Delphi has entered into a Gross Overriding Royalty (“GOR”) agreement to partially fund the drilling of ten Montney wells in East Bigstone over the next 12 to 18 months. The parties purchasing the GOR (“Royalty Owners”) will contribute $25.0 million over this time frame towards seven wells scheduled to be drilled in 2014 ($17.5 million) and have an option on the first three wells of 2015. The Royalty Owners will be granted a GOR on the Company’s working interest revenue on the wells until an agreed upon rate of return is achieved, at which time the GOR will be extinguished on all wells.
In addition, Delphi’s lenders (National Bank of Canada, Bank of Nova Scotia and Alberta Treasury Branches) completed their semi-annual review of the Company’s credit facilities, renewing the existing $140.0 million revolving credit facility. The facility is a 364 day committed facility available on a revolving basis until May 26, 2014 at which time it may be extended at the lenders’ option upon completion of the annual review to determine the borrowing base. The annual review will be based upon the Company’s December 31, 2013 reserve report, the results of the winter drilling program and the lenders’ view of commodity prices.
The GOR funding, expected funds from operations for 2014 and reconfirmation of the Company’s credit facility provide the financial resources for the Company to carry out its planned 2014 capital program.
Bigstone Montney Program
Delphi has now successfully drilled, completed and brought on production eight Montney horizontal wells at East Bigstone. The most recent five wells were stimulated utilizing slickwater hybrid frac techniques rather than the smaller conventional gelled oil frac designs used on the first three wells. The first well completed with the new frac technique was drilled across one section and stimulated with 20 stages with the subsequent four wells drilled with extended reach laterals and completed using 30 stage slickwater hybrid fracture stimulations. Production from the Montney is expected to average approximately 5,300 boe/d during the month of December, 2013, a 600 percent increase since bringing on-stream the first well completed with the new completion technique in March of 2013.
The ninth Montney well at 15-21-60-23W5M (surface location at 16-9-60-23W5M) has been drilled to a total depth of 5,875 metres with a horizontal lateral length of 2,886 metres. The 15-21 well (97.5 percent working interest) will be completed with a 30 stage slickwater hybrid frac program in early January, 2014. The drilling rig has commenced operations at the 13- 30 -60-22W5M (surface location at 03-19-60-22W5M). This tenth well (100 percent Delphi) represents an early start to the 2014 drilling program as spud to spud cycle times continue to decrease.
The most recent well (well number eight) to be stimulated with 30 stages using the slickwater hybrid fracturing technique at 15- 30 -60-22W5M was brought on production in early December through the Company’s 100 percent owned Montney 7-11 compression and dehydration facility. Over the first 15 days of production, the well averaged 8.6 mmcf/d raw natural gas (7.7 mmcf/d sales) and 713 bbls/d of field condensate. Including estimated plant recovered NGL production of 36 bbls/mmcf sales, total sales production averaged 2,276 boe/d. Consistent with Delphi’s existing Montney production in Bigstone, the field condensate liquid yields are expected to stabilize over the next three to four months.
Given the exceptional well performance to date, Delphi plans to re-evaluate its base type curve assumptions in the first quarter of 2014, with a larger data set of more production history and additional wells on production.
To handle the rapidly growing Montney production volumes, the Company has also commenced construction to expand its 7-11 facility to handle 45 mmcf/d of raw gas as well as increased produced field condensate volumes with the installation of larger inlet separation and increased condensate storage tank capacity.
Production guidance for 2014 remains unchanged at this time but will be reviewed in the first quarter of 2014 as additional results of the winter drilling program are evaluated. Corporate production is forecast to grow 20 percent compared to 2013, predominantly from a Montney focused capital program with its superior netbacks, resulting in expected cash flow growth of 49 percent. Delphi is estimating production to average 9,500 to 10,000 boe/d on a net capital program of $67 to $72 million, drilling a total of seven Montney horizontal wells at Bigstone. Total debt at year end 2014 is expected to be between $145.0 and $150.0 million. The total debt to funds flow ratio is forecast to drop to 2.2 times in the fourth quarter of 2014 and reach a targeted 1.5 times in 2015. Delphi expects AECO natural gas prices to average approximately Cdn. $3.35 per mcf and Edmonton light oil prices to average approximately Cdn. $93.50 per barrel resulting in cash flow for 2014 of approximately $55.0 to $60.0 million. Currently, the Company has approximately 50 percent of its natural gas production hedged at an average price of $3.59 per mcf for 2014 and approximately 27 percent of its crude oil and condensate production hedged at a floor price of Cdn $96.03 per barrel for the first half of 2014.
Delphi’s business plan contemplates production growth to 20,000 boe/d by 2017, with targeted annual production per share growth of 25 percent and annual cash flow per share growth of 45 percent. Capital spending over the five years to achieve that result under the plan is projected to be $560 million, funded 90 percent from cash flow to drill 50 Montney horizontal wells and fund the expansion of Delphi’s 100 percent owned facility. The contemplated 50 well drilling program represents less than half of the current development drilling inventory on approximately 50 percent of Delphi’s current Montney undeveloped land holdings. The Company now has a current project inventory that will provide economic growth beyond a 10-year horizon. Over this time period, the Company’sbalance