PRY
Market reaction to what we did was a bit surprising because
I do remind people that when we converted Crescent
Point to a distribution paying story we were only at
7000 barrels a day and we got the same reaction. Too
small, but it worked out there. For us right now, it’s a
straight growth story.
RD: That would lead me into the second hard question I
have been asked so many times is that Pinecrest is basically
a “one-trick pony” – one play with high decline rates.
What do you say to those people?
WB: It is true that we only have the one play. It’s a pure
play on the Slave Point right at the Red Earth area. There
are other guys playing the Slave Point elsewhere that
have had mixed success, but those are in different areas
and not to be confused with what we are doing. All these
tight oil stories are high decline, but there’s a strong relationship
on netback to your decline rate and the capital
efficiency. The reason why we are afforded to continue to
do what we are doing and growing is that we have the
highest netback in the business. Our netback is between
$60 and $70. Right now it is around $67 & $68. Nobody
has anything close to that and that is why we can still continue
to do what we are doing and weather the storm on
the high decline rates. The decline rates come down naturally.
Our production started at zero and this is all through the
drill bit. We didn’t buy any production, moved to 5000
barrels a day in January. For sure you are going to have a
higher decline. It doesn’t matter if it’s horizontal, multifrac
wells or vertical wells – when you are starting from
zero you are going to have a higher decline rate. We are
no different. What we do have, is a field that lends itself
great to waterflooding and works materially and quickly
up there since the mid-80’s. That is what will allow us to
change our decline rates. Two things change decline
rates – one, slowing your capital program down (we haven’t
done that). The capital program is a bit smaller, but
not materially smaller than last year. Our barrels that we
started drilling this time two years ago are older and are
declining at a much less rate. Then we have the waterflood
that will shallow that decline rate as well. So it’s just
time. At the end of this year, we think our decline rate will
be quite a bit different than when we started.
RD: Because it was such a rich-looking area at the beginning
but drilling success is always a moving target. I have
heard valuations as high as a billion dollars for your resource,
but again, it seems to be all over the place. What
would you say to somebody that’s actually trying to put a
value on what you have at this stage?
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DEB’S DITTY:
Coffee has given me unrealistic expectations of productivity.
WB: The market is valuating us on primary drilling opportunities and its discounting to zero what the secondary recovery
is and in our mind that’s a fake, because secondary has been proven there since the 80’s. We are not discovering
any oil – it has all been discovered. We are not doing anything new. Waterflooding has been done up there
since the mid 80’s and quite successfully, but the market is in that ‘wait and see’ attitude. In terms of the size of our
resource, our reserve evaluators have come up with their best estimates of 580 million barrels in place. If we applied
just a modest recovery factor of 10%, that’s 58 million barrels on what our base was 8.3 million barrels. A typical barrel
in our reserve report is worth between $30 and $38, so in simple math – it shows how big it can get to. But that
takes time and there is also a discounting of that time frame as well, but the resource is massive, particularly for a
company our size – it’s really, really big.
RD: You mention folks using a 10% recovery rate. I believe I’ve heard 20% recovery rates being thrown around?
WB: Yes, 20% - we think it goes between 20% and 25% with secondary recovery. So the recovery is on the areas that
have been flooded historically and are seeing around 25% recovery.
RD: Well I know you certainly have put your money where your mouth is. We have been noticing some insider buying.
Are you able to comment on that?
WB: I look at it as that’s the best testament of what we believe and what we think are the opportunities. This year on
our budget we will put out between $100 and $110 million in cash flow where we think we are trading. We are trading
between 3.5 and 4.2 times cash flow with a better balance sheet than most of our peers and the highest net back.
RD: What is the peer group at?
WB: The peer group is around 6. One thing about our story when you talk about a one-trick pony, because we only
have one asset and we have to go through one pipeline and one sales point, you can be subject to disruptions. Two
years ago we got disrupted with Rainbow pipeline – now everyone is exposed to pipeline exposure – it just happened
to be Rainbow and that’s where we sell everything from. Because we have that one point, we don’t put out production
quarterly. Over a 12 month period we are pretty confident on what we can get done from the capital perspective. We
can put out quarterly because we are subject to that one sales point and one area. So if it gets wet, the pipeline
breaks and different things, we know that on a quarter we will be wrong. Some people don’t clearly understand how
our production build goes and I think they see a quarter that has less production than the previous quarter and they
get spooked. They think something is wrong and that is not the case. We bring our last well on in April from our Q1
drilling program and we don’t bring another well on until September because we budget three months for downtime
for break up and then we are back in there in July. So Q3 is always going to be softer than Q2 because we don’t have
another play to bring capital into it while this play is down. That’s probably one of the weak things about having one
asset. That being said, we like the asset, we like the predictability, we like it because of its netbacks, we like it because
of its scale and we are not going to go buy inferior assets to diversify ourselves.
RD: So if there is one message for our readers, what would it be Wade?
WB: In terms of our asset base, we don’t have to discover anything new and we are not doing anything that is new.
That’s a good thing. I am a low-risk guy, I have a lot of my personal wealth tied up in here, I don’t want to take exploration
risk, and I don’t want to take risk through the drill bit. It’s low risk, repeatable and it has a high netback. It’s cash
flow positive even if we have differential impacts on the price of WTI to Edmonton.
RD: Thank you so much for your time Wade