Granite Oil increases P+P reserves to 19.5 MMboe
2018-03-07 20:29 ET - News Release
Mr. Michael Kabanuk reports
GRANITE OIL CORP. ANNOUNCES 2017 RECORD YEAR END RESERVE METRICS AND OPERATIONAL UPDATE
Granite Oil Corp. has presented the summary results of the independent reserves report prepared by Sproule Associates Ltd. with an effective date of Dec. 31, 2017.
In 2017 Granite invested approximately $18.8 million of capital expenditures (unaudited) all organically, including approximately $3.0 million of exploration, into its 100%-owned Bakken oil property. This represents a decrease of approximately 27% in year over year development spending. While the Company drilled and completed only eight 100% working interest horizontal development wells, representing two less than the previous year, and converted five producing oil wells to gas injection, it still replaced its Proved Developed Producing (PDP) reserves by 215%. PDP F&D was a record $9.00/boe at 95% oil which resulted in a record recycle ratio of 3.3. This represents the third consecutive year of increasing PDP reserves replacement and recycle ratios. Granite's highly effective gas injection Enhanced Oil Recovery ("EOR") scheme continues to demonstrate its efficiency at converting barrels in the ground into developed producing production. Furthermore, cumulative oil production plus the Company's current PDP bookings amounts to only 5% recovery of the estimated original oil in place. With its recovery scheme and remaining infill drilling inventory, the Company expects this trend to continue on this early-life-cycle Bakken pool.
2017 Reserves Highlights (1)(2)
- Proved Developed Producing (PDP) reserves
- Increased 18% to 7.3 mmboe from 6.2 mmboe (95% oil)
- Replaced production 215%
- F&D costs were $9.00/boe resulting in a PDP recycle ratio of 3.3 times(1)(2);
- Total Proved (TP) reserves
- Increased 15% to 14.3 mmboe from 12.5 mmboe (85% oil)
- Replaced production 287%
- F&D costs were $10.28/boe resulting in a TP recycle ratio of 2.9 times(1)(2);
- Proved plus Probable (P+P) reserves
- Increased 5% to 19.5 mmboe from 18.7 mmboe (85% oil)
- Replaced production 190%
- F&D costs were $14.08/boe resulting in a 2P recycle ratio of 2.1 times(1)(2);
Reserves Performance Measures (1)(2)(3) 2017 2016 2015 Proved Developed Producing Total Reserves (mboe) 7,294 6,178 5,566 Reserves additions (mboe) 1,116 612 216 F&D ($/boe) 9.00 13.02 27.55 Recycle Ratio 3.3 2.1 0.9 Reserves Replacement 215 %158 %117 % Total Proved Total Reserves (mboe) 14,302 12,483 11,166 Reserves additions (mboe) 1,819 1,316 783 Change in FDC ($000) 9,917 (9,883 )(1,561 ) F&D ($/boe) 10.28 4.96 19.23 Recycle Ratio 2.9 5.6 1.3 Reserves Replacement 287 %225 %161 % Proved Plus Probable Total Reserves (mboe) 19,534 18,653 17,704 Reserves additions (mboe) 881 949 748 Change in FDC ($000) 7,303 (12,403)(28,779) F&D ($/boe) 14.08 4.61 6.13 Recycle Ratio 2.1 6.0 4.1 Reserves Replacement 190 %190 %158 %
Notes:
Financial information is based on the Company's preliminary 2017 unaudited financial statements and is therefore subject to audit.
Recycle ratio is calculated as operating netback divided by F&D costs. The F&D cost includes changes in FDC. Calculation is based on estimated 2017 operating netback of $29.71 per boe, which is calculated as revenue (including realized hedging gains) less royalties and production costs. See "Readers Advisories" for the method of calculating operating netback.
Reserve performance metrics for the years 2015 and 2016 are calculated using the Company's audited financial statements for the respective years.
Net Asset Values
The present value of the Company's future net revenues discounted at 10% (PV10) before taxes of Granite's reserves, as set out in the Sproule Report, plus an internally estimated undeveloped land and seismic value of $12 million, less estimated net debt of $39.8 million at December 31, 2017, per fully diluted common share are as set out below:
Proved Developed Producing $2.97/share Total Proved $5.64/share Total Proved Plus Probable $8.21/share
Granite's Bakken property produced an average of approximately 2668 boe per day (97% oil) during 2017. During 2017, Granite's average realized operating netback is estimated to be $29.71/boe.
Operations Update Granite has now drilled and completed its first two development wells since slowing its development pace in July of 2017 as it shifted focus to a new area of its Bakken pool. The average flowing IP 30 of these wells was approximately 270 bbls/d of oil. The wells were drilled on the 200 m offset spacing formula that produced the best overall well results for pool development to date.
Granite is also pleased to report the production response from its Bakken pool from not drilling for five months. The Company's Gas Injection EOR scheme is proven technology and, as anticipated, the pool production demonstrated typical secondary recovery response resulting in a shallower production decline profile.
Over the last three years, Granite has gained invaluable knowledge developing and optimizing its early life cycle EOR scheme over a relatively small portion of its pool culminating in the best proved producing reserves replacement and recycle ratios to date. Going forward, Granite will apply this results-based knowledge to develop its pool in the most efficient manner. The Company is budgeting a further reduction of capital in 2018 to approximately $13 million, which is designed to continue to increase its PDP reserves and their net present value. Based on field estimates, February production was approximately 2,300 bbls/d of oil. With its shallower decline base production, Granite is well positioned in 2018 and will layer on production at a rate that maximizes overall well results and maintains a shallower decline profile. Granite will protect its balance sheet, maintain its dividend model and provide its shareholders with continued value growth through a combination of dividends, production and reserves additions.
Granite is well positioned to mitigate the current situation of widened differentials in Alberta and is aggressively pursuing several options. The Company has historically been selling into a heavier pipeline system near its battery, getting a quality uptick to WCS pricing. With higher quality oil the Company has several options to optimize its sales pricing including moving oil into another pipeline, blending and railing. The Company's battery is located near the Alberta/Montana border with available railing facilities in close proximity of either side of the border. Granite has successfully railed oil in the past.
Outlook
Granite will continue its responsible approach of developing its Bakken pool in the most efficient manner. The Company continues to measure and validate its model by the efficiency it converts barrels in the ground into producing barrels, which will ultimately maximize long term value for its shareholders. Granite will continue to prioritize this along with its balance sheet and dividend.
2017 Year End Reserves
The evaluation of Granite's petroleum and natural gas reserves prepared by independent reserves evaluator Sproule in accordance with definitions, standards and procedures contained in National Instrument 51-101 {A –} Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook"). Additional reserve information as required under NI 51-101 will be included in the Company's Annual Information Form which will be filed on SEDAR on March 22, 2018. Financial information presented above is based on management-prepared financial statements for the year ended December 31, 2017, which are in the process of being audited by Granite's independent auditors and, accordingly, such financial information is subject to change based on the results of the audit.
Summary of Reserves
The following table is a summary of the Company's estimated reserves as of December 31, 2017, based on the Sproule Report.
Summary of Company Gross Oil and Gas Reserves as at December 31, 2017 (1)(2)(3)(4)(5)(6) Reserves Category Oil and NGLs (Mbbl)Gas (MMcf)Oil Equivalent (MBOE)BTAX PV 10% ($000's Proved Developed Producing 6,966 1,969 7,294 132,984 Proved Developed Non-Producing 409 9,769 2,037 8,413 Proved Undeveloped 4,813 947 4,971 86,054 Total Proved 12,188 12,685 14,302 227,451 Probable Developed Producing 2,525 595 2,624 47,610 Probable Developed Non-Producing 214 4,103 898 3,076 Probable Undeveloped 1,644 398 1,710 40,022 Total Probable 4,383 5,096 5,232 90,708 Total Proved + Probable 16,571 17,781 19,534 318,159 Future Development Capital ($000's)Recycle Ratio Net Undeveloped Wells Booked 1,195 3.3 1,647 59,830 39 62,672 2.9 39 - - 5,658 4 5,658 4 68,330 2.1 43
Notes:
The tables summarize data set out in the Sproule Report may not add due to rounding. Reserves have been presented on a gross basis which are the Company's total working interest share without including any royalty interests of the Company. Based on Sproule's December 31, 2017 escalated price forecast. See "Pricing Assumptions" below. The net present value of future net revenues attributable to the Company's reserves are stated prior to provision for interest, general and administrative expenses and after deduction of royalties, operating costs, estimated well abandonment and reclamation costs and estimated future capital expenditures. Future net revenues have been presented on a before tax basis. It should not be assumed that the present worth of estimated future net revenue presented in the tables above represents the fair market value of the reserves. There is no assurance that the forecast prices and costs assumptions will be attained and variances could be material. The recovery and reserves estimates of Granite's crude oil and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein. The Company's Bakken reserves are developed with horizontal wells completed with multi-stage fracturing techniques. "Oil" volumes include all Light, Medium, and Heavy crude oil volumes.
Net Present Values ("NPV") of Future Net Revenue
The following table is a summary of the estimated net present values of future net revenue (before income taxes) associated with the Company's reserves as at December 31, 2017, based on the Sproule Report. The calculated NPVs include a deduction for estimated future well abandonment and reclamation but do not include a provision for interest, debt service charges and general and administrative expenses. It should not be assumed that the NPV estimates represent the fair market value of the reserves.
Summary of NPV of Future Net Revenue as at December 31, 2017 (1)(2)(3) Reserves Category Net Present Value Before Income Taxes Discounted at (%/Year) 0% $M 5% $M 10% $M 15% $M 20% $M Proved Proved Developed Producing 255,634 175,468 132,984 108,118 91,918 Proved Developed Non-Producing68,532 15,893 8,413 6,368 5,296 Proved Undeveloped 178,388 121,475 86,054 63,624 48,684 Total Proved 502,555 312,836 227,451 178,110 145,898 Total Probable 307,066 145,036 90,708 64,791 49,744 Total Proved + Probable 809,621 457,872 318,159 242,901 195,642
Notes:
The tables summarize data set out in the Sproule Report may not add due to rounding. Based on Sproule's December 31, 2017 escalated price forecast. See "Pricing Assumptions" below. The net present value of future net revenues attributable to the Company's reserves are stated prior to provision for interest, general and administrative expenses and after deduction of royalties, operating costs, estimated well abandonment and reclamation costs and estimated future capital expenditures. Future net revenues have been presented on a before tax basis. It should not be assumed that the present worth of estimated future net revenue presented in the tables above represents the fair market value of the reserves. There is no assurance that the forecast prices and costs assumptions will be attained and variances could be material. The recovery and reserves estimates of Granite's crude oil and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein.
Net Asset Value
Based on Sproule's December 31, 2017 forecast pricing, Granite's net asset value calculation is set out in the following table. This net asset value determination is a "point-in-time" measurement and does not take into account the possibility of the Company being able to recognize additional reserves through successful future capital investment in its existing properties beyond those included in the Sproule Report.
Net Asset Value as at December 31, 2017 (1) ($M) 2P Reserves NPV 10 before tax 318,159 Net undeveloped land and seismic value (internal valuation)12,000 Estimate Net Debt (unaudited) (39,830) Net asset value 290,329 Fully Diluted shares outstanding (000's) 35,364 Estimate NAV per fully diluted share ($/share) 8.21
Note: Numbers may not add due to rounding.
Future Development Capital ("FDC")
The following table provides a summary of the estimated FDC required to bring the Company's undeveloped reserves to production, which have been deducted in the estimation of future net revenue attributable to such reserves. Changes in forecast FDC occur annually as a result of development activities, acquisition and disposition activities, and capital cost estimates that reflect the independent evaluator's best estimate of what it will cost to bring the proved undeveloped and probable reserves on production using forecast prices and costs.
Future Development Costs of Undeveloped Reserves (1) Future Development Capital ($M) ($M) Year Total ProvedTotal Proved + Probable 2018 13,350 13,350 2019 15,628 16,233 2020 16,392 18,140 2021 16,155 19,459 Post 2037 1,147 1,147 Total Undiscounted FDC 62,672 68,330 Total Discounted FDC at 10%/Year51,036 55,322
Note: Numbers may not add due to rounding.
2017 Year End Reporting
The Company will report its 2017 year end results on March 22, 2018.