CALGARY, ALBERTA–(Marketwired – Nov. 8, 2013) – DEETHREE EXPLORATION LTD. (“DeeThree” or the “Company“) (TSX:DTX)(OTCQX:DTHRF) is pleased to announce its financial and operational results for the three and nine months ended September 30, 2013, having achieved a 27% quarter-over-quarter increase in crude oil production. This three-month period ending was the most active quarter operationally in DeeThree’s five-year history.
Continued success in the Company’s Alberta Bakken and Belly River light oil resource plays resulted in substantial production growth in the third quarter of 2013 and that growth has continued early in the fourth quarter. Based on field estimates, DeeThree is currently producing approximately 9,000 boe/d with an additional 2,000 boe/d of tested volumes to be tied in. The majority of this production will be tied-in within the next week with the balance to be tied-in shortly thereafter. In addition, 2 gross (2.0 net) wells are awaiting completion. Current production consists of approximately 81% oil and NGLs and 19% natural gas.
DeeThree continued extensive drilling operations on its Alberta Bakken play in the third quarter having drilled and completed a total of 8 gross (8.0 net) wells with a 100% success rate. Two to three drilling rigs were in operation continuously through the course of the third quarter. Overall, oil production from DeeThree’s Alberta Bakken play increased 43% quarter over quarter to 3,935 bbls/d of oil and, based on current field estimates, current production is approximately 4,600 bbls/d of oil.
The results of the third quarter drilling program were excellent. Seven of the eight wells drilled during the quarter have been producing for over 30 days. The average IP30 production rate of these wells is 472 bbls/d of oil, greatly exceeding the Company’s budgeted IP30 rate of 300 bbls/d of oil per well.
Two wells drilled by the Company on the eastern portion of the pool earlier in 2013 continue to produce at impressive rates. The first well has produced over 112,000 bbls of oil over a six month period and is currently producing 560 bbls/d of oil. The second well has produced over 53,000 bbls of oil in just over three months and is currently producing 585 bbls/d of oil. The Company has identified numerous drilling locations on its Alberta Bakken play that are considered to be analogous to these two wells.
To maximize recovery, the Company initiated a gas re-injection enhanced recovery scheme pilot injecting an average of 280 boe/day of Bakken solution gas into its initial injector at 8-19-3-16W4 during the quarter. The Company drilled an additional gas injector at 14-16-3-17W4 and expects it be operational early in 2014. To date, the Company is encouraged with the results of this enhanced recovery scheme pilot and will continue to evaluate results over the coming months.
The Company continues to add to its dominant land position in the Ferguson area. A total of 33,440 acres in the area have been acquired year to date through Crown land sales. As a result, the Company now holds the vast majority of on-trend Crown lands in the area.
The Company plans to drill two delineation wells on its Alberta Bakken lands in the fourth quarter using one drilling rig.
DeeThree drilled and completed a total of 4 gross (3.97 net) wells on its Brazeau Belly River property during the third quarter with a 100% success rate. Towards the end of the quarter the Company increased drilling activity by the addition of a second drilling rig. The Company also completed a major pipeline project in September. This pipeline both extends and increases the capacity of the Company’s existing infrastructure in the area.
Recent drilling highlights include two horizontal wells drilled and completed more than five miles apart testing the same equivalent Upper D sand. Both wells tested at significant flow rates. The first well, drilled late in the quarter, after fracture stimulation was flow tested for four days up the 4 1/2″ frac string at an average rate of 900 bbls/d of 44° API reservoir oil and 800 mscf/d of reservoir gas with a final rate of approximately 600 bbls/d of oil and 700 mscf/d of natural gas. The second well, drilled early in the fourth quarter, after fracture stimulation was flow tested for six days up the 4 1/2″ frac string at an average rate of 1,000 bbls/d of 44° API reservoir oil and 1,300 mscf/d of natural gas with a final rate of approximately 1,050 bbls/d of oil and 1,700 mscf/d of gas. Both wells exhibited new pool pressures and, in conjunction with the mapping from existing vertical wells in the area, the Company has identified several more potential high impact follow up locations.
The Company continues to add to its dominant land position in its Brazeau Belly River light oil resource play. A total of 8,805 acres of highly prospective lands have been acquired year to date primarily through third party asset acquisitions.
Belly River Resource Delineation
While drilling activity in the area initially focused on the lower Basal Belly River, the Company has undertaken an aggressive drilling program to delineate and prove up the production capability of the distinct Upper Belly River intervals through extended reach horizontal drilling techniques. The following table describes the estimated discovered and undiscovered oil in place for each distinct Upper Belly River interval, the number of horizontal wells drilled by DeeThree in each interval and the total number of miles of horizontal fairway proved by production for each interval.
|Zone||Discovered Oil in Place (MMbbl)(1)||Undiscovered Oil in Place (MMbbl)(1)||Number of Horizontal of Wells||Horizontal Length of Fairway Drilled|
|(1)||As reported in the resource evaluation on and limited to DeeThree’s Belly River assets located in the Brazeau area of Alberta as of July 31, 2013. The resource evaluation was prepared by Sproule Associates Limited, the Company’s independent reserve engineering firm. Refer to DeeThree’s news release of August 14, 2013.|
Belly River Extended Reach Horizontals
DeeThree has employed extended reach horizontal well drilling technology throughout 2013 to drill wells with horizontal legs of 1.3 to 2 miles in length to increase production rates and ultimate expected recoveries from its Belly River light oil resource play.
In total, 12 of the 13 wells drilled year to date have horizontal lengths of over 1.3 miles. The table below provides a comparison of the IP 30 production rates of all of the horizontal Belly River wells drilled by the Company to date.
|Horizontal Length||Number of Wells||Average IP 30 (boe/day)|
|Less than 1 mile||7||221|
|Approximately 1 mile||5||266|
|Greater than 1.3 mile||8||538|
With the cost of the longer wells being comparable to the costs of the wells previously drilled with the shorter horizontal legs, DeeThree has significantly increased its capital efficiency through the use of the extended reach horizontal well drilling technology.
The Company’s extensive and contiguous land base of over 70 net sections allows the majority of its 400 well future development drilling inventory to be drilled in this more efficient manner. The Company continues to develop strategies to improve results on a go-forward basis.
As a result of the Company’s excellent drilling results year to date, the Board of Directors has approved a $40 million increase to the Company’s 2013 capital expenditure program to a total of $200 million. The capital expenditure budget has been increased primarily to expand the Company’s 2013 drilling program by an additional 4.0 (4.0 net) wells for a total of 35.0 gross (34.7 net) horizontal wells to be drilled in 2013. With these additional wells anticipated to be drilled and tied-in prior to year end, the Company will have an additional 8 horizontal wells coming on-stream prior to December 31, 2013. The increase also accounts for the opportunistic acquisition of a total of over 40,000 acres of Alberta Bakken ($3 million) and Brazeau Belly River ($8 million) lands.
With this expanded drilling program, the Company has increased its target 2013 exit production rate from 9,600 – 10,000 boe/d (81% crude oil and NGL’s) to 10,000 – 10,500 boe/d (82% crude oil and NGL’s).
The increase in the 2013 capital expenditure budget will be funded through the Company’s increased syndicated credit facility of $165 million and cash flow from operations. The projected year end net debt to Q4 annualized cash flow is projected to be 1.1 : 1.
Third Quarter Highlights:
DeeThree’s financial and operational accomplishments for the third quarter include the following.
- Record production for the eighth consecutive quarter averaging 7,573 boe/d (80% crude oil and NGLs and 20% natural gas), a 15% increase over the second quarter of 2013 and a 61% increase over the same quarter of 2012.
- Record crude oil and liquids production of 6,088 bbls/day, a 24% or 1,192 bbls/day increase from the second quarter of 2013 and a 90% increase over the same period of 2012.
- Funds flow from operations grew to $29.4 million, a 31% increase from the second quarter of 2013 and a 106% increase from the second quarter of 2012.
- Funds from operations on a fully diluted per share basis increased to $0.37, a 32% increase from the second quarter of 2013 and an 85% increase from the second quarter of 2012.
- Increased operating netback to $48.11/boe from $40.57 in the second quarter of 2013 and $35.18/boe in the same quarter last year, an increase of 19% and 37%, respectively.
- Rig released a record number of wells in the quarter drilling 12 gross (11.97 net) wells with a 100% success rate. As at the date of this letter, the Company has rig released 29 gross (28.88 net) operated horizontal wells in 2013.
- Exited the quarter with total net debt of $131.3 million. This represents a debt to annualized cash flow ratio of just over 1 times at 1.1:1.
- The Company increased its syndicated credit facility from $135 million to $165 million early in the fourth quarter.
HIGHLIGHTS: BY THE NUMBERS
|Three Months Ended September 30,||Nine Months Ended September 30,|
|(000s, except per share amounts)||($)||($)||(%)||($)||($)||(%)|
|Oil and natural gas revenues||55,754||24,020||132||126,126||56,734||122|
|Funds from operations (1)||29,410||14,265||106||68,635||29,858||130|
|Per share – basic||0.38||0.21||81||0.91||0.45||102|
|Per share – diluted||0.37||0.20||85||0.88||0.42||110|
|Cash flow from operating activities||32,073||12,555||155||71,949||31,315||130|
|Per share – basic||0.11||0.02||450||0.20||0.06||233|
|Per share – diluted||0.11||0.02||450||0.19||0.05||280|
|Capital expenditures (2)||74,969||33,205||126||155,813||99,619||56|
|Working capital deficit (3)||131,295||69,698||88||131,295||69,698||88|
|Weighted average – basic||76,550||66,995||14||75,379||65,772||15|
|Weighted average – diluted||79,608||72,792||9||78,105||70,591||11|
|Natural gas (mcf/d)||8,910||8,883||—||9,756||8,743||12|
|Crude oil (bbls/d)||5,765||2,953||95||4,753||2,123||124|
|Average wellhead prices|
|Natural gas ($/mcf)||2.33||2.38||(2)||3.22||2.20||46|
|Crude oil and NGLs ($/bbl)||96.08||74.62||29||84.69||78.36||8|
|Combined average ($/boe)||80.03||55.65||44||68.97||53.79||28|
|Operating netback ($/boe)||48.11||35.18||37||41.86||30.98||35|
|Funds flow netback ($/boe)||42.11||32.98||28||37.45||28.23||33|
|Gross (net) wells drilled|
|Oil (#)||11 (10.97)||5 (5.00)||120 (119)||25 (24.19)||20 (18.90)||25 (28)|
|Standing (#)||1 (1.00)||—||—||1 (1.00)||2 (2.00)||(50)(-50)|
|Dry and abandoned (#)||—||—||—||2 (1.97)||—||—|
|Total (#)||12 (11.97)||5 (5.00)||140 (139)||28 (27.15)||22 (20.90)||27 (30)|
|Average working interest (%)||100||100||—||97||95||2|
|(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 Management’s Discussion and Analysis for the quarter ended September 30, 2013 under “Non-IFRS Measurements” for further discussion.|
|(2)||Total capital expenditures, including acquisitions and excluding non-cash transactions. Refer to commentary in the Management’s Discussion and Analysis for the quarter ended September 30, 2013 under “Capital Expenditures and Acquisitions” for further information.|
|(3)||Current assets less current liabilities, excluding current derivative financial instruments.|
|(4)||For a description of the boe conversion ratio, refer to the commentary below under “Reader Advisory – BOE Presentation”.|
Forward-Looking Statements. Certain statements contained in this news release may constitute forward-looking statements. These statements relate to future events or DeeThree’s future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. DeeThree believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon by investors. These statements speak only as of the date of this news release and are expressly qualified, in their entirety, by this cautionary statement.
In particular, this news release contains forward-looking statements, pertaining to the following: projections of the quantity of petroleum and natural gas resources, market prices and costs, supply and demand for oil and natural gas, oil and natural gas production levels, capital expenditure programs, treatment under governmental regulatory and taxation regimes, expectations regarding DeeThree’s ability to raise capital and to continually add to reserves through acquisitions and development.
With respect to forward-looking statements contained in this news release, DeeThree has made assumptions regarding, among other things: the legislative and regulatory environments of the jurisdictions where DeeThree carries on business or has operations, the impact of increasing competition, and DeeThree’s ability to obtain additional financing on satisfactory terms.
DeeThree’s actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: uncertainties associated with estimating petroleum and natural gas resources; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in petroleum and natural gas operations; volatility in the market prices for petroleum and natural gas, uncertainties associated with DeeThree’s ability to obtain additional financing on satisfactory terms; competition for, among other things, capital and skilled personnel. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect DeeThree’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).
This forward-looking information represents DeeThree’s views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. DeeThree has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.
Test Rates. Test rates are not necessarily indicative of long-term performance or of ultimate recovery. Neither a pressure transient analysis nor a well-test interpretation has been carried out and the data should be considered to be preliminary until such analysis or interpretation has been done.
Information Regarding Disclosure on Oil and Gas Resources. Unless otherwise specified, all resource volumes in this news release (and all information derived there from) are based on “company gross volumes” (or working interest), before deductions of Crown and other royalties, using forecast prices and costs. The resource evaluation was prepared in accordance with the resource and reserves definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (COGEH) and was conducted by a qualified reserves evaluator (Sproule). This news release contains references to estimates of oil classified as contingent (part of discovered oil initially in place) and prospective (part of undiscovered oil initially in place) and corresponding classifications regarding petroleum and natural gas. These classifications are not, and should not be confused with petroleum and gas reserves. “Discovered Oil Initially In Place” (“DOIIP”) is defined in the Canadian Oil and Gas Evaluation Handbook (the “COGE Handbook”) as the quality of hydrocarbons that are estimated to be in place within a known accumulation prior to production. DOIIP is divided into recoverable and unrecoverable portions, with the estimated future recoverable portion classified as reserves and contingent resources and the remainder as at evaluation date is by definition classified as unrecoverable. There is no certainty that it will be economically viable to produce any portion of the contingent resources. “Undiscovered Oil Initially In Place” (“UOIIP”) are those quantities of hydrocarbons that are estimated, on a given date, to be contained in accumulations yet to be discovered. The recoverable portion of UOIIP is referred to as prospective resources, the remainder is unrecoverable. Undiscovered resources carry discovery risk. There is no certainty that any portion of these prospective resources will be discovered. If discovered, there is no certainty that it will be commercially viable to product any portion of the prospective resources. DeeThree’s belief that it will establish significant additional reserves over time in the discussion of the results of the resource evaluation is a forward looking statement and is based on certain assumptions and is subject to certain risks, as discussed above under the heading “Forward-Looking Statements”.
BOE Presentation. References herein to “boe” mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
President and Chief Executive Officer