CALGARY, ALBERTA–(Marketwired – Feb. 8, 2016) – Chinook Energy Inc. (“Chinook” or the “Company”) (TSX:CKE) today announced the results of its year-end reserve evaluation effective December 31, 2015 as prepared by its independent evaluator. The Company has also provided an operations update.
Chinook’s audit of its 2015 annual consolidated financial statements is not yet complete and accordingly all financial amounts referred to in this news release are unaudited and represent management’s estimates. Readers are advised that these financial estimates are subject to audit and may be subject to change as a result.
Operational Update and Unaudited 2015 Year-End Results
Chinook’s average daily production for fiscal year 2015 was 5,637 boe/d. Average production for the fourth quarter of 2015 was 3,928 boe/d and the Company exited 2015 at approximately 4,472 boe/d. Projected funds from operations for 2015 is estimated at $9 million or $0.04 per weighted average basic common share outstanding. Chinook exited 2015 undrawn on its $50 million credit facility and with an approximate $30 million working capital surplus.
During 2015, Chinook focused on the development of its Montney acreage at Birley/Umbach in northeastern British Columbia. Chinook also had net dispositions of $42.1 million, before closing adjustments, of non-strategic Canadian assets representing approximately 932 boe/d.
During 2015, Chinook drilled 3 (2.75 net) horizontal wells in the Birley/Umbach area of northeastern British Columbia, targeting liquids-rich natural gas in the Montney. The first well, a-73-L (0.75 net), was drilled and completed in the first quarter and commenced production late in March 2015 at initial rates of approximately 4.0 mmcf/d and 150 bbls of free condensate per day (817 boe/d). The well has been on production for 138 days during which it has averaged approximately 3.2 mmcf/d and 63 bbls of free condensate per day (596 boe/d). Two additional horizontal wells (2.0 net) at b-4-K/94-H-3 and c-37-K/94-H-3 were drilled during the first quarter and completed in the third quarter. A fourth horizontal well, b-72-F/94-H3 (0.75 net), which was drilled during the fourth quarter of 2014 was also completed during the third quarter of 2015. During 2015, Chinook completed the majority of the 25 mmcf/d expansion of the Birley/Umbach facility.
Chinook will commence production from its new 25 mmcf/d A-72-F compression facility at Birley later this week with transition of its current 5.9 mmcf/d (4.4 mmcf/d net) raw throughput from the original compression facility at D-72-F and incremental raw production of 13.5 mmcf/d (12.4 mmcf/d net) estimating throughput of approximately 19.4 mmcf/d (16.8 mmcf/d net). Capacity at the Birley compressor site from this expansion will be approximately 34 mmcf/d. With the incremental production at Birley, Chinook anticipates corporate production to be approximately 7,000 boe/d.
2015 Independent Reserves Evaluation
McDaniel & Associates Consultants Ltd. (“McDaniel”) evaluated all of Chinook’s properties effective December 31, 2015 pursuant to a report dated February 8, 2016. The independent reserve evaluation was prepared in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101 (“NI 51-101”). The reserve evaluation was based on McDaniel’s forecast pricing and foreign exchange rates at December 31, 2015. The Reserves, Safety and Environmental Committee of the Board and the Board of Directors of Chinook have reviewed and approved the evaluation prepared by the evaluator.
Reserves included herein are stated on a Company gross basis (working interest before deduction of royalties and without including any royalty interests) unless noted otherwise. This news release contains several cautionary statements that are specifically required by NI 51-101 under the heading “Reader Advisory” and throughout the release. In addition to the information contained in this news release more detailed reserves information will be included in Chinook’s Annual Information Form for the year ended December 31, 2015, which will be filed on SEDAR at www.sedar.com in March 2016.
Reserves Breakdown (Company gross) (1) | ||
(December 31, 2015, McDaniel price forecast) | ||
(mboe) | 2015 | 2014 |
Proved Producing | ||
Total proved producing | 8,893 | 13,589 |
Proved | ||
Total proved | 19,182 | 17,947 |
Proved Plus Probable | ||
Total proved plus probable | 30,634 | 27,383 |
Note: | |
(1) | Gross reserves are the Company’s working interest reserves before royalty deductions and do not include royalty interest volumes. |
Company Gross and Net Reserves as at December 31, 2015
The following table summarizes the Company’s gross and net reserve volumes utilizing McDaniel’s forecast pricing and cost estimates at December 31, 2015.
Light and medium oil |
Heavy oil | Conventional Natural Gas |
Natural gas liquids |
Oil equivalent (6:1) |
|||||||
Reserves category | Gross (1)
(mbbl) |
Net (2)
(mbbl) |
Gross (1)
(mbbl) |
Net (2)
(mbbl) |
Gross (1)
(mmcf) |
Net (2)
(mmcf) |
Gross (1) (mbbl) |
Net (2)
(mbbl) |
Gross (1)
(mboe) |
Net (2)
(mboe) |
|
Total company | |||||||||||
Proved | |||||||||||
Developed producing | 1,624 | 1,419 | 44 | 44 | 38,675 | 34,210 | 779 | 581 | 8,893 | 7,745 | |
Developed non-producing | 181 | 166 | 13 | 13 | 23,966 | 20,053 | 688 | 534 | 4,877 | 4,055 | |
Undeveloped | 483 | 437 | 0 | 0 | 24,700 | 20,878 | 813 | 687 | 5,413 | 4,605 | |
Total proved | 2,288 | 2,023 | 57 | 56 | 87,341 | 75,141 | 2,280 | 1,802 | 19,182 | 16,405 | |
Probable | 1,159 | 926 | 33 | 32 | 52,644 | 43,807 | 1,486 | 1,159 | 11,452 | 9,419 | |
Total proved plus probable | 3,447 | 2,949 | 91 | 89 | 139,985 | 118,948 | 3,766 | 2,961 | 30,634 | 25,824 |
Note: | |
(1) | Gross reserves are the Company’s working interest reserves before royalty deductions and do not include royalty interest volumes. |
(2) | Net reserves are after royalty deductions and include royalty interest volumes. |
(3) | Columns may not add due to rounding. |
Company Gross Reserve Reconciliation for 2015 | ||||||
(Company gross reserves before deduction of royalties payable) | ||||||
6:1 Oil Equivalent (mboe) | ||||||
Total Proved | Probable | Proved Plus Probable |
||||
December 31, 2014 – opening balance | 17,947 | 9,437 | 27,383 | |||
Additions and extensions | 3,286 | 4,294 | 7,580 | |||
Acquisitions | – | – | – | |||
Dispositions | (1,439 | ) | (727 | ) | (2,166 | ) |
Technical revisions | 2,547 | (698 | ) | 1,849 | ||
Economic factors | (1,101 | ) | (855 | ) | (1,955 | ) |
Production | (2,058 | ) | – | (2,058 | ) | |
December 31, 2015 – closing balance | 19,182 | 11,452 | 30,634 |
Note: | |
(1) | Columns may not add due to rounding. |
During 2015, Chinook completed the sale of petroleum and natural gas properties including undeveloped lands located in the Karr area of northwestern Alberta, in addition to other minor dispositions, acquisitions and customary closing adjustments, for net proceeds of $42.1 million. Dispositions within the Company’s Grande Prairie operating district represented the majority of the proved plus probable reserve reductions of approximately 2.2 mmboe.
Year over year, McDaniel recorded net positive technical revisions related to performance of approximately 1.8 mmboe on a proved plus probable reserves basis.
A downward adjustment in the independent price forecast for both natural gas and North American crude oil, partially offset by improvements in operating costs, resulted in net negative revisions due to economic factors totaling 2.0 mmboe on proved and probable reserves.
Of particular note, Chinook added a total of 7.6 mmboe on a proved plus probable basis. The additions are focused in the Company’s core Montney area of Birley/Umbach, British Columbia.
Reserve Life Index (“RLI”)
As at December 31, 2015, Chinook’s proved plus probable RLI was 18.8 years based upon the McDaniel reserves report and the Company’s annualized December 2015 production volumes, while its proved RLI was 11.8 years. The following table summarizes the RLI:
Proved | ||
Reserves (mboe) | 19,182 | |
December 2015 production (mboe) (1) | 1,627 | |
Reserve life index (years) | 11.8 | |
Proved Plus Probable | ||
Reserves (mboe) | 30,634 | |
December 2015 production (mboe) (1) | 1,627 | |
Reserve Life Index (years) | 18.8 |
Note: | |
(1) | December 2015 production excludes volumes that were disposed of in the same month and are net of shut-in volumes. |
Net Present Value (“NPV”) Summary (before tax) as at December 31, 2015
(December 31, 2015, McDaniel price forecast)
Benchmark oil and NGL prices used are adjusted for quality of oil or NGL produced and for transportation costs. The calculated NPVs include a deduction for estimated future well abandonment and reclamation but do not include a provision for interest, debt service charges and general and administrative expenses. It should not be assumed that the NPV estimate represents the fair market value of the reserves.
($ thousands) | Undiscounted | Discounted at 5% |
Discounted at 10% |
Discounted at 15% |
Discounted at 20% |
Proved developed producing | 127,787 | 100,552 | 82,720 | 70,443 | 61,571 |
Proved developed non-producing | 44,236 | 35,284 | 28,933 | 24,325 | 20,882 |
Total proved developed | 172,023 | 135,836 | 111,653 | 94,767 | 82,453 |
Proved undeveloped | 52,344 | 29,510 | 16,716 | 8,796 | 3,556 |
Total proved | 224,367 | 165,345 | 128,369 | 103,563 | 86,009 |
Probable additional | 194,041 | 110,463 | 70,385 | 48,466 | 35,251 |
Total proved plus probable | 418,408 | 275,809 | 198,753 | 152,029 | 121,261 |
Net Present Value Summary (after tax) as at December 31, 2015
(December 31, 2015, McDaniel price forecast)
The after-tax NPV of Chinook’s oil and natural gas properties reflects the tax burden on the properties on a stand-alone basis and does not consider the business-entity-level tax situation, or tax planning. It does not provide an estimate of the value at the level of the business entity, which may be significantly different. The financial statements and the management’s discussion and analysis of Chinook should be consulted for information at the level of the business entity.
($ thousands) | Undiscounted | Discounted at 5% |
Discounted at 10% |
Discounted at 15% |
Discounted at 20% |
Proved developed producing | 127,787 | 100,552 | 82,720 | 70,443 | 61,571 |
Proved developed non-producing | 44,236 | 35,284 | 28,933 | 24,325 | 20,882 |
Total proved developed | 172,023 | 135,836 | 111,653 | 94,767 | 82,453 |
Proved undeveloped | 52,344 | 29,510 | 16,716 | 8,796 | 3,556 |
Total proved | 224,367 | 165,345 | 128,369 | 103,563 | 86,009 |
Probable additional | 194,041 | 110,463 | 70,385 | 48,466 | 35,251 |
Total proved plus probable | 418,408 | 275,809 | 198,753 | 152,029 | 121,261 |
McDaniel & Associates Consultants Ltd. Price Forecast as at December 31, 2015 (1)
WTI Crude Oil (US$/bbl) |
Edmonton Light Crude Oil (Cdn$/bbl) |
Henry Hub Natural Gas (US$/mmbtu) |
AECO Natural Gas (Cdn$/mmbtu) |
British Columbia Average Plantgate Gas (Cdn$/mmbtu) | Edmonton Condensate and Natural Gasoline (Cdn$/bbl) |
Ethane (Cdn$/bbl) |
Propane (Cdn$/bbl) |
Butane (Cdn$/bbl) |
US/Cdn Exchange (US$/Cdn$) |
|||||||||
2016 | 45.00 | 56.60 | 2.50 | 2.70 | 2.10 | 60.60 | 10.00 | 10.60 | 35.20 | 0.730 | ||||||||
2017 | 53.60 | 66.40 | 2.95 | 3.20 | 2.60 | 70.50 | 12.00 | 18.00 | 41.30 | 0.750 | ||||||||
2018 | 62.40 | 72.80 | 3.40 | 3.55 | 3.15 | 77.00 | 13.40 | 25.90 | 48.00 | 0.800 | ||||||||
2019 | 69.00 | 80.90 | 3.70 | 3.85 | 3.45 | 85.10 | 14.60 | 30.30 | 56.30 | 0.800 | ||||||||
2020 | 73.10 | 83.20 | 3.90 | 3.95 | 3.55 | 87.50 | 15.00 | 31.20 | 61.00 | 0.825 | ||||||||
Average | 60.62 | 71.98 | 3.29 | 3.45 | 2.97 | 76.14 | 13.00 | 23.20 | 48.36 | 0.781 |
Note: | |
(1) | Prices escalate at two percent per year after 2020. |
The above pricing table was utilized by McDaniel in their evaluation of Chinook’s reserves as at December 31, 2015. When compared to the December 31, 2014 price forecast, commodity pricing for the year 2016 has decreased for Edmonton Light Crude Oil, AECO Natural Gas and British Columbia Average Plantgate Gas by 32%, 33% and 43% respectively.
Future Development Costs (“FDC”)
Changes in forecast FDC occur annually as a result of development activities, acquisition and disposition activities and capital cost estimates that reflect the independent evaluator’s best estimate of what it will cost to bring the proved undeveloped and probable reserves on production using forecast prices and costs.
($ millions) | ||
2015 | 2014 | |
Total proved | 61.8 | 42.6 |
Total proved plus probable | 95.0 | 71.0 |
NI 51-101 Finding and Development Costs (“F&D”)
NI 51-101 requires that finding and development costs be calculated including changes in undiscounted FDC. Chinook’s F&D costs, calculated in accordance with NI 51-101 are set forth below. Comparative F&D costs for 2014 and 2013 set forth in the tables below, including Chinook’s three-year average F&D costs, do not include F&D costs associated with its former business operations in Tunisia. It is worth noting that Chinook incurred $16.5 million related to the construction of its facility expansion in its core area of Birley/Umbach during 2015.
Total Finding and Development Costs (Proved Reserves) ($ thousands, except per unit amounts) |
2015 | 2014 | 2013 | Three-Year Total |
Exploration and development costs excluding acquisitions and dispositions(unaudited) (1) | 44,281 | 77,542 | 40,120 | 161,942 |
Net change from previously allocated future development capital | 25,618 | 6,820 | 8,732 | 41,170 |
Total exploration and development costs including the net change in FDC | 69,899 | 84,362 | 48,851 | 203,112 |
Reserve additions excluding acquisitions and dispositions (mboe) | 4,732 | 3,473 | 1,088 | 9,293 |
NI 51-101 total proved finding and development costs (per boe) | 14.77 | 24.29 | 44.91 | 21.86 |
Total Finding and Development Costs (Proved plus Probable Reserves) ($ thousands, except per unit amounts) |
2015 | 2014 | 2013 | Three-Year Total |
Exploration and development costs excluding acquisitions and dispositions(unaudited) (1) | 44,281 | 77,542 | 40,120 | 161,942 |
Net change from previously allocated future development capital | 30,530 | 19,910 | (8,170) | 42,270 |
Total exploration and development costs including the net change in FDC | 74,811 | 97,452 | 31,950 | 204,213 |
Reserve additions excluding acquisitions and dispositions (mboe) | 7,474 | 4,797 | (1,402) | 10,868 |
NI 51-101 total proved plus probable finding and development costs (per boe) | 10.01 | 20.32 | (22.78) | 18.79 |
Note: | |
(1) | Excludes non-cash costs, including decommissioning liabilities. |
All-In Finding, Development and Acquisition Costs
NI 51-101 specifies how F&D costs should be calculated if they are reported. Essentially NI 51-101 requires that exploration and development costs incurred in the year along with the change in estimated FDC be aggregated and then divided by the applicable reserve additions. The calculation specifically excludes the effects of acquisition and dispositions on both reserves and costs. By excluding acquisitions and dispositions, the Company believes that the provisions of NI 51-101 may not fully reflect the Company’s ongoing reserve replacement costs. Since acquisitions and dispositions can have an impact on the Company’s annual reserve replacement costs, excluding these amounts could result in an inaccurate portrayal of the Company’s costs. Accordingly, the Company also provides “all-in” F&D costs that incorporate all acquisitions net of any dispositions in the year.
All-In Finding, Development and Acquisition Cost Including FDC, Acquisitions, Dispositions and Revisions (Proved Reserves) ($ thousands, except per unit amounts) |
2015 | 2014 | 2013 | Three-Year Total |
Exploration and development costs including acquisitions and dispositions(unaudited) (1) | 6,477 | 63,358 | 26,133 | 95,968 |
Net change from previously allocated future development capital | 19,178 | 5,890 | 8,646 | 33,714 |
Total exploration and development costs including the net change in FDC | 25,656 | 69,247 | 34,779 | 129,682 |
Reserve additions including acquisitions, dispositions and revisions (mboe) | 3,293 | 4,824 | (47) | 8,070 |
All-in total proved finding, development and acquisition costs (per boe) | 7.79 | 14.36 | (745.45) | 16.07 |
All-In Finding, Development and Acquisition Cost Including FDC, Acquisitions, Dispositions and Revisions (Proved plus Probable Reserves) ($ thousands, except per unit amounts) |
2015 | 2014 | 2013 | Three-Year Total |
Exploration and development costs including acquisitions and dispositions (unaudited) (1) | 6,477 | 63,358 | 26,133 | 95,968 |
Net change from previously allocated future development capital | 24,054 | 13,581 | (9,282) | 28,354 |
Total exploration and development costs including the net change in FDC | 30,532 | 76,939 | 16,851 | 124,322 |
Reserve additions including acquisitions, dispositions and revisions (mboe) | 5,308 | 5,191 | (3,115) | 7,384 |
All-in total proved plus probable finding and development costs (per boe) | 5.75 | 14.82 | (5.41) | 16.84 |
Note: | |
(1) | Excludes non-cash costs, including decommissioning liabilities. |
Total exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs, generally will not reflect the total cost of reserve additions in that year.
Recycle Ratio
The recycle ratio is calculated as the annual netback per barrel divided by the non-adjusted F&D costs set forth above. The recycle ratio is comparing the netback from existing reserves to the cost of finding new reserves and may not accurately indicate investment success unless the replacement reserves are of equivalent quality as the produced reserves.
Total Proved | |
Operating netback before commodity price contracts ($/boe)(unaudited) (1) | 8.24 |
51-101 F&D costs ($/boe)(unaudited) | 14.77 |
Recycle ratio | 0.6x |
Total Proved Plus Probable | |
Operating netback before commodity price contracts ($/boe)(unaudited) (1) | 8.24 |
51-101 F&D costs ($/boe)(unaudited) | 10.01 |
Recycle ratio | 0.8x |
Note: | |
(1) | Operating netback is calculated by deducting royalties and net production expenses from revenue. |
Presented below is the recycle ratio as calculated by using the annual netback per barrel divided by the calculated all-in finding, development and acquisition costs (excluding abandonment and furniture and fixtures) and including the effects of revisions.
Total Proved | |
Operating netback before commodity price contracts ($/boe)(unaudited) (1) | 8.24 |
All-in F&D costs ($/boe)(unaudited) | 7.79 |
Recycle ratio | 1.1x |
Total Proved Plus Probable | |
Operating netback before commodity price contracts ($/boe)(unaudited) (1) | 8.24 |
All-in F&D costs ($/boe)(unaudited) | 5.75 |
Recycle ratio | 1.4x |
Note: | |
(1) | Operating netback is calculated by deducting royalties and net production expenses from revenue. |
Corporate Net Asset Value
The Company’s net asset value as of December 31, 2015 is detailed in the following table. This net asset value determination is a “point-in-time” measurement and does not take into account the possibility of Chinook being able to recognize additional reserves through successful future capital investment in its existing properties beyond those included in the 2015 year-end reserve reports.
December 31, 2015 | Before Tax NPV 5% | Before Tax NPV 10% | Before Tax NPV 15% | |||
($ thousands) | $/share | ($ thousands) | $/share | ($ thousands) | $/share | |
Proved developed producing reserves NPV (1)(2) | 100,552 | 0.47 | 82,720 | 0.38 | 70,443 | 0.33 |
Total proved reserves NPV (1)(2) | 165,345 | 0.77 | 128,369 | 0.60 | 103,563 | 0.48 |
Proved plus probable reserves NPV (1)(2) | 275,809 | 1.28 | 198,753 | 0.92 | 152,029 | 0.71 |
Undeveloped acreage (3) | 27,684 | 0.13 | 27,684 | 0.13 | 27,684 | 0.13 |
Net surplus (4) | 29,614 | 0.14 | 29,614 | 0.14 | 29,614 | 0.14 |
Net asset value (basic) (5)(6) | 333,107 | 1.55 | 256,051 | 1.19 | 209,327 | 0.97 |
After Tax NPV 5% | After Tax NPV 10% | After Tax NPV 15% | ||||
($ thousands) | $/share | ($ thousands) | $/share | ($ thousands) | $/share | |
Proved developed producing reserves NPV (1)(2) | 100,552 | 0.47 | 82,720 | 0.38 | 70,443 | 0.33 |
Total proved reserves NPV (1)(2) | 165,345 | 0.77 | 128,369 | 0.60 | 103,563 | 0.48 |
Proved plus probable reserves NPV (1)(2) | 275,809 | 1.28 | 198,753 | 0.92 | 152,029 | 0.71 |
Undeveloped acreage (3) | 27,684 | 0.13 | 27,684 | 0.13 | 27,684 | 0.13 |
Net surplus (4) | 29,614 | 0.14 | 29,614 | 0.14 | 29,614 | 0.14 |
Net asset value (basic) (5)(6) | 333,107 | 1.55 | 256,051 | 1.19 | 209,327 | 0.97 |
Notes: | |
(1) | Evaluated by the independent reserve evaluator as at December 31, 2015. Net present value of future net revenue does not represent the fair market value of the reserves. |
(2) | Net present values for before and after tax are based on McDaniel’s December 31, 2015 price forecast. |
(3) | Undeveloped land value has been valued internally by Chinook at an average of $131 per acre over 212,025 net undeveloped acres. |
(4) | Net surplus as at December 31, 2015, including positive working capital (estimated and unaudited). See “Net Surplus” in the Reader Advisory below. |
(5) | Net asset value is the sum of Proved plus probable reserves, Undeveloped acreage and Net surplus |
(6) | Basic shares as at December 31, 2015 totaled 215,349,412 common shares. |
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and gas exploration and development company with multi-zone conventional production and resource plays in western Canada.