Post by
zenda on May 15, 2013 8:35am
First quarter review
First Quarter Review
Production in the first quarter averaged approximately 1,693 boe/d (71%
oil and natural gas liquids) representing a 7% and 20% decrease from
2012 fourth quarter and first quarter rates, respectively. A total of
1,575 boe/d or approximately 93% of Second Wave's corporate production
is derived from its Judy Creek core area in Alberta. First quarter 2013
production dropped from fourth quarter 2012 levels as the Company shut
in approximately 60 boe/d of net Beaverhill Lake production to
accommodate off-setting drilling activity and the retirement of maximum
rate limitation penalties, and curtailed an additional 75 boe/d of
Pekisko production. Subsequent to the quarter end the shut-in
Beaverhill Lake production has been brought back on line while the
curtailed Pekisko production is expected to be brought back on line in
the third and fourth quarters.
Average sales revenue per unit in the quarter was $59.76 per boe
representing a 7% increase and a 10% decrease from 2012 fourth quarter
and first quarter levels, respectively. The reduction in sales revenue
per unit on a year-over-year basis is directly related to a drop in
benchmark oil prices and increased oil differentials for crude oil
produced in Alberta. On a quarter-over-quarter basis pricing has
increased by approximately 7% as oil prices, oil differentials and
natural gas pricing have improved since the fourth quarter of 2012.
Operating costs averaged approximately $25.36 per boe for the first
quarter of 2013 representing a 17% and 1% increase from 2012 fourth
quarter and first quarter levels. On a quarter-over-quarter basis the
operating cost increase was related primarily to the implementation and
operation of the Company's close proximity Pekisko waterflood pilot in
Judy Creek and certain seasonal costs that are typically incurred in
the first quarter of each year. The Company anticipates that its
operating costs will trend downward over the second half of the year as
its Pekisko production increases as a consequence of bringing curtailed
Pekisko production back on line and re-pressuring of the Pekisko pool
in its close proximity pilot waterflood area.
Operating netbacks remained consistent with fourth quarter 2012 levels
at $25.77 per boe. Year-over-year netbacks decreased by 26% due
primarily to higher royalty rates and lower commodity pricing.
The Company's Beaverhill Lake production in the first quarter was
approximately 1,005 boe/d (80% oil and natural gas liquids) or 11%
lower than fourth quarter 2012 levels with 60 boe/d or approximately
half of this decline attributed to shut-in volumes as noted above and
the remainder related to natural production declines. The Company
successfully drilled and completed one (0.4 net) horizontal Beaverhill
Lake well during the quarter at 12-25-063-10W5; however production
testing was not initiated until very late in the first quarter with
little to no sales volumes occurring in the first quarter. Subsequent
to the quarter end the 12-25 well was tested for a total of
approximately 33 days with cumulative oil production, estimated from
field data, of 20,450 bbl over this test period for an average initial
production rate of 620 bbl/d of oil. The 12-25 well was shut in April
30, 2012 and the Company currently anticipates that it will come back
on production upon the installation of surface pumping equipment early
in the third quarter of 2013.
The Company cautions that test results and initial production rates are
not necessarily indicative of long-term performance or ultimate
recovery.
Pekisko production in Judy Creek remained relatively constant
quarter-over-quarter at 567 boe/d in the first quarter of 2013 versus
575 boe/d in the fourth quarter of 2012. Production additions in the
first quarter from bringing on one (1.0 net) horizontal oil well were
offset by curtailments as the Company re-directed the majority of its
produced water volumes in its waterflood from the northwest end of the
Judy Creek pool to its close proximity water flood pilot area at the
south end of the pool. The Company anticipates it will take 3 to 6
months to re-pressurize the close proximity pilot water flood area, at
which time the produced water from the pool will be more equitably
distributed resulting in the expected return of approximately 75 boe/d
of curtailed production in the north.
As previously announced on May 6, 2013 and May 13, 2013, subsequent to
the quarter end Second Wave issued to Brookfield Bridge Lending Fund
Inc. ("Brookfield"), the Company's controlling shareholder, a $17.5
million principal amount 7.5% secured convertible debenture for net
proceeds of $17,325,000, and received a non-binding proposal from
Brookfield to privatize Second Wave by acquiring all common shares of
the Company not already owned by Brookfield and its affiliates for cash
consideration of $0.30 per share. Brookfield currently holds
approximately 47.5% of the outstanding Second Wave common shares. A
special committee of independent directors of the Company is
supervising the preparation of a formal valuation of Second Wave
pursuant to applicable securities laws and otherwise evaluating the
Brookfield proposal. Second Wave will make a further announcement if
and at such time as a definitive agreement is entered into with
Brookfield regarding a going private transaction or the privatization
proposal otherwise becomes binding.