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.
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.
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.
For further information:
Pinecrest Energy Inc.
Suite 500, 255 – 5th Avenue S.W.
Calgary, Alberta T2P 3G6
Wade Becker, President and CEO
Dan Toews, V.P. Finance& CFO
Tel: (403) 817-2550 or
Fax: (403) 817-2599