CALGARY, Nov. 5, 2014 /CNW/ – PENN WEST PETROLEUM LTD. (TSX – PWT; NYSE – PWE) (“Penn West“, the “Company“, “we“, “us” or “our“) is pleased to announce its financial results for the third quarter ended September 30, 2014. All figures are in Canadian dollars unless otherwise stated. Certain comparative figures for the three and nine month periods ended September 30, 2013 are as restated.
Three months ended September 30 | Nine months ended September 30 | ||||||||||
2014 | (restated) 2013 |
% change | 2014 | (restated) 2013 |
% change | ||||||
Financial (millions, except per share amounts) |
|||||||||||
Gross revenues (1,2) | $ | 584 | $ | 773 | (24) | $ | 1,902 | $ | 2,222 | (14) | |
Funds flow (2) | 231 | 296 | (22) | 798 | 782 | 2 | |||||
Basic per share (2) | 0.47 | 0.61 | (23) | 1.62 | 1.61 | 1 | |||||
Diluted per share (2) | 0.47 | 0.61 | (23) | 1.62 | 1.61 | 1 | |||||
Net income (loss) | (15) | 34 | >(100) | 39 | (134) | >100 | |||||
Basic per share | (0.03) | 0.07 | >(100) | 0.08 | (0.28) | >100 | |||||
Diluted per share | (0.03) | 0.07 | >(100) | 0.08 | (0.28) | >100 | |||||
Development capital expenditures (3) | 225 | 75 | >100 | 485 | 528 | (8) | |||||
Long-term debt at period-end | $ | 2,192 | $ | 3,004 | (27) | $ | 2,192 | $ | 3,004 | (27) | |
Dividends (millions) |
|||||||||||
Dividends paid (4) | $ | 69 | $ | 131 | (47) | $ | 206 | $ | 390 | (47) | |
DRIP | (14) | (27) | (48) | (43) | (81) | (47) | |||||
Dividends paid in cash | $ | 55 | $ | 104 | (47) | $ | 163 | $ | 309 | (47) | |
Operations | |||||||||||
Daily production (average) | |||||||||||
Light oil and NGL (bbls/d) | 51,675 | 68,977 | (25) | 55,301 | 71,451 | (23) | |||||
Heavy oil (bbls/d) | 13,012 | 15,483 | (16) | 13,251 | 15,817 | (16) | |||||
Natural gas (mmcf/d) | 217 | 296 | (27) | 226 | 309 | (27) | |||||
Total production (boe/d) (5) | 100,839 | 133,712 | (25) | 106,296 | 138,833 | (23) | |||||
Average sales price | |||||||||||
Light oil and NGL (per bbl) | $ | 87.49 | $ | 92.42 | (5) | $ | 91.19 | $ | 85.01 | 7 | |
Heavy oil (per bbl) | 72.38 | 84.02 | (14) | 73.73 | 67.13 | 10 | |||||
Natural gas (per mcf) | $ | 4.33 | $ | 2.83 | 53 | $ | 5.03 | $ | 3.24 | 55 | |
Netback per boe | |||||||||||
Sales price | $ | 63.49 | $ | 63.67 | – | $ | 67.35 | $ | 58.63 | 15 | |
Risk management gain (loss) | (0.65) | (0.50) | 30 | (1.91) | 0.01 | >(100) | |||||
Net sales price | 62.84 | 63.17 | (1) | 65.44 | 58.64 | 12 | |||||
Royalties | (8.99) | (9.37) | (4) | (10.23) | (8.34) | 23 | |||||
Operating expenses | (20.74) | (19.48) | 6 | (18.75) | (20.60) | (9) | |||||
Transportation | (0.60) | (0.58) | 3 | (0.61) | (0.59) | 3 | |||||
Netback (2) | $ | 32.51 | $ | 33.74 | (4) | $ | 35.85 | $ | 29.11 | 23 |
(1) | Gross revenues include realized gains and losses on commodity contracts. |
(2) | The terms “gross revenues”, “funds flow”, “funds flow per share-basic”, “funds flow per share-diluted” and “netback” are non-GAAP measures. Please refer to the “Calculation of Funds Flow” and “Non-GAAP Measures” advisory” disclosures below. |
(3) | Includes capital carried by partners. |
(4) | Includes dividends paid in cash that are subsequently reinvested to purchase shares from treasury under the dividend reinvestment plan. |
(5) | Please refer to the “Oil and Gas Information Advisory” section below for information regarding the term “boe”. |
PRESIDENT’S MESSAGE
Upon reviewing our numbers for the third quarter, I am excited about the continuing progress we are making at Penn West. We delivered average production of 100,839 barrels of oil equivalent per day in the quarter with a 64 percent liquids weighting. In executing our third quarter capital program of $225 million, we drilled 73 net wells and put 39 net wells on production, setting the company up for an improvement in fourth quarter volumes even with a late year closing of our previously announced asset sale. Importantly, the improvements in our operational performance and delivery of production growth has offset this asset sale and allowed us to maintain our 2014 production guidance of 101,000 – 106,000 boe per day – Penn West has turned the corner.
Notably, in the face of commodity price headwinds faced by the industry, we continued to show progress in delivering a strong percentage of funds flow netback per barrel against our realized price in the quarter. Our cost control efforts are taking hold and we expect this trend will continue to improve into 2015. As we have said, our long-term plan has been prepared to position the business for success in a low commodity price environment.
We continue to monitor the macroeconomic and commodity price environment, however, the operational performance that we are seeing from within and testing our business model at the C$70 per barrel level gives us confidence that we can hold our course into 2015 in the current environment. What will guide our investment decisions more than absolute commodity prices, is duration in commodity price weakness. Maximizing capital efficiencies and reliability in the delivery of production requires thoughtful planning and discipline. As a result, our programs for the first half of 2015 have been planned for some time and we would not expect those plans to change. Should we continue to see commodity price weakness (sub C$75 per barrel), through to the second quarter of 2015, we may consider adjusting capital allocations in some of our second half programs. We control over 90 percent of our capital investment allocations and we are committed to continuing to make the right decisions for the long-term value of the Company for our shareholders.
We are excited about our 2015 Capital Budget and look forward to sharing the details of that plan with the market in the third week of November.
HIGHLIGHTS
- Production in the third quarter averaged 100,839 boe per day compared to 133,712 boe per day in the third quarter of 2013. Penn West’s production volumes were consistent with its previous forecast of 100,000 boe per day on average for the third quarter.
- Funds flow for the third quarter of 2014 was $231 million ($0.47 per share – basic) compared to $296 million in the comparative period in 2013. The decline is attributed to lower crude oil prices and lower production volumes due to asset dispositions which both contributed to lower revenues.
- Development capital expenditures for the third quarter of 2014 were $225 million compared to $75 million in the comparative period in 2013. Third quarter activities proceeded as planned with a focus on development activities in the Cardium and Viking areas and appraisal activities in the Slave Point area.
- Over 90 percent of all net wells drilled were in the Company’s three core light oil areas.
- As at September 30, 2014, the Company was in compliance with all financial covenants under its lending agreements. Specifically, the reported senior debt to EBITDA ratio of 2:1 times in the quarter is well within the covenant threshold of 3:1, and the senior debt to capitalization of 23 percent is well within the covenant threshold of 50 percent.
DISPOSITION UPDATE
On October 23, 2014, Penn West announced that it had signed an agreement to sell non-core assets located in south central Alberta for expected proceeds of approximately $355 million. With closing of this transaction, Penn West will have completed over $1 billion in asset sales since the November 2013 announcement of our long-term plan relative to the low end of our target range of $1.5 billion. Further, as a result of these combined divestments, a favourable commodity price environment early in the year, and strong operational improvements, we will have reduced our debt position by over $1.2 billion during that same period. The Company is now directing its disposition efforts to non-producing assets as we continue to increase the focus on our core areas and improve our financial flexibility.
DIVIDEND SUSTAINABILITY
In a separate press release today, Penn West declared a fourth quarter 2014 dividend of $0.14 per share, consistent with the previous quarter. The pullback in Canadian energy equity prices since early September 2014, against the backdrop of an equally precipitous fall in global crude oil prices during that period, has pushed Penn West’s implied yield to over 10 percent. These factors have raised concerns amongst some of our stakeholders about the Company’s ability to sustain its dividend.
The Company remains comfortable with its ability to fund its capital expenditure programs in conjunction with paying a dividend and has modelled and assessed its business plan at commodity price levels well below its budget assumptions. On November 17, 2014 the Company will be releasing further details of its 2015 budget and updated long-term plan. The updated long-term plan will provide a renewed vision of growth in both production and profitibility through a continued pursuit of operational discipline, cost control and focused capital programs on Penn West’s core areas.
OPERATED DEVELOPMENT ACTIVITY
Third quarter development activities resumed post break-up as expected in the Cardium and Slave Point core areas, while operations in the Viking area of southeast Saskatchewan were somewhat hampered by prolonged wet spring conditions. In our three core light oil areas, Penn West spent approximately $168 million (approximately 75 percent of total capital) and drilled a total of 73 (72.6 net) light oil wells with a success rate of 100 percent. Of these, 48 (48.0 net) wells were drilled in the Viking, 20 (19.6 net) wells were drilled in the Cardium and five (5.0 net) were drilled in the Slave Point. Over 90 percent of all net wells drilled were in our core light oil areas as detailed in Table 1 below.
The table below summarizes the Company’s third quarter drilling, completions and tie-in activity:
Table 1: Third Quarter 2014 Core Area Light Oil Development Summary
Number of Wells | |||||||||||||
Drilled | Completed | On production | |||||||||||
Business Unit | Gross | Net | Gross | Net | Gross | Net | |||||||
Cardium | 20.0 | 19.6 | 7.0 | 6.4 | 7.0 | 6.4 | |||||||
Viking | 48.0 | 48.0 | 40.0 | 40.0 | 30.0 | 30.0 | |||||||
Slave Point | 5.0 | 5.0 | 3.0 | 3.0 | 3.0 | 3.0 | |||||||
Total | 73.0 | 72.6 | 50.0 | 49.4 | 40.0 | 39.4 |
PLAY UPDATES
Cardium
In the quarter, Penn West invested development capital of $65 million and drilled 20 (19.6 net) wells and brought seven (6.4 net) wells on production. Of the wells drilled in the quarter, 12 (12.0 net) were drilled in Willesden Green, seven (6.7 net) were in Lodgepole, and one (0.9 net) was in Pembina Cardium Unit #9. As planned, the drilling program in the second half of 2014 is featuring more multi-well pads that are expected to provide cost efficiencies and drive incremental cost savings.
Development activities in the Cardium during the third quarter remained on pace to meet full-year targets. Year to date, Penn West has drilled 44 Cardium wells versus a plan of 67 with the remainder expected to be spud in the fourth quarter. The Company currently has five rigs operating in the Cardium, as planned, to complete the 2014 program.
During the Company’s second half 2014 program, water flood activities continued in Willesden Green and Pembina and the Company continues to assess the possible expansion of our water flood program in 2015. Waterflood programs throughout the Cardium area are proceeding, consistent with the Company’s long-term plan, and are performing in-line with expectations. Over time, the Company expects that these programs will mitigate natural declines and increase the ultimate recovery of light oil resource in our Cardium areas as reservoir pressures are optimized.
Viking
During the third quarter of 2014, $59 million of capital was invested in development activities in the Viking area. The pace of drilling increased substantially compared to the first half of the year with 48 wells drilled in the quarter, slightly behind plan due to the prolonged wet conditions in the area. A second rig was brought in early to recover the Company’s drilling schedule and by quarter-end, the program was back on track. Year to date, the Viking team has drilled 66 Viking wells of the planned 101, and there is currently one rig operating to complete the remainder of the program in the fourth quarter.
The Company’s target is to achieve average per well drilling and completion (“D&C”) costs in the Viking area of below $800,000 on a sustainable basis. High industry activity in the area has increased service costs on the completions side of the business by approximately 10 percent. In addition, the Company recovered its schedule from the effects of wet conditions which pushed per well D&C costs marginally higher in the quarter to approximately $870,000 on average. It is important to note that because Penn West is a cost leader in the area, it was able to absorb these excess costs. By quarter-end, per well D&C costs were trending back down toward the Company’s best-in-class average in the first half of 2014 of $840,000.
Leveraging off the positive results of its 16 wells-per-section down-spacing program earlier in the year, the Company is continuing to test down-spacing programs across the play. As the largest acreage holder in the core of the Viking play, an expanded down spacing program would significantly increase the existing 400-500 drilling locations the Company currently has estimated.
Slave Point
Penn West continues to test various D&C techniques in the Slave Point Carbonates, as it focuses on optimizing production performance, recoveries, cycle-times and per well costs. The Company invested development capital of $43 million in the third quarter and drilled five (5.0 net) wells in Otter.
In the quarter, the Company’s first acid frac stimulation was completed in Sawn. Initial results are encouraging and production performance on the well is equivalent to the Company’s tier one type curve in a lesser rock quality part of the reservoir. All planned 2014 drilling operations in the Slave Point area are essentially complete with 19 of the planned 20 wells drilled and one rig nearing completion on the final well in the 2014 program. Development activities for the remainder of the year will be focused on completions and tie-in operations.
As Penn West continues to assess the various techniques employed in both D&C operations, it expects to better understand an optimal and economically competitive strategy in the Slave Point play. The Company now believes its long-term plan target of $4.5 million is achievable utilizing certain of the techniques the Company tested this year. Discipline will be exercised, however, with a view to ensuring recoveries and sustainability of longer-term production performance before significant capital is committed.
Duvernay
The 7-16 horizontal well targeting the Duvernay was spud during the first week of July 2014 as planned. The well was successfully drilled to a measured depth of approximately 5,000 meters and logs were collected over a 1,900 meter lateral section in the well. Completions operations commenced in October 2014 as planned and the well is expected to be on production in December 2014.
DRILLING STATISTICS
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Gross | Net | Gross | Net | Gross | Net | Gross | Net | |||||||||
Oil | 95 | 77 | 51 | 29 | 172 | 134 | 207 | 148 | ||||||||
Natural gas | 7 | 2 | 2 | 1 | 7 | 2 | 3 | 2 | ||||||||
102 | 79 | 53 | 30 | 179 | 136 | 210 | 150 | |||||||||
Stratigraphic and service | 3 | – | 3 | 1 | 7 | 1 | 36 | 17 | ||||||||
Total | 105 | 79 | 56 | 31 | 186 | 137 | 246 | 167 | ||||||||
Success rate (1) | 100% | 100% | 100% | 100% |
(1) | Success rate is calculated excluding stratigraphic and service wells. |
(2) | Drilling statistics table includes both operated and non-operated activity. |
CAPITAL EXPENDITURES
Three months ended September 30 |
Nine months ended September 30 |
|||||||||
(millions) | 2014 | 2013(2) | % change | 2014 | 2013(2) | % change | ||||
Land acquisition and retention | $ | 1 | $ | 1 | – | $ | 2 | $ | 4 | (50) |
Drilling and completions | 172 | 40 | >100 | 345 | 338 | 2 | ||||
Facilities and well equipping | 52 | 36 | 44 | 135 | 237 | (43) | ||||
Geological and geophysical | – | – | – | 7 | 9 | (22) | ||||
Corporate | 7 | 2 | >100 | 10 | 7 | 43 | ||||
Capital carried by partners | (7) | (4) | 75 | (14) | (67) | (79) | ||||
Exploration and development capital (1) | 225 | 75 | >100 | 485 | 528 | (8) | ||||
Property dispositions, net | (3) | (16) | 81 | (215) | (63) | >100 | ||||
Total capital expenditures | $ | 222 | $ | 59 | >100 | $ | 270 | $ | 465 | (42) |
(1) | Exploration and development capital includes costs related to Property, Plant and Equipment and Exploration and Evaluation activities. |
(2) | Restated. |
During the third quarter of 2014, the Company continued to execute on its planned capital activities with a focus on the Viking and Cardium plays, with 48 and 20 net operated wells drilled, respectively. Additionally, appraisal activities continued in the Slave Point with five net wells drilled. The increase in capital expenditures in the third quarter of 2014 compared to the same period in 2013 was the result of the Company completing a strategy review in 2013 which resulted in the Company cutting back its capital expenditures in the comparative quarter. On a year-to-date basis, improvements in drilling cycle times have led to lower costs as Penn West continues to execute on a number of operational and capital efficiency strategies.
LAND
As at September 30 | |||||||||||
Producing | Non-producing | ||||||||||
2014 | 2013 | % change |
2014 | 2013 | % change |
||||||
Gross acres (000s) | 4,310 | 5,218 | (17) | 2,598 | 2,967 | (12) | |||||
Net acres (000s) | 2,941 | 3,535 | (17) | 1,781 | 2,022 | (12) | |||||
Average working interest | 68% | 68% | – | 69% | 68% | 1 |
COMMON SHARE DATA
Three months ended September 30 | Nine months ended September 30 | ||||||
(millions of shares) | 2014 | 2013 | % change |
2014 | 2013 | % change |
|
Weighted average | |||||||
Basic | 494.8 | 487.4 | 2 | 492.6 | 484.6 | 2 | |
Diluted | 494.8 | 488.1 | 1 | 492.6 | 484.6 | 2 | |
Outstanding as at September 30 | 495.0 | 488.1 | 1 |
REMEDIATION OF ACCOUNTING PRACTICES UPDATE
Penn West is implementing appropriate remedial measures to strengthen the Company’s corporate governance, compliance and control processes. It is in the process of enhancing the Company’s internal control testing function with the support of an independent third party firm, the Audit Committee and the Board, allowing for a higher level of independent assurance from this function. We believe that increasing organizational awareness and understanding of the importance of internal controls will significantly decrease the risk of errors in the Company’s financial statements.
Senior management is also reinforcing related accounting policies through enhanced formalization of documentation requirements and additional training and procedures across the Company to better ensure compliance with the Company’s policies and standards. Senior management will continue to emphasize adherence to these policies on an ongoing basis. During the third quarter of 2014, specific remediation efforts included:
- Holding a “town hall” meeting with all employees, led by the CEO and CFO, during which the values of the Company were reiterated, focusing on integrity and open communication. Information outlining the Company’s whistleblower line and its purpose was also provided to all employees.
- Engagement of an external third party to lead the internal control testing function, with a mandate to strengthen the specificity and enhanced accountability of the control functions.
- Additional training and education regarding policies and procedures commenced for accounting managers.
These remediation activities will continue in the coming months.
OUTLOOK
This outlook section is included to provide shareholders with information about the Company’s expectations as at November 4, 2014 for production and capital budget in 2014 and 2015 and readers are cautioned that the information may not be appropriate for any other purpose. This information constitutes forward-looking information. Readers should note the assumptions, risks and discussion under “Forward-Looking Statements” and are cautioned that numerous factors could potentially impact our actual capital expenditures and production performance for 2014 and 2015, including our non-core asset disposition program.
2014 OUTLOOK
There have been no changes to the Company’s guidance for its 2014 forecast average production of 101,000 to 106,000 boe per day, as discussed in the President’s Message above and as originally disclosed in our January 21, 2014 press release entitled “Penn West Provides Fourth Quarter 2013 Operational Update and Announces Additional Non-Core Asset Dispositions for Expected Proceeds of Approximately $175 Million.” Our capital budget also remains stable at $820 million, as outlined in our second quarter 2014 financial results press release.
The Company previously forecasted third quarter average production of approximately 100,000 boe per day, which was lower than the second quarter of 2014 reflecting additions from planned capital activities being weighted to the end of the third quarter and anticipated higher levels of planned turnaround activity in the quarter. Average production for the third quarter of 2014 was 100,839 boe per day, consistent with the Company’s target.
All press releases referenced above are available on the Company’s website at www.pennwest.com, on SEDAR at www.sedar.com, and on EDGAR at www.sec.gov.
PRELIMINARY 2015 OUTLOOK
For 2015, the Board has approved a capital budget of approximately $840 million. 2015 forecast average production is expected to be between 95,000 and 105,000 boe per day. Full year funds flow is forecast to be between $875 and $925 million based on pricing assumptions of C$86.50 per barrel of Canadian light sweet, C$3.69 per mcf AECO, and a C$/US$ foreign exchange rate of $1.04.
The Company plans to hold a conference call to discuss the details of the 2015 capital budget and an update to the long-term plan on the morning of Monday, November 17, 2014.
Conference call details are expected to be announced on Monday, November 10, 2014.
Non-GAAP Measures
This news release includes non-GAAP measures not defined under International Financial Reporting Standards (“IFRS”) including funds flow, funds flow per share-basic, funds flow per share-diluted, funds flow netback per barrel, netback and gross revenues. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Funds flow is cash flow from operating activities before changes in non-cash working capital and decommissioning expenditures. Funds flow is used to assess the Company’s ability to fund dividends and planned capital programs. See “Calculation of Funds Flow” below. Netback is a per-unit-of-production measure of operating margin used in capital allocation decisions, to economically rank projects and is the per-unit-of-production amount of revenue less royalties, operating costs, transportation and realized risk management gains and losses. Funds flow netback per barrel is cash flow from operating activities before changes in non-cash working capital and decommissioning expenditures on a per barrel basis. Gross revenue is total revenues including realized risk management gains and losses and is used to assess the cash realizations on commodity sales.
Calculation of Funds Flow
(millions, except per share amounts) | Three months ended September 30 |
Nine months ended September 30 |
|||||||
2014 | 2013(1) | 2014 | 2013(1) | ||||||
Cash flow from operating activities | $ | 292 | $ | 258 | $ | 728 | $ | 654 | |
Change in non-cash working capital | (73) | 13 | 38 | 78 | |||||
Decommissioning expenditures | 12 | 25 | 32 | 50 | |||||
Funds flow | $ | 231 | $ | 296 | $ | 798 | $ | 782 | |
Basic per share | $ | 0.47 | $ | 0.61 | $ | 1.62 | $ | 1.61 | |
Diluted per share | $ | 0.47 | $ | 0.61 | $ | 1.62 | $ | 1.61 |
(1) Certain financial information for the three and nine month periods ended September 30, 2013 has been restated. See Note 2 to Penn West’s unaudited consolidated interim financial statements for the three and nine month periods ended September 30, 2014 and 2013 for details regarding the restatement. |
Oil and Gas Information Advisory
Barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value, particularly if used in isolation.
Forward-Looking Statements
Certain statements contained in this document constitute forward-looking statements or information (collectively “forward-looking statements”) within the meaning of the “safe harbour” provisions of applicable securities legislation. In particular, this document contains forward-looking statements pertaining to, without limitation, the following: under “President’s Message”, our belief that we continue to make progress, our belief that the Company’s third quarter capital program sets up the Company for an improvement in fourth quarter production volumes, our forecast average daily production volumes for 2014, our belief that we have “turned the corner”, our expectation that we will deliver a stronger percentage of funds flow netback per barrel against out realized price, our expectation that the trend of cost control will continue to improve into 2015, our belief that our long-term plan has been prepared to position the business for success in a low commodity price environment, our belief that we can hold our course into 2015 in the current environment, our expectation that our operational plans for the first half of 2015 will not change, our expectation that should we continue to see commodity price weakness (sub C$75 per barrel) through to the second quarter of 2015 we may consider adjusting capital allocations in some of our second half programs, and our committed to continuing to make the right decisions for the long-term value of the Company for our shareholders; under “Disposition Update”, our expectation that, upon completion of the sale of non-core assets announced on October 23, 2014, we will have $1 billion in asset sales since the November 2013 announcement of our long-term divestment plan and will have reduced our debt position by over $1.2 billion during that same period, and our intention to direct our future disposition efforts to non-producing assets as we continue to increase the focus on our core areas and improve our financial flexibility; under “Dividend Sustainability”, our belief that the Company is able to fund its capital expenditure programs in conjunction with paying a dividend, and our intention that the updated long term-plan will provide a renewed vision of growth in both production and profitability through a continued pursuit of operational discipline, cost control and focused capital programs on Penn West’s core areas; under “Play Updates”, all matters pertaining to our planned operations in the fourth quarter of 2014 and beyond, including (i) in respect of our Cardium play, the expectation that the increase in multi-well pads will provide cost efficiencies and drive incremental cost savings, the expectation that the remaining planned Cardium wells will be spud in the fourth quarter, and the expectation that water flood programs will mitigate natural declines and increase the ultimate recovery of light oil resource in our Cardium areas as reservoir pressures are optimized, (ii) in respect of our Viking play, our target to achieve average per well D&C costs in the Viking area of below $800,000 on a sustainable basis, and our belief that an expanded down spacing program would significantly increase the existing 400-500 drilling locations we currently have estimated, (iii) in respect of our Slave Point play, our intention to focus development activities for the remainder of the year on completions and tie-in operations, our expectation to better understand an optimal and economically competitive strategy in the Slave Point play as we continue to assess the various D&C techniques employed in the Slave Point Carbonates and Swan, our belief that our long-term plan D&C target costs of $4.5 million average per well are achievable utilizing certain of the techniques that we have tested this year, and our plan to obtain recoveries and sustainability of longer-term production performance before significant capital is committed; and (iv) in respect of our Duvernay play, our expectation the 7-16 horizontal production well will be on production in December 2014; under “Remediation of Accounting Practices Update”, our belief that increasing organizational awareness and understanding of the importance of internal controls will significantly decrease the risk of errors in our financial statements, the commitment of senior management to emphasize adherence to the Company’s policies and standards on an ongoing basis, and the continuation of remediation efforts in the coming months; and under “Outlook”, our forecast average daily production volumes for 2014 and 2015, our forecast capital budgets for 2014 and 2015, and our forecast funds flow for 2015.
With respect to forward-looking statements contained in this document, we have made assumptions regarding, among other things: 2015 prices of C$86.50 per barrel of Canadian light sweet, C$3.69 per mcf AECO, and a C$/US$ foreign exchange rate of $1.04; matters with respect to the non-core asset disposition described herein, including that the closing conditions will be met or waived, and that the disposition will close on the terms and on the timeline disclosed herein; that we do not dispose of additional material producing properties; that the current commodity price and foreign exchange environment will continue or improve; future capital expenditure levels; future crude oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices and Canadian, WTI and world oil and natural gas prices; future crude oil, natural gas liquids and natural gas production levels; future exchange rates and interest rates; future debt levels; and the amount of future cash dividends that we intend to pay.
Although we believe that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the forward-looking statements contained herein will not be correct, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the possibility that we are unable to close the disposition disclosed herein on the terms described or at all, whether due to the failure to receive requisite regulatory or other third party approvals or satisfy applicable closing conditions or for other reasons that we cannot anticipate; the possibility that we will not be able to successfully execute our long-term plan (including our 2014 plans described herein) in part or in full, and the possibility that some or all of the benefits that we anticipate will accrue to our Company and our securityholders as a result of the successful execution of such plans do not materialize; the possibility that we are unable to execute some or all of our ongoing non-producing asset disposition program on favourable terms or at all; general economic and political conditions in Canada, the U.S. and globally, and in particular, the effect that those conditions have on commodity prices and our access to capital; industry conditions, including fluctuations in the price of crude oil, natural gas liquids and natural gas, price differentials for crude oil and natural gas produced in Canada as compared to other markets, and transportation restrictions, including pipeline and railway capacity constraints; fluctuations in foreign exchange or interest rates; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed (including extreme cold during winter months, wild fires and flooding); and the other factors described under “Risk Factors” in our Revised Annual Information Form and described in our public filings, available in Canada at www.sedar.com and in the United States at www.sec.gov. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this document speak only as of the date of this document. Except as expressly required by applicable securities laws, we do not undertake any obligation to publicly update any forward-looking statements. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.