CALGARY, ALBERTA–(Marketwired – Dec. 17, 2015) – RMP Energy Inc. (“RMP” or the “Company“) (TSX:RMP) is pleased to provide its capital expenditure plans for the first six months of 2016 and the corresponding financial and operating market guidance.
First Half 2016 Capital Budget
Low and volatile crude oil and natural gas prices have severely challenged corporate business models within the upstream oil and gas sector. In planning and budgeting RMP’s exploration and development capital activities for 2016, preservation of balance sheet strength, long-term sustainability and value creation are the strategic priorities over the Company’s production growth. As a result of uncertainty and lack of visibility on the duration of the commodity price downturn, the long-term implications of the Alberta government’s oil and gas royalty review, and the cost of Alberta’s new carbon tax, RMP has been compelled to adopt a cautious approach to its 2016 capital budget. The Company is planning a scaled-back first half capital budget of approximately $30 million, which has been approved by RMP’s Board of Directors. Capital spending guidance for the second half of 2016 will be provided when there is more clarity on the previously-noted factors.
In the first half of 2016, a total of six horizontal wells (6.0 net) are budgeted to be drilled. The drilling and completion expenditure component of the first half capital budget, including new surface pad construction on three of the six well locations, is projected to approximate $23 million, with additional funds of approximately $7 million budgeted for well-site tie-in, gathering lines and undeveloped land accumulation. Approximately 40% of this capital budget will be directed towards projects which will not add immediate production but will enhance the long-term value of the Company. This includes a Montney exploration well in the Gold Creek area, a well drilled on a farm-in at Waskahigan and capital directed towards the waterflood at Ante Creek.
RMP’s first half 2016 drilling focus will build on the success of its hybrid slick water completion results of its Waskahigan Montney drilling program. A total of three horizontal wells (3.0 net) are planned to be drilled at Waskahigan in the first six months, which includes the aforementioned farm-in well. Improved production performance resulting from hybrid slick water completion application has increased the estimated ultimate reserves recoveries and improved well project economics.
At Waskahigan, RMP has a substantial inventory of approximately 200 locations with which this completion design can be applied (inventory includes just 18 proved undeveloped locations and 44 probable undeveloped locations booked in the year-end 2014 reserves report).
At Ante Creek in the first half of 2016, a total of two horizontal wells (2.0 net) are to be drilled. The Company expects to convert a recently-drilled horizontal oil well into a pilot waterflood injector with injection commencing the end of the second quarter, pending requisite regulatory approval of the waterflood application, which was submitted by the Company last week. Waterflood response predictions, derived from the recently-completed reservoir simulation, are very favorable with significant improvement in ultimate oil recovery anticipated. At Ante Creek, the Company holds approximately 36 sections of 100% working interest land providing for a future drilling inventory of at least 45 locations (of which only 15 proved undeveloped locations and two probable undeveloped locations were booked in the year-end 2014 reserves report).
In addition to its Montney delineation and development plans at Waskahigan and Ante Creek, the Company will be drilling in the first quarter an exploration well on its acreage position located at Gold Creek in West Central Alberta. Please refer to the Gold Creek Exploration Area section hereafter.
The capital budget for the first six months of 2016 is to be funded through internally-generated funds from operations. As a result, RMP’s mid-year 2016 net debt position is anticipated to approximate the Company’s estimated year-end 2015 net debt of $119 million.
As a result of the Company’s first half 2016 capital budget, production is projected to average between 10,500 to 11,000 boe/d (weighted 43% light crude oil and NGLs) over the first six months of 2016, which is relatively level to RMP’s forecasted fourth quarter 2015 production of 11,200 boe/d (weighted 45% light crude oil and NGLs).
RMP expects to evaluate and plan for a second half 2016 drilling program in the second quarter of 2016, and will be influenced by prevailing commodity prices and market conditions, results of its first quarter exploration drilling activity, continued oilfield service cost deflation and any announced royalty framework changes. The Company will remain disciplined and flexible with its capital expenditures as it monitors business conditions and commodity prices over the coming months, and may make adjustments to its planned capital expenditures in 2016. RMP has flexibility to adjust the level of its capital investments as circumstances warrant.
The Company presently does not have any commodity price hedges in-place for 2016, however, RMP’s strong balance sheet and low cost structure provides effective management against protracted commodity price weakness. The Company’s controllable cash costs (operating, general and administrative and bank interest) in the first six months of 2016 are projected to be $8.20/boe, augmenting RMP’s cash flow net backs. Additionally, at the end of the second quarter of 2016, the Company’s net debt-to-annualized funds from operations is projected to approximate two times, which is expected to rank quite favorably amongst peer group companies.
RMP’s low-cost structure, infrastructure control, strong balance sheet, high-quality economic asset base and experienced Management team and Board of Directors, positions the Company favourably to sustain and navigate the prevailing uncertain and low commodity price environment and affords optionality to take advantage of the opportunities the current environment creates.
First Half 2016 Financial and Operating Guidance
The Company’s financial and operating guidance for the first six months of 2016 is as follows:
|Forecast (first six months 2016):||First Half 2016|
|Average daily production:|
|Light oil and NGL’s (Bbls/d)||4,500 – 4,675|
|Natural gas (Mcf/d)||36,000 – 38,000|
|Oil equivalent (boe/d)||10,500 – 11,000|
|Capital expenditures ($)||$ 30 million|
|Funds from Operations (1) ($)||$ 30 million|
|June 30, 2016 net debt (1) ($)||$ 119 million|
|Net Debt-to-Funds from Operations ratio (mid-year 2016)||2.0x|
|Bank credit facility borrowing limit||$ 150 million|
|Royalty rate (%)||15%|
|Operating and transportation costs ($/boe)||$ 8.30|
|Operating netback (1) ($/boe)||$ 18.00|
|General and administrative expense ($/boe)||$ 1.70|
|Bank interest expense ($/boe)||$ 1.00|
|WTI oil (US$/Bbl)||$ 42.00|
|RMP oil differential to WTI (C$/Bbl)||($6.00)|
|AECO gas (C$/GJ)||$ 2.50|
|Exchange Rate (US$/C$)||0.7500|
|Funds from Operations Sensitivities – First Half 2016:|
|Change of $1.00/Bbl in oil wellhead price||+/- $ 700 thousand|
|Change of $0.10/Mcf in gas wellhead price||+/- $ 580 thousand|
|Change of $0.01/C$ in US$/C$ exchange rate||+/- $ 425 thousand|
|(1)||Funds from Operations, Operating Netback and Net Debt do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS“). Refer to the Reader Advisories at the end of the news release.|
Credit Facility Update
As a result of a recently-completed semi-annual review of RMP’s revolving credit facility borrowing base, the bank syndicate group (the “Lenders“) has updated the Company’s conforming borrowing base to $150 million, a 14% decrease from the existing $175 million borrowing base. The borrowing base redetermination was based on the Lender’s review of the current estimated value of the Company’s proved reserves utilizing the Lender’s commodity pricing assumptions, which is significantly lower than the price assumptions used by the Lenders during the annual borrowing base redetermination in May 2015. The updated borrowing base will result in lower standby-fees charged on undrawn amounts and provides the Company with ample liquidity and financial flexibility given RMP’s commitment to a cash flow-funded capital expenditures program in 2016. The borrowings under the Company’s credit facility are available on a fully-revolving basis for a period of at least 364 days until July 22, 2016, at which time RMP can request approval by the Lenders for an extension for an additional 364 day cycle. The next borrowing base redetermination is scheduled to occur on or before May 31, 2016. RMP is currently drawn approximately $124 million on the credit facility.
Gold Creek Exploration Area
The Company has been executing a ‘counter-cyclical’ land accumulation strategy at Gold Creek in West Central Alberta with Montney potential. A total of 46 (100% owned) net sections have been acquired for a total investment of $3.3 million ($280 per hectare), providing the Company with an emerging core area. Operators in the area have experienced recent success in both the gas and oil windows of the play. RMP is planning to drill an exploration well on these lands in the first quarter of 2016, testing the potential for an oil-bearing reservoir on its southern land block. With success, this will lead to a large scale development with multiple years of drilling inventory for the Company.
Duvernay Acreage Position
In addition to establishing a substantial acreage position at Gold Creek, the Company has accumulated deep rights for the Duvernay formation in its Ante Creek area. A total of 74 (100% owned) sections of Duvernay rights have been acquired by RMP since January 2014. Although the Company has no near-term plans to deploy capital on this acreage, ongoing area operator delineation activity will assist in determining commerciality of this play in the region. Geological mapping and recent results from other operators in the area indicates that RMP’s land position resides within the oil window of this exciting play and its lands are proximal to the Company’s existing Ante Creek infrastructure network.
|Bbl or Bbls||barrel or barrels||Mcf/d||thousand cubic feet per day|
|Mbbl||thousand barrels||MMcf/d||million cubic feet per day|
|Bbls/d||barrels per day||Mcf||thousand cubic feet|
|boe||barrels of oil equivalent||MMcf||million cubic feet|
|Mboe||thousand barrels of oil equivalent||Bcf||billion cubic feet|
|boe/d||barrels of oil equivalent per day||psi||pounds per square inch|
|NGLs||natural gas liquids||kPa||kilopascals|
|WTI||West Texas Intermediate||GJ/d||Gigajoules per day|