CALGARY, ALBERTA–(Marketwired – Sept. 7, 2016) – Storm Resources Ltd. (“Storm” or the “Company“) (TSX VENTURE:SRX) is pleased to announce that it has entered into a natural gas processing arrangement at Umbach with Spectra Energy (“Spectra“) that is expected to reduce operating costs and support future growth. In addition, production guidance for 2017 is being increased with the anticipated increase in funds flow resulting from this arrangement being used to accelerate Storm’s growth in 2017.
The effective date of the processing arrangement is January 1, 2017 with total contracted volume being 65 Mmcf per day of raw gas with the contract terms ranging from 5 – 15 years. Storm has a deep inventory of future horizontal drilling locations and the 15 year commitment to Spectra will use less than 20% of this inventory. The longer term processing arrangement is expected to result in Storm’s corporate operating cost declining by approximately 15% to 20%.
The arrangement with Spectra represents a significant step forward in terms of reducing operating costs, supporting future growth and thus adding value for Storm’s shareholders. An additional benefit of the arrangement is access to three sales pipelines through the McMahon Gas Plant (Alliance Pipeline to Chicago, TransCanada NGTL system to AECO, the Spectra T-north mainline to BC Station 2) which enables continued diversification of natural gas sales. Other alternatives that were considered by Storm’s management included building a new gas plant both in partnership with a midstream company or at a 100% working interest; however, Storm concluded that the highest rate of return will be achieved by drilling and completing horizontal wells under the new arrangement with Spectra.
The increase in funds flow which is anticipated to result from the arrangement with Spectra will be used to accelerate growth in 2017 with start-up of a third field compression facility at Umbach being moved forward to January 2017 (previously April 2017) and additional horizontal wells being drilled and completed in 2016 and 2017. The third field compression facility at Umbach will initially be sized for 35 Mmcf per day of raw gas and is expandable to 70 Mmcf per day of raw gas for an incremental investment of $7 million. Once the expansion is completed, capacity from Storm’s three field compression facilities is expected to exceed 150 Mmcf per day of raw gas which would support growth in corporate production to more than 25,000 Boe per day.
Capital investment in 2016 is being increased by $20 million from previous guidance with the majority of the increase relating to the construction of the third field compression facility ($15 million) at Umbach. In addition, two more horizontal wells (2.0 net) will be drilled and two more horizontal wells (2.0 net) will be completed. The higher level of investment in 2016 is expected to result in increased production and cash flow in 2017. Updated guidance also reflects the reduction in completion costs for recently completed horizontal wells, estimated to be $300,000 per well (reducing budgeted cost to $1.9 million from $2.2 million).
August 15, 2016
September 7, 2016
|Chicago natural gas price||US$2.40/Mmbtu(1)||US$2.40/Mmbtu(1)|
|AECO natural gas price||$1.95/GJ(1)||$1.95/GJ(1)|
|BC STN 2 natural gas price||$1.65/GJ(1)||$1.65/GJ(1)|
|Edmonton light oil price||Cdn$50/Bbl(1)||Cdn$50/Bbl(1)|
|Estimated average operating costs||$7.00/Boe||$7.00/Boe|
|Estimated average royalty rate (% production revenue before hedging)||5% – 6%||5% – 6%|
|Estimated operations capital (excluding acquisitions & dispositions)||$36.0 – $50.0 million||$70.0 million|
|Estimated cash G&A net of recoveries||$5.7 million
|Forecast fourth quarter production||13,000 – 14,000 Boe/d (18% NGL)||13,000 – 14,000 Boe/d (18% NGL)|
|Forecast annual production||12,500 – 13,500 Boe/d (18% NGL)||12,500 – 13,500 Boe/d (18% NGL)|
|Umbach horizontal wells drilled||10 gross (10.0 net)||12 gross (12.0 net)|
|Umbach horizontal wells completed||8 gross (8.0 net)||10 gross (10.0 net)|
|Umbach horizontal wells connected||10 gross (10.0 net)||10 gross (10.0 net)|
|(1)||Assumed commodity prices are approximately equal to realized prices to date and the current forward strip.|
Capital investment in 2017 is relatively unchanged from previous guidance. Two more horizontal wells (2.0 net) will be completed plus four more horizontal wells (4.0 net) will be pipeline connected with the cost of this activity being offset by moving construction of the third field compression facility into 2016. In addition, the estimated cost to complete horizontal wells was reduced to $2.1 million in the updated guidance (from $2.4 million).
August 15, 2016
September 7, 2016
|Chicago natural gas price||US$3.00 per Mmbtu||US$3.00 per Mmbtu|
|AECO natural gas price||$2.65 per GJ||$2.65 per GJ|
|BC STN 2 natural gas price||$2.25 per GJ||$2.25 per GJ|
|Edmonton light oil price||Cdn$55 per Bbl||Cdn$55 per Bbl|
|Estimated average operating costs||$7.00/Boe||$5.50 – $5.75/Boe|
|Estimated average royalty rate (% production revenue before hedging)||7% – 9%||9% – 11%|
|Estimated operations capital (excluding acquisitions & dispositions)||$80.0 million||$75.0 – $80.0 million|
|Estimated cash G&A net of recoveries||$4.8 million
|Forecast fourth quarter production||16,000 – 18,000 Boe/d (17% NGL)||18,000 – 20,000 Boe/d (17% NGL)|
|Forecast annual production||15,000 – 17,000 Boe/d (17% NGL)||16,500 – 18,000 Boe/d (17% NGL)|
|Umbach horizontal wells drilled||12 gross (12.0 net)||12 gross (12.0 net)|
|Umbach horizontal wells completed||11 gross (11.0 net)||13 gross (13.0 net)|
|Umbach horizontal wells connected||11 gross (11.0 net)||15 gross (15.0 net)|
Commodity price hedges will continue to be added in support of accelerating growth with up to 50% of current production being hedged (forecast production growth is not hedged). Storm’s hedge position for 2017 currently includes 22,000 GJ per day at AECO $2.54 per GJ (17,600 Mmcf per day at AECO $3.18 per Mcf) plus 475 barrels of oil per day with an average floor of WTI Cdn$63.07 per barrel and a ceiling of WTI Cdn $67.82 per barrel. This represents approximately 26% of current production or 20% of forecast 2017 production. The hedge position will be updated periodically in the presentation posted on Storm’s website.
Storm Resources Ltd. began operations in August 2010. Storm is headquartered in Calgary, Alberta and is primarily active in the Umbach and Horn River Basin areas of northeast British Columbia.