cut plant NGL production. For comparison purposes, Delphi's Montney producer at 10-27-60-23 W5M, located five kilometres to the west of 15-30, produced at an average rate of 1,815 barrels of oil equivalent per day over the first 30 days of production, consisting of 6.8 million cubic feet per day of raw gas, 582 barrels per day of wellhead condensate and shallow-cut plant NGL production of 222 barrels per day. The 10-27 well has produced 319,000 barrels of oil equivalent (120,000 barrels of total NGL, 65 per cent of which is field condensate) since coming on production in March, 2013.
Well performance during the initial 30 days of production has almost doubled, as observed in the 15-30 and 16-30 production performance, where the two wells are approximately 400 metres (one spacing unit) apart. Longer-term production performance has tripled when observing production rates after 180 days. Wellhead condensate production and yields have also improved by two to three times.
The company continues optimizing capital efficiencies through its extended-reach drilling plan targeting horizontal lateral lengths between 2,500 and 3,000 metres. The East Bigstone wells are sorted on horizontal lateral lengths, illustrating that lateral length is an important driver in enhancing well production performance.
The adjacent cumulative production plot illustrates the step change in well performance experienced with extended-reach horizontal lateral sections stimulated with the slickwater hybrid fracturing technique as compared with conventional gelled oil fracs. The wells continue to exceed the company's initial type curve expectations. Given the exceptional well performance to date, Delphi plans to re-evaluate its base-type-curve assumptions after the winter drilling program.
Drilling operations continue in East Bigstone with two additional wells now drilled and one to two more wells planned prior to breakup in 2014. The 15-21-60-23 W5M Montney well has been drilled to a total depth of 5,875 metres with a horizontal lateral length of 2,886 metres and is in the process of being stimulated with a 30-stage slickwater hybrid completion. The 13-30-60-22 W5M Montney well has recently reached its planned total depth of 5,419 metres in a company record of 27 days, with a horizontal lateral length of 2,593 metres. The 13-30 well is scheduled to be completed in the first two weeks of February.
To handle the rapidly growing Montney production volumes, the company is continuing with construction to expand its 7-11 facility to handle 45 million cubic feet per day of raw gas, as well as increased field condensate volumes, with the installation of larger inlet separation and increased condensate storage tank capacity.
Financing
As previously announced late in 2013, Delphi has entered into a gross overriding royalty agreement to partially finance the drilling of 10 Montney wells in East Bigstone over the next 12 to 18 months. The parties purchasing the GOR will contribute $25.0-million over this time frame toward seven wells scheduled to be drilled in 2014 ($17.5-million) and have an option on the first three wells of 2015. The royalty owners will be granted a GOR on the company's working interest revenue on the wells until an agreed-upon rate of return is achieved, at which time the GOR will be extinguished on all wells.
Also as previously announced, Delphi's lenders (National Bank of Canada, Bank of Nova Scotia and Alberta Treasury Branches) completed their semi-annual review of the company's credit facilities, renewing the existing $140.0-million revolving credit facility. The facility is a 364-day committed facility available on a revolving basis until May 26, 2014, at which time it may be extended at the lenders' option upon completion of the annual review to determine the borrowing base. The annual review will be based upon the company's Dec. 31, 2013, reserve report, the results of the winter drilling program and the lenders' view of commodity prices.
The GOR financing, expected funds from operations for 2014 and reconfirmation of the company's credit facility provide the financial resources for the company to carry out its planned 2014 capital program.
Guidance for 2014
Delphi reiterates its market guidance for 2014 but expects to review it as additional results of the winter drilling program are evaluated. Corporate production is forecast to grow 20 per cent compared with 2013, predominantly from a Montney-focused capital program with its superior netbacks, resulting in expected cash flow growth of 49 per cent. Delphi is estimating production to average 9,500 to 10,000 barrels of oil equivalent per day on a net capital program of $67-million to $72-million, drilling a total of seven Montney horizontal wells at Bigstone. Total debt at year-end 2014 is expected to be between $145.0-million and $150.0-million versus between $135.0-million and $140.0-million at the end of 2013. The total debt to funds flow ratio is forecast to drop to 2.2 times in the fourth quarter of 2014 and reach a targeted 1.5 times in 2015. Delphi expects AECO natural gas prices to average approximately $3.35 per thousand cubic feet and Edmonton light oil prices to average approximately $93.50 per barrel resulting in cash flow for 2014 of approximately $55.0-million to $60.0-million. Currently, the company has approximately 60 per cent of its natural gas production hedged at an average price of $3.63 per thousand cubic feet for 2014 and approximately 27 per cent of its crude oil and condensate production hedged at a floor price of $96.03 per barrel for the first half of 2014.
Delphi's business plan contemplates production growth to 20,000 barrels of oil equivalent per day by 2017, with targeted annual production per share growth of 25 per cent and annual cash flow per share growth of 45 per cent. Capital spending over the five years to achieve that result under the plan is projected to be $560-million, financed 90 per cent from cash flow to drill 50 Montney horizontal wells and finance the expansion of Delphi's 100-per-cent-owned facility. The contemplated 50-well drilling program represents less than half of the current development drilling inventory on approximately 50 per cent of Delphi's current Montney undeveloped landholdings. The company now has a current project inventory that will provide economic growth beyond a 10-year horizon. Over this time period, the company's balance sheet is forecast to continually strengthen, with internally generated cash flow financing the majority of the capital expenditures on a go-forward basis. |
