CALGARY, ALBERTA–(Marketwired – Jan. 17, 2017) – Trilogy Energy Corp. (“Trilogy” or the “Company”) (TSX:TET) is pleased to provide an update on its fourth quarter 2016 Montney and Duvernay operations, report on its current hedging program and provide annual guidance for 2017.
Highlights
- Trilogy’s 2016 annual production averaged approximately 21,800 Boe/d, with an exit rate in December 2016 of approximately 23,800 Boe/d
- Trilogy is estimating net capital expenditures of approximately $72.8 million for 2016, which includes $29.7 million in the fourth quarter 2016
- Trilogy’s Board of Directors approved a 2017 capital budget of $130 million. Management expects the capital program to be funded entirely out of funds flow from operations
- For 2017, Trilogy is forecasting its capital expenditures to be less than its projected funds flow from operations while growing its production approximately 10 percent over 2016 average production to approximately 24,000 Boe/d, based on current strip pricing and taking into account current Company hedges
- The Company plans to invest approximately $60 million into the Kaybob Montney oil pool in 2017 to drill 15 horizontal net wells, complete 18 net wells and complete infrastructure projects that will reduce ongoing operating costs in this area
- Trilogy also plans to invest approximately $25 million into the Presley gas pool in 2017 to drill, complete and tie-in 5.25 net wells
- The balance of the capital budget will be primarily allocated to developing Trilogy’s Duvernay assets in the second half of the year, with lesser amounts allocated to infrastructure, workovers, tie-ins and projects designed to reduce operating costs
- The Company is estimating funds flow from operations for 2016 of $56.5 million, which includes a provision in the fourth quarter of 2016 of $5.1 million in connection with the Company’s previously reported Kaybob Emulsion Release and approximately $2.5 million on third party downward revenue adjustments for prior year production allocations
Q4 2016 Operating Update
Trilogy’s average production during the fourth quarter of 2016 is expected to be approximately 22,600 Boe/d, resulting in annual 2016 average production of approximately 21,800 Boe/d, with production in December 2016 being approximately 23,800 Boe/d. During the quarter, Trilogy recorded a $5.1 million provision for the Kaybob emulsion release reported in October 2016 and a $2.5 million provision for a third party downward revenue adjustment relating to prior year production allocations. Third party revenue adjustments negatively impacted full year 2016 average production by an estimated 115 Boe/d.
Funds flow from operations for the fourth quarter is approximately $22.4 million. Excluding one-time adjustments for the emulsion release ($5.1 million) and revenue allocation ($2.5 million), fourth quarter 2016 funds flow from operations was expected to be approximately $30 million.
Montney Update
Based on the encouraging completion results from its first quarter 2016 Montney horizontal oil wells, the Company elected to increase its Montney drilling activity in 2016 from the 2 wells that were initially planned to a total of 12 wells for the year. Nine of these wells were completed prior to the end of 2016 and the remaining 3 will be completed in 2017.
Improvements to Trilogy’s Montney oil well drilling and completion program resulted in well costs declining by approximately 30 percent while productivity generally increased. Cost savings were achieved in the drilling operations through the utilization of multi-well pads and high performance mud motor drilling. The change from hydrocarbon based fracture stimulations to water based fracture stimulations significantly reduced completion costs and allowed the Company to economically increase proppant volume and decrease stage spacing.
Trilogy varied sand volumes per stage from 10 tonnes per stage in its original horizontal Montney oil wells to as much as 20 tonnes per stage in recent wells. At the same time, stage spacing was reduced from 75 meters per stage in the original wells to 50 to 65 meters in the recent wells. Incorporating the efficiencies from its 2016 Montney drilling and completion program, Trilogy plans to drill 15 horizontal Montney oil wells and complete 18 wells in 2017.
The following table summarizes production results from the 9 horizontal Montney oil wells that were drilled, completed and brought on production in 2016. The variable results reflect the evolution of completion techniques described above.
Cum Oil MBbl |
Cum Gas MMcf |
Average Oil Rate Bbl/d |
Average Gas Rate MMcf/d |
Average Prod. Boe/d |
Sand Tonnes per stage |
Stage Spacing meters |
Total Prod. Days |
On Prod. Date |
|
02/12-6-64-18W5 | 68 | 175 | 300 | 0.8 | 433 | 10 | 75 | 227 | May 12 2016 |
5-6-64-18W5 | 101 | 267 | 464 | 1.2 | 664 | 20 | 75 | 216 | Mar 18 2016 |
10-31-64-18W5 | 13 | 5 | 152 | 0.1 | 169 | 20 | 100 | 85 | Sept 23 2016 |
02/1-1-64-19W5 | 46 | 57 | 830 | 1.0 | 997 | 20 | 75 | 55 | Oct 16 2016 |
2-1-64-19W5 | 13 | 6 | 415 | 0.2 | 448 | 20 | 65 | 30 | Oct 20 2016 |
02/2-1-64-19W5 | 43 | 39 | 958 | 0.9 | 1,108 | 20 | 75 | 45 | Oct 17 2016 |
02/5-6-64-18W5 | 65 | 90 | 1,197 | 1.7 | 1,480 | 13 | 50 | 54 | Nov 12 2016 |
02/4-6-64-18W5 | 26 | 20 | 966 | 0.7 | 1,082 | 20 | 50 | 27 | Nov 11 2016 |
03/4-6-64-18W5 | 11 | 13 | 400 | 0.5 | 483 | 20 | 50 | 27 | Nov 14 2016 |
Duvernay Update
Trilogy successfully drilled, completed and tied in 2 (2.0 net) horizontal Duvernay wells in 2016. Each well was drilled and completed on a single well pad at a cost of approximately $10.2 million per well. The significant reduction in costs relative to previous wells reflects improvements in efficiencies and operational performance during the drilling and completion operations.
The 02/16-17-61-19W5 well was placed on production November 10, 2016 and has produced for 63 days since that time, producing an aggregate of 17 MBbl of condensate and 194 MMcf of natural gas. Production is currently restricted through a downhole choke which will be pulled once surface flowing pressures stabilize. Liquids recovery from this well has been variable since coming on production relative to other Duvernay wells operated by Trilogy and other producers in the area. This well’s condensate gas ratio will be monitored closely over the next few months to confirm that it normalizes in the expected range of approximately 125 Bbl/MMcf.
The 12-21-63-17W5 well was brought on production December 21, 2016 and has produced an aggregate of 9.0 MBbls of crude oil/condensate (42 degree API, density of 814 kg/m3) and 8.9 MMcf of natural gas in the past 17 days. The well is expected to decline from current rates and Trilogy is forecasting the well to stabilize within the initial 6 to 12 producing months.
Cum Cond MBbl |
Cum Gas MMcf |
Average Oil/Cond Rate Bbl/d |
Average Gas Rate MMcf/d |
Average Prod. Boe/d |
Condensate Gas Ratio Bbl/MMcf |
Sand Conc. t/m |
Total Prod. Days |
On Prod. Date |
|
2/16-17-61-19W5 | 17.0 | 194 | 280 | 3.2 | 813 | 88 | 2.2 | 61 | Nov 10 2016 |
12-21-63-17W5 | 9.0 | 8.9 | 532 | 0.5 | 615 | 1010 | 2.2 | 17 | Dec 21 2016 |
2017 Hedge Update
Trilogy has hedged approximately 31 percent of its forecast 2017 production to lock in expected returns from wells drilled in its 2017 capital spending program. Details of the hedges are as follows:
- hedged 30,000 MMbtu/d of natural gas for calendar 2017 at NYMEX $3.44 USD
- hedged 2,000 Bbl/d of crude oil for calendar 2017 at NYMEX $71.17 CDN
- collared 500 Bbl/d of crude oil for calendar 2017 between $38.00 and $57.50 USD WTI
- collared 500 Bbl/d of crude oil for calendar 2017 between $42.00 and $52.90 USD WTI
- locked-in $1.3 million USD hedging gain for 2017 from the sale and repurchase of certain hedging contracts. The gain is expected to be realized evenly over calendar 2017
2017 Annual Guidance
Trilogy plans to execute a 2017 capital spending budget that is within anticipated 2017 cash flow based on Trilogy’s 2017 production expectations and forecasted pricing. Certain projects that were originally planned for 2017 were accelerated into December 2016 to improve efficiencies and take advantage of operational opportunities.
Based on the results from the Company’s 2016 Montney oil and gas drilling programs, Trilogy is budgeting capital expenditures of approximately $60 million to drill 15 horizontal Montney net oil wells, complete 18 net wells and develop additional infrastructure in the Kaybob Montney oil pool in 2017. Trilogy will also be allocating approximately $25 million in capital to drill 6 (5.25 net) wells into the Presley Montney gas pool, including 3 extended reach lateral wells and 3 one-mile laterals. The balance of the 2017 capital program will be allocated to Trilogy’s Duvernay assets, infrastructure and other projects designed to reduce operating costs. The level of capital to be allocated to Duvernay projects will be reflective of commodity prices and will be weighted to the second half of 2017.
Given the foregoing, Trilogy is providing 2017 annual guidance as follows:
Average production | 24,000 Boe/d (~35% oil and NGLs) |
Average operating costs | $8.50/Boe |
Capital expenditures | $130 Million |
About Trilogy
Trilogy is a petroleum and natural gas-focused Canadian energy corporation that actively develops, produces and sells natural gas, crude oil and natural gas liquids. Trilogy’s geographically concentrated assets are primarily high working interest properties that provide abundant low-risk infill drilling opportunities and good access to infrastructure and processing facilities, many of which are operated and controlled by Trilogy. Trilogy’s common shares are listed on the Toronto Stock Exchange under the symbol “TET”.