CALGARY, ALBERTA–(Marketwired – March 22, 2017) – GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO)(OTCQX:GXOCF) is pleased to release its financial results for the year ended December 31, 2016, and to provide an overview of the operational highlights of the 2016 financial year. Granite has filed its audited financial statements for the year ended December 31, 2016 and related Management Discussion & Analysis with the applicable Canadian securities regulatory authorities. Granite’s annual financial materials may be viewed in their entirety on www.sedar.com and on the Company’s website at www.graniteoil.ca.
Granite’s focus in 2016 continued to be setting up its unique, large oil-in-place asset for the long-term, with the goal of maximizing value and returns to our shareholders. Despite challenging times in the industry, the Company made significant strides during the year towards this goal through its organic development formula. With its Gas Injection Enhanced Oil Recovery (“EOR”) scheme up to speed and efficiency gains realized across the board, the Company has proven its ability to add producing barrels at costs that offer returns during periods of low commodity prices. With twenty years of potential drilling opportunities and most of its oil yet to be recovered, the Company is confident it offers its shareholders a model for long-term, consistent, organic returns.
2016 Financial and Operating Highlights
Financial and operational highlights for the three and twelve month periods ended December 31, 2016 are set out below and should be read in conjunction with the financial statements and related management’s discussion and analysis for the year ended December 31, 2016 that are available for review at www.graniteoil.ca and www.sedar.com. This is the sixth interim period completed by Granite following its disposition of certain oil and gas properties pursuant to its May 2015 corporate reorganization. Prior period information is not presented in the following table due to its limited comparability resulting from these dispositions.
|Three Months Ended
|Twelve Months Ended
|(000s, except per share amounts)||($)||($)|
|Oil and natural gas revenues||14,072||45,508|
|Funds from operations (1)||6,203||24,236|
|Per share – basic||0.18||0.75|
|Per share – diluted (2)||0.18||0.74|
|Cash flow from operating activities||6,405||26,510|
|Net income (loss)||(1,061||)||(7,277||)|
|Per share – basic||(0.03||)||(0.22||)|
|Per share – diluted (2)||(0.03||)||(0.22||)|
|Capital expenditures (3)||5,326||21,623|
|Net debt (4)||31,763||31,763|
|Weighted average – basic||33,663||32,375|
|Weighted average – diluted||33,902||32,675|
|Natural gas (mcf/d)(6)||299||184|
|Crude oil (bbls/d)||2,928||2,835|
|Average wellhead prices|
|Natural gas ($/mcf)||3.17||2.19|
|Crude oil and NGLs ($/bbl)||51.85||43.59|
|Combined average ($/boe)(7)||51.30||43.26|
|Operating netback ($/boe) (8)||27.60||27.69|
|Proved plus probable||18,653||18,653|
|Total net present value – proved plus probable (10% discount before taxes)||292,193||292,193|
|Gross (net) wells drilled|
|Oil (#)||3 (3.0||)||10 (10.0||)|
|Dry and abandoned (#)||– (-||)||– (-||)|
|Total (#)||3 (3.0||)||10 (10.0||)|
|Average working interest (%)||100||100|
|(1)||Funds from operations and funds from operations per share are not recognized measures under International Financial Reporting Standards (IFRS). Refer to the commentary in the “Reader Advisory” under “Non-GAAP Measurements” for further discussion.|
|(2)||The Company uses the weighted average common shares (basic) when there is a net loss for the period to calculate net income (loss) per share diluted. The Company uses the weighted average common shares (diluted) to calculate the funds from operations diluted.|
|(3)||Total capital expenditures, excluding acquisitions and excluding non-cash transactions.|
|(4)||Net debt, which is calculated as current liabilities (excluding derivative financial instruments) and bank debt less current assets (excluding derivative financial instruments), is not a recognized measure under IFRS. Please refer to the commentary in the “Reader Advisory” under “Non-GAAP Measurements” for further discussion.|
|(5)||For a description of the boe conversion ratio, refer to the commentary in the “Reader Advisory” under “BOE Presentation”.|
|(6)||Commencing in March 2016, the Company began injecting the majority of its natural gas production into the Alberta Bakken property pursuant to the EOR scheme.|
|(7)||Combined average realized prices includes all oil, gas and NGL sales revenue, excluding other income.|
|(8)||Operating netback, which is calculated by deducting royalties, operating expenses and transportation expenses from oil and gas revenue and adjusting for any realized hedging on financial instruments, is not a recognized measure under IFRS. Please refer to the commentary in “Reader Advisory” under “Non-GAAP Measurements” for further discussion.|
- Record finding and development costs, including the change in future development capital:
- $13.02/boe on a proved developed producing basis, resulting in a recycle ratio of 2.1 times;
- $4.96/boe on a total proved basis, resulting in a recycle ratio of 5.6 times; and
- $4.62/boe on a proved plus probable basis, resulting in a recycle ratio of 6.0 times.
- Executed a $21.5 million, 100% organic capital expenditure program on the Company’s Bakken Property, a 46% decrease in year-over-year expenditures, with the following highlights:
- Drilled 10 (10.0 net) wells with a success rate of 100%, and reduced the average well cost to $1.25 million, a 50% year-over-year decrease;
- Converted three producing wells to gas injectors and increased gas injection rates under the EOR scheme by 66%; and
- Acquired 50,000 net acres of strategic Bakken lands.
- Continued improvement in drilling results throughout the year, with gas injection and completion-optimization strategies providing consistent well results from its second-half, five-well drilling program, with average IP rates of:
- IP30 of 294 bbls/d of oil
- IP90 of 213 bbls/d of oil
- IP180 of 192 bbls/d of oil
- Continued to improve overall decline rates with up to 15 wells currently flowing oil, including several restricted wells, as the Company optimizes its injection scheme.
- Proved the effectiveness of 200 metre well spacing within the area of its gas injection EOR scheme. With drilling inventory of over 130 potential well locations considered to be material, the Company has 20 years of development and exploitation opportunities on its Bakken Property under its current model.
- Following strategic Corporate reorganization decisions made in 2016, the Company’s G&A is budgeted to drop 25% to $2.25/boe in 2017 as it continues to realize efficiency gains. The Company recorded a one-time severance charge in the fourth quarter.
- The Company achieved operating costs of $6.65/boe for the fourth quarter of 2016 excluding an adjustment booked in the period relating primarily to prior year’s facility equalization expenses.
- Maintained a strong balance sheet, exiting the year with $31.8 million of net debt on a current bank line of $60 million.
2017 Operations Update
Granite’s drilling success continued into 2017 with the three wells drilled in the first quarter performing comparably to the best wells of 2016. Two of the three wells drilled in the first quarter tested reduced offset spacing of just over 100 meters with the goal of further improving long-term oil recovery from the pool. The Company is encouraged by the positive results from these wells and the implication these results have on increasing the Company’s potential drilling inventory and ultimate oil recovery.
With increased demand for oilfield services, the Company faced delays in accessing both cementing and hydraulic fracturing crews during the quarter, delaying on-stream production from the wells drilled in the first quarter. The Company believes it can mitigate these delays with further operational improvements and timing advantages going forward.
The Company continued to expand the gas injection EOR infrastructure in the first quarter with the conversion of one formerly producing oil well to a gas injection well and shut-in a second producing well in preparation for conversion early in the second quarter. As well, approximately 2,000 horsepower of additional gas injection compression facilities were set on site. These facilities will be brought on-stream in the second quarter to take advantage of lower demand for services during spring break up and will increase total injection horsepower by approximately 52%. This will provide compression capacity that will support several years of drilling.
The Company’s first quarter production is expected to average approximately 3,100 boe/d (95% oil), despite service delays and adverse weather conditions.
With the efficiency gains made throughout 2016 and its increasingly solid production base, Granite is well-positioned to manage continued uncertainty in commodity pricing throughout 2017. Capital expenditures for 2017 are expected to total $16.5 million, a 23% decrease year-over-year, and result in average production growth of 7% to approximately 3,050 bbl/d of oil, with the yearly dividend maintained at $0.42 per share. With an average WTI price of $55 USD this will result in year-end net debt of $33.2 million and a net debt to cash flow ratio of 1.1. Anticipated capital expenditures include approximately $3.0 million allocated towards high-impact, strategic exploration and pool delineation projects, which Granite has the flexibility to adjust should commodity prices warrant. Additionally, the Company is well-hedged through 2017, with 1,000 bbl/d hedged at an average price of $48.05 USD/bbl through the first half of 2017, and 750 bbl/d hedged at an average price of $52.23 USD/bbl through the second half of 2017, reducing its exposure to price volatility.
With the capital program dedicated predominantly towards drilling and the efficiency at which Granite can add producing barrels, Granite is confident it will continue to add value to shareholders despite the challenges in the commodity price environment.