C:LRE Long Run sets 2015 capital budget at $165-millionLong Run sets 2015 capital budget at $165-million Ticker Symbol: C:LRE
Long Run sets 2015 capital budget at $165-million Long Run Exploration Ltd (C:LRE)
Shares Issued 193,498,465
Last Close 12/15/2014 $1.23
Monday December 15 2014 - News Release
Mr. William Andrew reports
LONG RUN EXPLORATION ANNOUNCES ITS 2015 BUDGET AND INTENTION TO MAINTAIN ITS LONG TERM STRATEGIC PLAN AS A SUSTAINABLE DIVIDEND PAYING MID-SIZE OIL AND GAS COMPANY
Long Run Exploration Ltd. is setting a 2015 capital budget that delivers on a sustainable long-term business model to shareholders. The management and board of directors looked at many factors in setting a course for Long Run in 2015. Financial models were run at a range of probable commodity prices. The company reviewed its development inventory, and need to maintain momentum in both field development and enhanced oil recovery.
In preparing for what is expected to be a challenging price environment in 2015, the company evaluated its core values, as well as its longer-term strategic goals. As a result, it has reaffirmed that its priorities for 2015 will remain:
- To improve its balance sheet through a focused high-grade development program and selective non-core dispositions;
- To execute a focused capital program that preserves the company's momentum going forward, both in conventional field development and enhanced oil recovery;
- To provide balanced yield to investors from a long-term sustainable model;
- To continue to develop a balanced inventory of properties which provide flexibility in future planning, as well as upside from improved cost-efficiencies, operating efficiencies and enhanced recovery.
The company's 2015 development plan and budget account for current and forecast pricing for crude oil, natural gas liquids and natural gas. The workup to its 2015 capital budget is based on a 2015 oil price forecast for WTI of $70 (U.S.) per barrel and a natural gas price forecast for AECO of $3.50 per gigajoule. As it is too early to estimate the inevitable impact that lower commodity prices will have on both operating and capital costs, the guidance and 2015 capital budget do not include any benefits from potential cost reductions.
Long Run's 2015 capital budget will support production of 35,000 barrels of oil equivalent per day to 36,000 barrels of oil equivalent per day based on net capital expenditures of $165-million and the flexibility to reallocate the timing of certain projects during the year. Based on these parameters, the company anticipates funds flow from operations to range from $200-million to $210-million in 2015. Should commodity prices improve, the company intends to use additional funds flow to accelerate debt repayment and improve financial flexibility. For 2015, Long Run has placed hedges on approximately 35 per cent of its 2015 production balanced between oil and natural gas. Approximately 50 per cent of its oil production is hedged for the first quarter of 2015, at an average floor of approximately WTI $91.60 (U.S.), which will assist in supporting Long Run's funds flow from operations. Long Run's risk management philosophy is to hedge approximately 35 to 50 per cent of its annual production volumes.
Currently, Long Run is paying a monthly dividend of 3.5 cents per share (42 cents per share annualized), for a total of approximately $80-million annually, based on 193.5 million shares outstanding. The company believes, given its commodity price forecast for 2015, that it is prudent to lower the amount of its monthly dividend to 1.75 cents per share (21 cents per share annualized), for a total of approximately $40-million, beginning with the January, 2015, dividend, payable in February, 2015. Based on the company's current forecasts and budget for 2015, Long Run believes that this level of dividend is sustainable.
Long Run's board of directors has approved the implementation, subject to the approval of the Toronto Stock Exchange, of a dividend reinvestment plan (DRIP). The DRIP will allow shareholders to automatically reinvest all or any portion of the cash dividends received on their common shares towards the acquisition of additional Long Run common shares. The company expects to use any cash savings generated by the DRIP plan for debt repayment. Participation in the DRIP will be voluntary and it is anticipated that the plan will not include a cash investment option. Further details and timing of the plan will be provided upon implementation, which is anticipated to be in the first quarter of 2015.
Corporate 2015 guidance
Long Run remains committed to providing sustainable long-term value to its shareholders through a focus on capital discipline and operational efficiency.
2015 Guidance (1)
Production average:35,000 to 36,000 barrels of oil equivalent per dayPer cent oil and NGLs:44 per centFunds flow from operations (2)(3):$200-million to $210-millionNet capital expenditures (4):$165-millionDividend (5):$40-millionDividend per share (annual):21 centsBasic payout ratio (2)(6):20 per centTotal sustainability ratio (2)(6):100 per cent
Key assumptions:
WTI:$70 (U.S.) per barrel AECO:$3.50 per gigajoule FX U.S. dollar/Canadian dollar:1.145
(1) The 2015 guidance has been updated from the preliminary 2015 guidance released in June, 2014, in order to reflect the lowering of the company's commodity price assumptions for 2015. The June, 2014, preliminary guidance was based on WTI of $92.50 (U.S.) per barrel, AECO of $4.22 per thousand cubic foot and FX U.S. dollar/Canadian dollar of 1.1.
(2) These are non-GAAP (generally accepted accounting principles) measures.
(3) Funds flow calculations are based on average operating costs of $13 per barrel of oil equivalent, and average general and administration costs of $2.50 per barrel of oil equivalent for 2015.
(4) Net capital expenditures are calculated as capital expenditures net of acquisitions and divestitures. No acquisitions or divestitures are currently included in the company's budget.
(5) This figure excludes the impact of the DRIP.
(6) This figure is based on the mid-range of funds flow guidance, excluding impact of the DRIP.
2015 capital expenditures
Long Run's capital budget for 2015 of $165-million will be directed toward drilling and tying in low-risk, high-rate-of-return, light-oil-and-liquids-rich natural gas development wells in the Peace River Montney and Deep basin Cardium core areas. The company anticipates drilling approximately 40 wells in 2015, with an estimated 12-month capital efficiency of approximately $26,000 per barrel of oil equivalent per day. Development plans for 2015 include up to 15 wells in the Peace River area and up to 25 wells in the Deep basin. During the first quarter, net capital expenditures of $60-million to $70-million are anticipated with up to a total of approximately 20 net wells drilled. The company will continue a strong focus on advancing enhanced oil recovery (EOR) projects in the Peace River Montney and Redwater Viking project areas. Long Run will steward toward a sustainable model for 2015, financing its 2015 capital budget and dividend payments with funds flow from operations.
Long Run currently has non-core property disposition packages that are being actively marketed as part of its continuing asset rationalization process. For 2015, it is targeting the sale of 1,000 to 4,000 barrels of oil equivalent per day of non-core assets. These potential sales have not been included in the company's guidance or budget for the year. Any proceeds from the sale of these assets would be used to strengthen the balance sheet through debt reduction.
Deep basin and Crocotta acquisition integration update
Long Run is excited with the development potential and performance of its newly established Deep basin core area. The Pine Creek and Kakwa areas provide top tier economics comparable with its Peace River Montney play, and the Deep basin area as a whole contributes to substantial operational efficiencies and per-unit cost reductions. The Deep basin is a key part of the company's 2015 capital plan, with capital expenditures of approximately $90-million (25 wells) planned for the area.
Integration of the Deep basin assets acquired within the Alberta Cardium trend has been successful and Long Run is pleased with results from its initial drilling activities in the area. Long Run has drilled five successful horizontal Cardium wells in the Pine Creek area to date and is currently drilling the last of six horizontal Cardium wells in the Wapiti/Kakwa area.
The first three wells drilled at Pine Creek have been producing since early fall, averaging 315 barrels of oil equivalent per d ay (49 per cent oil and NGLs) per well during their first 30 days, which is in line with the company's forecast type curve. Two additional Pine Creek Cardium wells were placed on production in early December, with the average initial rates exceeding type curve expectations.
At Wapiti, two horizontal Cardium wells have been drilled, completed and tested at initial rates that meet the company's forecast type curve expectations. Completion operations are under way at Kakwa on the first two-well pad, with the second two-well pad expected to be completed early in the new year. These new Kakwa wells will be on stream shortly after completion to take advantage of capacity Long Run has secured in a newly commissioned third party gas plant, which is scheduled to start up in late December. Access to this additional processing capacity will significantly reduce Long Run's exposure to downtime in the Kakwa area.
Enhanced oil recovery (EOR) update
Long Run's continuing enhanced oil recovery projects continue to advance according to the company's expectations. Currently, the company is injecting water for pressure maintenance and enhanced recovery at two major oil plays, namely the Peace River Montney and the Redwater Viking. Long Run is excited about the potential benefits the company may see in the next 18 months from its EOR projects, including improved recoveries, lower production declines and improved capital efficiencies.
Prior to 2013, no EOR efforts had been applied to the Montney at Girouxville or Normandville. In 2013, Long Run began injection via one vertical well at Normandville and one horizontal well at Girouxville, with the intention of testing the injectivity of the Montney zone. Since this time, the company has observed that these injection wells are highly capable of accepting water in quantities necessary for enhanced recovery and have shown no evidence of deteriorating injectivity. The Normandville EOR project expansion became operational in early December, 2014. This project encompasses an area of five sections, and includes 16 horizontal producers, eight horizontal injection wells and one vertical injection well. Full-field implementation at Normandville is planned to cover at least 12 sections, and include up to 60 producing and 20 injection wells.
At Girouxville, a similar EOR project expansion is under way, with start-up scheduled for January, 2015. This expanded EOR project is planned to cover an area of 1.5 sections and will include six horizontal Montney producers with four horizontal injection wells. At Girouxville, full-field implementation is planned to ultimately cover more than 20 sections and include up to 130 producers with 50 injectors.
These expanded pilots form the basis from which EOR would be implemented across the rest of the Girouxville and Normandville Montney fields, beginning in early 2016. Based on the company's reservoir models, Long Run expects EOR to significantly improve oil recovery from both the Girouxville and Normandville fields.
The Viking play at Redwater is the site of Long Run's second major EOR project. Prior to 2013, there had been no EOR activity in this field. Long Run initiated its first Viking pilot EOR project in the north part of the field in December of 2013. This initial project included two horizontal injection wells, six producers and covered an area of 0.5 section. A third horizontal injection well was later converted within this project area. A second complementary EOR pilot project, located in the south part of the trend, began injection in early December, 2014. Together, these projects cover an area of 1.125 sections, and include 11 horizontal Viking producers, six vertical Viking producers and five horizontal injection wells. Technical data gathered from these two EOR pilots will be used to evaluate field-wide EOR implementation, which could ultimately cover in excess of 30 sections along the Redwater Viking trend.
Corporate reorganization
The following executive reorganization is effective immediately:
- Dale Miller, president and chief operating officer, responsible for the production, operations and engineering functions at Long Run, will continue to report to the chairman and CEO.
- Dale Orton, senior vice-president, development, responsible for exploration and development strategy and execution, including business development, will report to the president and chief operating officer.
- Corine Bushfield, senior vice-president and chief financial officer, responsible for the financial management of Long Run, as well as investor relations and corporate resources, will report to the chairman and CEO.
In 2015, the company will continue to target financing both the capital program and dividend payments with funds flow from operations. With prudent financial management, continued operational execution and continuing risk management, Long Run strives to deliver long-term value to its shareholders through the execution of a sustainable business model.
We seek Safe Harbor.