CALGARY, ALBERTA–(Marketwired – Oct. 31, 2016) – RMP Energy Inc. (“RMP” or the “Company“) (TSX:RMP) is pleased to announce today the transformational sale of its Ante Creek asset for cash consideration of $114.3 million, subject to normal and customary closing adjustments. With the closing of the sale, at the end of this year, RMP is expected to have:
- No bank debt and positive working capital;
- Exit rate production of 3,200 to 3,300 boe/d (35% crude oil and NGL’s) from Waskahigan and the Company’s other non-core areas, with a low risk Montney development inventory at Waskahigan of high rate of return wells of up to 200 potential drilling locations;
- A highly prospective land position of 77.5 net sections and related infrastructure on an emerging Montney play at Gold Creek; and,
- Indicative bank credit facility of $40 million.
Ante Creek Asset Disposition
The Company has entered into a definitive purchase and sale agreement (the “Sale Agreement“) for the strategic disposition of all of its crude oil and natural gas interests in the Ante Creek area of West Central Alberta for cash consideration of $114.3 million, subject to normal and customary closing adjustments (the “Ante Creek Disposition“). The net cash proceeds to be received at closing of the Ante Creek Disposition will be used to eliminate outstanding bank indebtedness.
The disposition of RMP’s Ante Creek asset is transformational in nature and strategically re-positions the Company. Notwithstanding RMP’s historical drilling success at Ante Creek and the commensurate contributions to corporate production and cash flow, the Ante Creek asset has entered into a more mature phase and is now transitioning to a secondary recovery stage. The assets to be sold under the Ante Creek Disposition include the following:
- Third quarter 2016 average production of approximately 4,300 boe/d (45% crude oil and NGLs), which represents approximately 53% of the Company’s third quarter 2016 average corporate production;
- 6,789 Mboe of total proved reserves(1);
- 10,001 Mboe of total proved plus probable reserves(1); and,
- 69,888 net acres of land acreage and infrastructure facility and pipeline interests.
Note (1): Prepared by RMP’s internal, qualified reserves evaluator effective September 1, 2016. Reflects “gross” reserves independently-evaluated and assigned by the Company’s independent qualified reserves evaluator as of December 31, 2015 and adjusted by the Company for actual production for the period between January 1, 2016 and August 31, 2016, in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook (the “COGE Handbook”).
The effective date of the Ante Creek Disposition is September 1, 2016 with an anticipated closing date on or about November 15, 2016.
On August 4, 2016, RMP announced that it had initiated a process to review strategic alternatives with a view to maximizing the value of the Company’s large Montney resource base. As announced, the strategic review process was expected to include, among other alternatives, the addition of capital to further develop the potential of the assets, the sale of the Company or a portion of the Company’s assets, a merger, farm-in or joint venture. The Company engaged FirstEnergy Capital Corp., now known as GMP Securities L.P. (“GMP FirstEnergy“), and Scotia Waterous Inc. as co-advisors to assist RMP with this process. GMP FirstEnergy coordinated and led the process.
After a thorough process and a comprehensive review and analysis of strategic alternatives, RMP’s Board of Directors (the “Board“), based upon, among other things, the recommendation of RMP’s special committee of independent directors formed to oversee the strategic review process and the verbal fairness opinion provided by GMP FirstEnergy on the consideration to be received by RMP pursuant to the Ante Creek Disposition, has unanimously approved entering into the Sale Agreement and has determined that the Ante Creek Disposition is in the best interests of RMP and its shareholders.
Upon the completion of the Ante Creek Disposition, in addition to its Gold Creek and Waskahigan core assets, the Company’s other remaining non-core assets will include Kaybob, Gilby and Pine Creek in West Central Alberta. Collectively, the Company’s cash flow generating capabilities from its remaining suite of assets is expected to remain strong, as highlighted by RMP’s forecasted 2017 pro-forma field operating netback of approximately $20/boe. RMP’s third quarter 2016 production and crude oil and natural gas reserves from its remaining properties are highlighted below:
- Third quarter 2016 average production of approximately 3,800 boe/d (35% crude oil and NGLs);
- 17,450 Mboe of total proved reserves(1);
- 29,684 Mboe of total proved plus probable reserves(1); and,
- 170,090 net acres of land acreage.
Note (1): Prepared by RMP’s internal, qualified reserves evaluator effective September 1, 2016. Reflects “gross” reserves independently-evaluated and assigned by the Company’s independent qualified reserves evaluator as of December 31, 2015 and adjusted by the Company for (i) actual production for the period between January 1, 2016 and August 31, 2016 and (ii) internally-assigned and evaluated reserves for the Company’s Gold Creek property prepared by RMP’s internal, qualified reserves evaluator, in accordance with NI 51-101 and the COGE Handbook.
Pro-Forma Financial Condition and Go-Forward Operational Plan
On the completion of the Ante Creek Disposition, RMP will be a very well-capitalized, junior Montney exploration and production company. At closing and entering 2017, the Company’s pro-forma cash flow along with an opening debt-free balance sheet and an undrawn $40 million bank credit facility anticipated to be finalized upon completion of the Ante Creek Disposition, will provide RMP with significant financial flexibility to dictate the extent and pace of its go-forward capital deployment.
The Ante Creek Disposition provides RMP with a capital structure conducive to the systematic and staged delineation of its highly prospective Gold Creek Montney asset in conjunction with its low-risk development of its Waskahigan Montney asset, both of which are key core areas for the Company. The short-term objective for the Company will be maintaining corporate production levels through low-risk development drilling at Waskahigan while de-risking the large resource potential of its Gold Creek land position, which with drilling success will provide RMP with operating leverage to accelerate growth in 2018.
Subject to completion of the Ante Creek Disposition, the Company’s Board has approved a $45 million capital budget for 2017. The capital plan will include the drilling of three (3.0 net) Montney horizontal wells at Gold Creek and four (4.0 net) Montney horizontal wells at Waskahigan. RMP will also proceed with the installation of a gathering line and production equipment at Gold Creek, which will provide preliminary production data to allow the Company to assess full field development potential. Based on its 3-22-68-3W6M well (the “3-22 Well“) flow test result and publicly available information, RMP is quite encouraged with and confident in the Montney reservoir potential at Gold Creek given that production from a Montney pool in close proximity to RMP’s 3-22 Well indicates that there may be a significant hydrocarbon resource in the area. This proximal Montney pool was recently producing approximately 13,000 boe/d from 18 wells. Drilling extension of this reservoir’s pool boundaries is continuing by area operators, along with the installation of third-party operated mid-stream production infrastructure.
The modest 2017 drilling program at Waskahigan is expected to offset corporate declines and maintain pro-forma base production levels. The scheduled tie-in of the Gold Creek 3-22 Well in addition to successful follow-up Gold Creek drilling will enhance RMP’s 2017 production profile. The Company hopes to have completed the tie-in of the Gold Creek 3-22 Well by the end of the first quarter of 2017. Infrastructure commissioning and corresponding timing of expected production additions at Gold Creek, however, is dependent on ‘weather-friendly’ operating surface conditions during this forthcoming winter. The Company expects to have greater clarity on the progress of its key Gold Creek infrastructure initiatives during the first quarter of 2017. A second well will be drilled utilizing the same surface location in the first quarter and will be tested and produced through the new infrastructure. As such, RMP will provide updated guidance at the end of the first quarter of 2017.
At Gold Creek, the Company has amassed a large undeveloped land base consisting of 78 (77.5 net) sections (49,920 gross acres) of operated acreage. In 2017, RMP will start to delineate the areal extent of the hydrocarbon-bearing Middle Montney Formation trend in Gold Creek with the capital program outlined above, in anticipation of proving-up its Gold Creek land base for future development. Preliminary analysis of the financial impact on RMP’s Gold Creek well economics, as a result of the Alberta Government’s new Modernized Royalty Framework (“MRF“), suggests a significant, positive impact on the Company’s estimated type-well net present value and the overall value of the Company’s Montney light oil drilling inventory. The Gold Creek area may also qualify for the Alberta Government’s Emerging Resources Program (“ERP“), which would be expected to further enhance the play economics. The Company estimates that it has potentially in excess of 100 locations at Gold Creek to drill, which are not included in the reserves assigned in the Company’s year-end 2015 independent reserves report. Continued exploration and step-out drilling success, augmented with its sizeable acreage ‘footprint’, will position Gold Creek as a long-term growth asset for the Company. RMP’s Gold Creek type-well used in its budget forecasting, determined by the Company’s internal, qualified reserve evaluator’s review and analysis of proximal Middle Montney well production performance, assumes an estimated first year risked average production rate between 360 boe/d to 535 boe/d (150 bbls/d to 225 bbls/d of light oil).
At Waskahigan, the Company’s hybrid slick water (“HSW“) fracture completion technique has resulted in improved well productivity, which has significantly improved the Waskahigan well project economics. The Company’s Waskahigan type-well used in its budget forecasting, which is determined by RMP’s internal, qualified reserves evaluator’s review and analysis of the average well production profile of its nine producing HSW wells, assumes an estimated first year risked average production rate of 195 boe/d (125 bbls/d of light oil) The Company views its Waskahigan area as a moderate growth asset with a substantial future inventory of approximately 200 potential undeveloped drilling locations to which the HSW completion technique can be applied (of which only 52 locations have been assigned reserves in the Company’s year-end 2015 independent reserves report).
Third Quarter 2016 Operations Update
On November 14, 2016, RMP expects to release its interim consolidated financial statements and Management’s Discussion and Analysis for the three and nine months ended September 30, 2016. For the third quarter of 2016, RMP’s average daily production was approximately 8,100 boe/d (weighted 40% light oil and NGLs). During the third quarter, one Waskahigan horizontal well (1.0 net) was drilled in addition to three (3.0 net) hybrid slick-water completions and corresponding tie-in operations. For 2016, a total of eight horizontal Montney oil wells (8.0 net) have been drilled, including four wells at Waskahigan, three wells at Ante Creek, and the Company’s Gold Creek exploration 3-22 Well.
As disclosed on August 4, 2016, RMP’s production during the month of October was recently impacted by third-party outages on both the Pembina and Alliance sales pipeline systems. For an eight day period commencing October 12, 2016, the Company’s Montney production at both Waskahigan and Ante Creek was temporarily curtailed. RMP’s Kaybob production was also affected as a result of Alliance’s mainline pipeline upgrade outage.
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