Anderson Energy Ltd. [stock axl.to] provides the following operations update.
EDMONTON SANDS FARM-IN AGREEMENT
Anderson continues to focus on its light oil development prospects. The Company has reached an agreement in principle to terminate its commitment to drill 74 Edmonton Sands natural gas wells. In consideration for the termination of the commitment, the Company will convey to the farmor a 25% carried interest in four Cardium horizontal light oil wells that have been drilled or will be drilled in the fourth quarter of 2012 and first quarter of 2013. Three of these four wells are existing farm-in commitment wells to parties unrelated to the farmor in the Ferrier and Willesden Green areas. The fourth commitment well is on Anderson land at Garrington. To date, one of the commitment wells has been drilled and brought on production. The second commitment well has been drilled and the third commitment well has commenced drilling. The Company drilled 126 Edmonton Sands gas wells in 2008 and 2009 as part of the original farm-in agreement. The lands earned by drilling the 126 wells are not affected by the proposed amending agreement. The amending agreement is subject to completion of definitive documentation.
The Company”s drilled and drill ready light oil horizontal drilling inventory is outlined below:
|Cardium Prospect Area||Gross||Net *|
|Total Cardium inventory||246||169|
|Horizontal prospect inventory in other zones||108||62|
|Total Cardium and other zone horizontal inventory||354||231|
|Oil wells drilled to December 19, 2012||76||56|
|Remaining Cardium and other zone inventory, December 19, 2012||278||175|
* Net is net revenue interest
Anderson is currently evaluating the performance of competitor Cardium denser drilling initiatives. Application of denser drilling initiatives could expand the Company”s Cardium drilling inventory.
The Company”s remaining Edmonton Sands shallow gas drilling inventory is now estimated to be 542 gross (307 net) locations.
COMMODITY HEDGING CONTRACTS
As part of its price management strategy, the Company has fixed price swap contracts based on the NYMEX crude oil price in Canadian dollars. As of December 19, 2012, the average volumes and prices for the remaining contracts are summarized below:
|Weighted average WTI Canadian
|January to March 2013||1,200||$89.73|
|April to June 2013||1,100||$89.81|
|July to September 2013||900||$90.54|
|October to December 2013||800||$90.56|
PROPERTY DISPOSITIONS AND MID YEAR BORROWING BASE REVIEW
Since September 30, 2012, Anderson has completed the sale of previously disclosed property dispositions for cash consideration of approximately $37.3 million. The Company has also completed its mid year borrowing base review. The Company”s borrowing base as of December 19, 2012 is $65 million. Pro forma the dispositions, outstanding bank loans would be approximately $51.6 million at September 30, 2012.
FOURTH QUARTER DRILLING OPERATIONS
In the fourth quarter, the Company drilled, completed and brought on production two horizontal Cardium light oil wells in the Willesden Green and Garrington fields. In the Ferrier field, one Cardium horizontal well has been drilled and a second well has commenced drilling. The Company expects to complete all remaining drilling commitments prior to the end of the first quarter of 2013. The Company is now employing slick water frac techniques and like other industry participants has seen a significant improvement in productivity with this technique.
The Company is continuing its process to identify, examine and consider a range of strategic alternatives available to the Company with a view to enhancing shareholder value. The strategic alternatives may include, but are not limited to, a sale of all or a material portion of the assets of Anderson, either in one transaction, or in a series of transactions, the outright sale of the Company, or a merger or other strategic transaction involving Anderson and a third party. The Board of Directors believes that the Company”s shares trade at a significant discount to the value of the underlying assets, especially given its high quality light oil production base, prospective horizontal light oil drilling inventory and significant tax pools. The Board of Directors has established a special committee comprised of independent directors of the Company to oversee the process and has retained BMO Capital Markets and RBC Capital Markets as its financial advisors to assist the Special Committee and the Board of Directors with the process.
Since January 1, 2012, the Company has sold approximately $74 million of oil and natural gas properties (71% natural gas) and has restructured its shallow gas and Cardium horizontal light oil drilling commitments.
It is Anderson”s current intention to not disclose developments with respect to its strategic alternatives process unless and until the Board of Directors has approved a specific transaction or otherwise determines that disclosure is necessary in accordance with applicable law. The Company cautions that there are no assurances or guarantees that the process will result in a transaction or, if a transaction is undertaken, the terms or timing of such a transaction. The Company has not set a definitive schedule to complete its evaluation.
Certain statements in this news release including, without limitation, management”s assessment of future plans and operations; expected finalization of the amending agreement relating to the Company”s commitment to drill 74 Edmonton Sands wells; benefits and valuation of the development prospects described herein; number of locations in drilling inventory and wells to be drilled: timing and location of drilling and tie-in of wells and the costs thereof; productive capacity of the wells; dates of commencement of production; potential results of the strategic alternative review process, including the possibility of further asset dispositions and use of proceeds therefrom, and enhancement of shareholder value; disclosure intentions with respect to the strategic alternative review process; commodity price outlook and general economic outlook may constitute forward-looking information within the meaning of applicable securities legislation and necessarily involve risks and assumptions made by management of the Company including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation; loss of markets; volatility of commodity prices; currency fluctuations; imprecision of reserves estimates; environmental risks; competition from other producers; inability to retain drilling rigs and other services; adequate weather to conduct operations; sufficiency of budgeted capital, operating and other costs to carry out planned activities; wells not performing as expected; incorrect assessment of the value of acquisitions and farm-ins; failure to realize the anticipated benefits of acquisitions and farm-ins; inability to complete property dispositions or to complete them at anticipated values; delays resulting from or inability to obtain required regulatory approvals; changes to government regulation; inability to access sufficient capital from internal and external sources; and other factors, many of which are beyond the Company”s control. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as the factors are interdependent, and management”s future course of action would depend on its assessment of all information at the time. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements and readers should not place undue reliance on the assumptions and forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Anderson”s operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or at Anderson”s website (www.andersonenergy.ca).
The forward-looking statements contained in this news release are made as at the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Disclosure provided herein in respect of barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.