TSX Venture Exchange: PRY
CALGARY, Sept. 10, 2013 /CNW/ - Pinecrest Energy Inc. ("Pinecrest" or
the "Company") announces that its Board of Directors has approved
revisions to the Company's 2013 capital budget.
STRATEGIC RATIONALE
In its first three years, Pinecrest has successfully built an attractive
high netback reserve, production and cash flow base and a large
operated drilling inventory focused on the Slave Point light oil
resource in the Greater Red Earth area of Alberta.
The focus for 2013 has been on improving capital efficiencies and
implementing the Company's first seven operated waterflood programs.
Success has been achieved on both initiatives. Online well costs have
been reduced by over $1 million per well and four of the seven
scheduled waterfloods have been commissioned with three more scheduled
for implementation early in October. To date, waterflood results have
been encouraging with production rates on the first two schemes
increasing by three times over the primary production rate.
During this period, Pinecrest's share price has underperformed the peer
group on all metrics. As a result, Pinecrest's Board and management
believe the true value of the Company is not being recognized. The
Board and management believe that in order to succeed in the current
business environment, changes to the Company's business plan are
necessary to create a long term, sustainable low decline asset base.
NEW BUSINESS MODEL
Pinecrest has assembled a focused high netback light oil reserve and
opportunity base characterized by a best estimate of over 580 million
of DOIIP(1) with a very low recovery factor to date of approximately four percent.
This asset base has significant upside potential through the
implementation of waterfloods complemented with low risk infill
drilling. Maintaining a high growth rate on this asset however, has
proven to be very difficult due to weather related seasonal access.
Given the early and consistent response to water injection at the
Company's initial waterflood programs and in response to the current
business environment, the Board and management of Pinecrest have
determined that moving towards a more sustainable business model of
modest growth is the best strategy for creating shareholder value with
the objective of producing a stable, low decline production base with a
long reserve life. This change to our business model is established on
the following goals and principles:
-
convert its large oil in place resource to reserves on the most cost
efficient basis;
-
concentrate on water-flood implementation (as capital costs associated
with waterflooding are a fraction of those associated with primary
production and drilling);
-
target low risk drilling locations that accelerate the implementation of
future waterflood schemes;
-
continually focus on improving drilling and completion capital
efficiencies; and
-
prudently manage the balance sheet by slowing the pace of capital
spending to correspond with cash flow.
The new business model will leverage off of the expenditures of previous
years to cost effectively add incremental reserves and production.
Drilling will be targeted at growing the Company's inventory of
waterflood candidates furthering the implementation of additional
waterflood schemes. This strategy is designed to allow the Company to
continue to transition from a high decline production base to a more
stable, lower decline asset base.
This reduction in corporate decline rates combined with improving
capital efficiencies and a focus on operating cost reductions is
designed to allow the Company to grow production while spending
significantly less capital in the upcoming years. With the anticipated
response of the remaining five operated 2013 waterflood programs, the
Company expects to generate cash in excess of capital requirements in
the 2014 calendar year.
The resulting new budget for the 2013 calendar year is: $80MM of total
capital, 14-15 wells drilled, implementation of six waterflood programs
and a 3,100-3,400 boe per day exit production rate. This range
incorporates the loss of 330 bbls per day of production resulting from
converting oil wells to water injection and is dependent on the timing
of waterflood response. Year-end net debt is projected to be between
$120 million and $125 million.
Notes about DOIIP Disclosure
Sproule & Associates Ltd. ("Sproule") conducted an assessment effective
as of January 31, 2012 (the "Assessment") of Pinecrest's Contingent
Slave Point Oil Resources which included a best estimate of of
Discovered Oil Initially-in-Place as presented above. Sproule assigned
the Company a contingent resource Best Estimate of 67.5 million barrels
("mmbbls") using, a 13% recovery factor and based on a drilling density
of 4 wells per section. The Assessment was prepared in accordance with
definitions, standards and procedures contained in the Canadian Oil and
Gas Evaluation Handbook and National Instrument 51-101. Pursuant to the
Assessment, as at January 31, 2012, 9.1 mmbbl of oil was classified as
cumulative production and proved plus probable reserves. The remaining
DOIIP, other than cumulative production, reserves and contingent
resources, approximately 503.3 mmbbls, have been categorized as
unrecoverable. The following provides additional information about the
resource estimates presented herein:
(1)
|
"Discovered Oil Initially In Place" or "DOIIP" means that quantity of petroleum that is estimated, as of a given date,
to be contained in known accumulations prior to production. The
recoverable portion of discovered petroleum initially in place includes
production, reserves and contingent resources. There is no certainty
that it will be commercially viable to produce any portion of these
resources. "Contingent Oil Resources" are those quantities of petroleum estimated, as of a given date, to be
potentially recoverable from known accumulations using established
technology or technology under development, but which are not currently
considered to be commercially recoverable due to one or more
contingencies. Contingencies may include factors such as distance
from existing production, economic, legal, environmental, political,
and regulatory matters or a lack of markets. It is also appropriate to
classify as contingent resources the estimated discovered recoverable
quantities associated with a project in the early evaluation stage. "Best Estimate" is considered to be the best estimate of the quantity that will
actually be recovered. It is equally likely that the actual remaining
quantities recovered will be greater or less than the best estimate. If
probabilistic methods are used, there should be at least a 50 percent
probability (P50) that the quantities actually recovered will equal or
exceed the best estimate.
"Cumulative Production" is the cumulative quantity of petroleum that has been recovered at a
given date.
"Unrecoverable" is that portion of DOIIP which is estimated, as of a given date, not
to be recoverable by future development projects. A portion of these
quantities may become recoverable in the future as commercial
circumstances change or technological developments occur; the remaining
portion may never be recovered due to the physical/chemical constraints
represented by subsurface interaction of fluids and reservoir rocks.
|
Advisory
The information in this press release contains certain forward-looking
statements. These statements relate to future events or our future
performance. All statements other than statements of historical fact
may be forward-looking statements. Forward-looking statements are
often, but not always, identified by the use of words such as "seek",
"anticipate", "plan", "continue", "estimate", "expect", "may", "will",
"project", "predict", "potential", "designed to", "targeting",
"intend", "could", "might", "should", "believe", "would" and similar
expressions. In particular, forward looking statements in this press
release includes, but is not limited to: Pinecrest's revised capital
program for 2013 and its business objectives, , the effects of
implementing waterfloods, the generation of free cash flow in 2014 from
waterflooded wells; the continued success of improving capital
efficiencies, the Company's ability to reduce corporate decline rates,
the number of wells that are suitable for waterflooding, the quantity
of reserves, and projections of market prices and costs. These
statements involve substantial known and unknown risks and
uncertainties, certain of which are beyond Pinecrest's control,
including: the impact of general economic conditions; industry
conditions; regulatory approvals and permits; changes in laws and
regulations including the adoption of new environmental laws and
regulations and changes in how they are interpreted and enforced;
fluctuations in commodity prices and foreign exchange and interest
rates; stock market volatility and market valuations; volatility in
market prices for oil and natural gas; liabilities inherent in oil and
natural gas operations; uncertainties associated with estimating oil
and natural gas reserves; competition for, among other things, capital,
acquisitions, of reserves, undeveloped lands and skilled personnel;
incorrect assessments of the value of acquisitions; changes in income
tax laws or changes in tax laws and incentive programs relating to the
oil and gas industry; geological, technical, drilling and processing
problems and other difficulties in producing petroleum reserves.
Pinecrest's actual results, performance or achievement could differ
materially from those expressed in, or implied by, such forward-looking
statements and, accordingly, no assurances can be given that any of the
events anticipated by the forward-looking statements will transpire or
occur or, if any of them do, what benefits that Pinecrest will derive
from them. Except as required by law, Pinecrest undertakes no
obligation to publicly update or revise any forward-looking statements.
Statements relating to "reserves" or "resources" are deemed to be
forward-looking statements, as they involve the implied assessment,
based on certain estimates and assumptions, that the resources or
reserves described can be profitably produced in the future.
Barrels of Oil Equivalent ("boe") may be misleading, particularly if
used in isolation. A boe conversion ratio of 6MCF:1bbl is based on an
energy equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead. Given
that the value ratio based on the current price of crude oil as
compared to natural gas is significantly different from the energy
equivalency of 6:1,utilizing a conversion on a 6:1 basis may be
misleading as an indication of value.
Neither the TSX Venture Exchange nor its Regulation Services Provider
(as that term is defined in the policies of the TSX Venture Exchange)
accepts responsibility for the adequacy or accuracy of this news
release.
SOURCE Pinecrest Energy Inc.
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