CALGARY, ALBERTA–(Marketwired – Jan. 4, 2016) – Crew Energy Inc. (TSX:CR) (“Crew” or the “Company”) today announces that our Board of Directors has approved a 2016 capital expenditure program of $74 million structured to preserve balance sheet strength, optimize production throughput to enhance netbacks through firm transportation arrangements and focus on continued cost reductions. The capital activities planned for 2016 highlight Crew’s strategy to maintain financial flexibility while continuing to develop our Montney asset base, positioning the Company for significant future production growth.
2016 Program and Guidance Highlights:
- Forecast year-over-year production per share growth of approximately 23% with a 28% increase in annual average production volumes while maintaining balance sheet strength with a capital program projected to approximate funds from operations;
- Target annual production volumes ranging between 23,000 and 25,000 boe per day (weighted 73% to natural gas) with year-end 2016 exit production expected to be between 25,000 and 27,000 boe per day;
- Optimize throughput at Crew’s facilities with the Septimus plant inlet maintained at capacity of approximately 65 mmcf per day. Planned completion and tie-in activities are expected to contribute to throughput increases at the West Septimus plant which is anticipated to reach approximately 50 mmcf per day by year-end;
- Continue to focus on cost reductions with a forecasted 27% decrease in operating costs per boe to $6.00 to $6.50 highlighted by our Montney operating costs estimated at $4.15 per boe. General and administrative expenses per boe are forecasted to be reduced by 27% over 2015 to $1.40 to $1.60 and interest expense per boe is expected to decline by 22% to approximately $1.90; and
- Direct approximately 90% of the total capital budget to drilling, completion and tie-in activities primarily focused in our core Montney liquids-rich natural gas areas at West Septimus and Septimus.
2016 Budget Overview and Activity Summary
Crew’s 2016 capital budget has been prioritized to ensure balance sheet strength is maintained with investment decisions driven by project economics resulting in production levels which are expected to approximate transportation and processing arrangements. Activity is predominantly focused on drilling and completions at Septimus and West Septimus where we continue to generate attractive rates of return in the current price environment. With one drilling rig running through first half 2016, we anticipate drilling seven wells including four at West Septimus and three at Septimus. Crew also plans to complete and tie-in 18 wells which will include 2016 drills and wells previously drilled in 2015.
With recent West Septimus wells outperforming expectations in gas rates and liquids content, Crew plans to drill a total of four wells and complete and tie-in 13 wells to increase production volumes at the West Septimus facility. During the first quarter, Crew plans to drill the remaining four wells on a planned eight well pad at West Septimus, with all eight wells anticipated to be completed during the second half of the year and production commencing late in 2016. At Septimus, Crew plans to drill, complete and tie-in three (2.0 net) wells and complete and tie-in two (1.3 net) wells that were drilled in 2015. As a result of the capital Crew invested during 2015 to add infrastructure and build the strong inventory of wellbores, the cost of our 2016 production additions is expected to be approximately $7,500 per boe per day, which is well below historical levels.
At Lloydminster, Crew plans to maintain our focus on cost reduction initiatives and selective recompletion and workover activities and will curtail new drilling until commodity prices recover sufficiently to provide more compelling rates of return.
Crew’s active risk management program is designed to protect against volatility in commodity prices, support funds from operations and provide market diversity for the sale of our products. The Company has continued to systematically layer in hedges for 2016 and currently has approximately 40% of our natural gas volumes hedged for 2016 with a floor of approximately $2.76 per GJ or approximately $2.92 per mcf, which increases to approximately $3.42 per mcf after adjusting for Crew’s heat conversion.
Crew’s ability to maintain production levels through 2016 with a modest capital program is the result of a strategic decision to accelerate capital spending during the fourth quarter of 2015 in order to start the construction of a key pipeline project and pre-drill four wells in 2015 that were originally planned for 2016. Aided by favorable weather conditions, we commenced operations to install a pipeline beneath the Pine River (the “Pine River Pipeline”) connecting the Company’s West Septimus and Septimus plants which will reduce condensate transportation costs, facilitate future expansion of the West Septimus facility, enhance longer term market access and position Crew as the only operator with pipeline connections that span the Pine River. An incremental expenditure of approximately $11 million was incurred on the Pine River Pipeline project during the fourth quarter of 2015. Crew expects to recover the majority of this expenditure through a Government of British Columbia infrastructure credit that will be earned upon the anticipated completion of the project in the first quarter of 2016. Crew also elected to realize cost savings from operational efficiencies by accelerating approximately $9 million of capital spending into 2015 that was originally planned for the first quarter of 2016. This spending included the drilling of the first four wells of an eight well pad at West Septimus increasing our total Montney well count for the year to 27 wells. With the advancement of select capital projects scheduled for 2016 into 2015, Crew is estimating a year end debt level of approximately $235 million, representing a draw of less than 34% on the Company’s credit facility. With the Company’s total borrowing capacity of $400 million, consisting of a $150 million high yield bond maturing in October 2020 and our $250 million syndicated bank facility, Crew plans to maintain total debt of $235 to $250 million in 2016 giving the Company ample financial flexibility.
The Company’s second half 2015 drilling program continues to outperform expectations. At Septimus, Crew’s recently completed two upper Montney wells achieved average initial production rates of 5.9 mmcf per day over 30 days (“IP30”), with casing pressures maintained above 1,500 psi and an average liquids rate of 32 bbl per mmcf (60% condensate). Crew’s Lower Montney well remained shut-in for pressure build-up analysis after being production tested and flowing at a rate of 7.4 mmcf per day with 147 bbl per day of wellhead condensate at the end of an eight day clean-up period. At West Septimus, four wells of our recent six well pad have achieved an average production rate of 5.1 mmcf per day over 90 days (“IP90”), with casing pressures maintained above 1,000 psi and an average liquids rate of 60 bbls per mmcf (60% condensate).
On December 1, 2015, Crew’s firm transportation arrangements commenced on the Alliance pipeline and our 2015 exit production target of over 26,000 boe per day was exceeded leading to production averaging approximately 26,500 boe per day for the month of December based on field estimates. Both the West Septimus and Septimus facilities are meeting processing expectations with Septimus achieving a new record throughput of greater than 11,600 boe per day during December 2015. As a result of continued regional natural gas pricing pressures through the end of November 2015, Crew elected to keep production volumes curtailed until our firm transportation arrangements took effect December 1, 2015 which provided access to markets with more favorable pricing. Based on field estimates, Crew’s fourth quarter 2015 production is expected to average approximately 20,800 boe per day with annual volumes averaging approximately 18,550 boe per day. This represents a 24% quarter-over-quarter increase in production after having over 8,000 boe per day of production shut-in for two months in the quarter.
Crew has taken numerous steps to establish a strong foundation for the Company’s Montney-focused growth. We have assembled and consolidated a very attractive land position, constructed the necessary infrastructure to support our growth, implemented leading operational practices and established firm transportation arrangements to access new markets for our products. On this foundation, we will continue to control costs and prudently invest our capital in the most economically attractive opportunities within our portfolio. Our 2016 capital budget reflects the importance of our balance sheet in this low commodity price environment while affording Crew the flexibility to make adjustments should the price environment change.
Crew’s 2016 budget guidance and related targets and forecasts disclosed above are best estimates based on certain assumptions including, without limitation, operating results, known fiscal regimes, commodity prices and risk management contracts and will be regularly monitored by management. Our objective will be to proactively manage our capital program as it relates to operational success and fluctuating commodity prices with a priority to maintain financial flexibility and achieve our production guidance. Crew will closely monitor the budget and financial situation throughout the year to assess market conditions and will quickly adjust budget levels or pace of development in accordance with commodity prices and available funds from operations.
Crew Energy Inc. is a growth-oriented oil and natural gas producer, primarily focused in the vast Montney resource situated in northeast British Columbia. Crew’s common shares trade on Toronto Stock Exchange (‘TSX’) under ticker ‘CR’. For further information, please visit the Company’s website at www.crewenergy.com.