CALGARY, ALBERTA–(Marketwired – March 16, 2016) – Delphi Energy Corp. (TSX:DEE) (“Delphi” or the “Company”) is pleased to announce its financial and operational results for the year ended December 31, 2015.
- Achieved average production of 9,469 barrels of oil equivalent per day (“boe/d”) despite TCPL and Alliance pipeline curtailments and two major property dispositions during the year. The divested properties had production capability of approximately 2,600 boe/d. Average production in the fourth quarter of 2015 was 8,814 boe/d;
- Increased Delphi’s field condensate weighting as a percentage of fourth quarter of 2015 production volumes to 18 percent, a 29 percent increase, from 14 percent in the comparative quarter of 2014;
- Increased Montney natural gas liquids (“NGL”) and field condensate yields to 97 barrels per million cubic feet (“bbls/mmcf”) in 2015, up from 95 bbls/mmcf in 2014. Field and plant condensate yield averaged 65 bbls/mmcf or 67 percent of the total 97 bbls/mmcf;
- Commenced shipping the majority of the Company’s natural gas production into the Chicago market, effective December 1, 2015, through its Alliance pipeline full path firm service agreement, minimizing the exposure to ongoing curtailments on the TCPL pipeline system;
- Reduced Delphi’s fourth quarter of 2015 operating costs by 26 percent, to $7.63 per boe, compared to the third quarter of 2015 and 19 percent compared to the fourth quarter of 2014, largely as a result of the major property dispositions completed during 2015;
- Successfully drilled six wells (5.3 net) as part of the Company’s capital program and completed, tied-in and brought on production six gross (5.3 net) Montney wells in East Bigstone;
- Achieved gross average drilling and completion costs of $8.1 million per well on the six wells drilled in 2015 compared to gross average drilling and completion costs of $10.4 million per well in 2014. Drilling and completion costs have been further reduced to an average of $7.0 million per well on Delphi’s most recent three wells;
- Constructed injection facilities on an acquired water disposal well with water injection operations commencing in the fourth quarter of 2015, reducing water disposal costs for produced water from its Bigstone field;
- Successfully disposed of its Wapiti and Greater Hythe assets for net proceeds, after closing adjustments, of $60.2 million;
- Reduced long term and subordinated debt by $49.3 million from the use of proceeds of dispositions. Net debt at the end of the year was $121.7 million, down $52.0 million from $173.7 million at the end of 2014;
- Reduced the Company’s decommissioning obligation by 50 percent to $24.9 million, primarily due to decommissioning obligations sold with the Wapiti and Greater Hythe assets; and
- Realized gains of $28.3 million from commodity related risk management contracts offsetting a 40 percent decrease in the AECO natural gas price and 48 percent decrease in WTI oil prices in 2015 compared to 2014. Delphi’s future risk management contracts have a mark to market value of $18.5 million as at December 31, 2015.
|Three Months Ended December 31||Twelve Months Ended December 31|
|Production||2015||2014||% Change||2015||2014||% Change|
|Field condensate (bbls/d)||1,606||1,639||(2||)||1,440||1,421||1|
|Natural gas liquids (bbls/d)||1,414||2,020||(30||)||1,433||1,669||(14||)|
|Crude oil (bbls/d)||7||53||(87||)||27||171||(84||)|
|Total crude oil and natural gas liquids||3,027||3,712||(18||)||2,900||3,261||(11||)|
|Natural gas (mcf/d)||34,719||49,939||(30||)||39,416||43,729||(10||)|
|Financial Highlights ($ thousands except per unit amounts)|
|Three Months Ended December 31||Twelve Months Ended December 31|
|2015||2014||% Change||2015||2014||% Change|
|Crude oil and natural gas sales||18,601||35,534||(48||)||80,275||163,870||(51||)|
|Realized sales price per boe||37.09||33.75||10||31.43||40.23||(22||)|
|Funds from operations||13,317||15,869||(16||)||42,893||65,159||(34||)|
|Per share – Basic||0.09||0.10||(10||)||0.28||0.42||(33||)|
|Per share – Diluted||0.09||0.10||(10||)||0.28||0.41||(32||)|
|Net earnings (loss)||(23,084||)||(25,588||)||(10||)||(42,525||)||(7,263||)||486|
|Per share – Basic||(0.15||)||(0.16||)||(6||)||(0.27||)||(0.05||)||440|
|Per share – Diluted||(0.15||)||(0.16||)||(6||)||(0.27||)||(0.05||)||440|
|Disposition of properties||(13,712||)||(651||)||2,006||(67,578||)||(16,615||)||307|
|Net capital invested||2,471||16,201||(85||)||(10,128||)||84,236||(112||)|
|Acquisition of undeveloped properties||–||–||–||–||8,800||–|
|Acquisition of developed properties||–||8,858||–||–||8,858||–|
|Total capital invested||2,471||25,059||(90||)||(10,128||)||101,894||(110||)|
|December 31, 2015||December 31, 2014||% Change|
|Net debt (1)||121,664||173,655||(30||)|
|Shares outstanding (000’s)|
(1) Defined as the sum of long term and subordinated debt plus (minus) the working capital deficit (surplus) excluding the current portion of the fair value of financial instruments.
MESSAGE TO SHAREHOLDERS
The commodity price environment continued to be very challenging with West Texas Intermediate (“WTI”) crude oil prices averaging US $42.17 per barrel during the fourth quarter of 2015, down 42 percent from the comparative quarter of the previous year. Average WTI crude oil prices for the year were down 48 percent compared to the previous year. NYMEX natural gas prices averaged US $2.24 per mmbtu in the fourth quarter, down 42 percent from the comparative quarter of 2014. NYMEX natural gas prices averaged US $2.63 per mmbtu in 2015, down 38 percent from the previous year.
Delphi’s commodity price risk management program continues to be an integral part of its financial strategy to protect funds from operations during periods of price volatility. Despite the drop in crude oil prices, the Company received $65.06 per barrel for its condensate production in the fourth quarter of 2015, including a realized risk management gain of $18.01 per barrel for maturing contracts in the period. Delphi’s realized natural gas price for the fourth quarter of 2015 was $5.60 per mcf, an increase of 51 percent from the comparative period of 2014. The Company’s realized natural gas price was positively influenced by its risk management program and includes a gain of $0.91 per mcf for maturing contracts in the period and $1.85 per mcf on the unwinding of certain natural gas risk management contracts for the period January 1, 2017 to December 31, 2019.
Production volumes in the fourth quarter of 2015 averaged 8,814 boe/d, a 27 percent decrease over the comparative quarter in 2014. Production volumes primarily decreased due to the disposition of the Company’s Wapiti assets in the third quarter of 2015 and the disposition of its Greater Hythe assets in the fourth quarter of 2015. Delphi commenced shipping the majority of its natural gas production into the Chicago market, effective December 1, 2015, through its Alliance pipeline full path firm service agreement. Natural declines and disposition volumes in the quarter were partially offset by the start-up of two gross (1.8 net) Montney wells which were brought on production in the fourth quarter.
Delphi’s field condensate weighting as a percentage of fourth quarter of 2015 production volumes increased to 18 percent, up 29 percent, from 14 percent in the comparative quarter of 2014. The Company`s Montney natural gas liquids and field condensate yields increased to 97 barrels per million cubic feet in 2015, up from 95 bbls/mmcf in 2014. Field and plant condensate yield averaged 65 bbls/mmcf or 67 percent of the total 97 bbls/mmcf.
Funds from operations in the fourth quarter of 2015 were $13.3 million or $0.09 per basic and diluted share, compared to $15.9 million or $0.10 per basic and diluted share in the comparative quarter of 2014. The decrease in funds from operations in the fourth quarter of 2015 as compared to the same quarter in 2014 is primarily due to lower production volumes partially offset by a higher cash netback for the quarter. Delphi’s cash netback increased 15 percent in the fourth quarter of 2015, to $16.41 per boe versus $14.33 per boe in the comparative quarter of 2014. The increase in the cash netback is due to higher realized revenue of $3.34 per boe (a ten percent increase) from the gains on the realization of risk management contracts and lower operating costs of $1.78 per boe (19 percent decrease) partially offset by higher costs for G&A of $1.44 per boe (203 percent increase), which includes $1.07 per boe for termination costs related to staff reductions and transportation costs of $1.65 per boe (50 percent increase). The reduction in operating costs is largely as a result of the major property dispositions completed during 2015. The increase in transportation costs is partially due to the shipping of the Company’s natural gas production through the Alliance pipeline to Chicago, effective December 1.
During the fourth quarter of 2015, Delphi invested $16.2 million primarily on drilling and completions. Delphi drilled two gross (1.7 net) wells and performed completion operations on two gross (1.8 net) wells in its Bigstone area. The Company also completed its water disposal facility which was commissioned in October. In the fourth quarter, the Company closed the disposition of its Greater Hythe assets for net proceeds of $11.4 million. In addition, Delphi received proceeds of $4.6 million in exchange for a gross overriding royalty on two gross wells completed during the quarter as part of its latest five well gross overriding royalty arrangement.
At December 31, 2015, the Company had $94.2 million outstanding in the form of bankers` acceptances under its senior credit facility, $14.0 million outstanding under its subordinated credit facility and a working capital deficiency of $13.5 million for net debt of $121.7 million and was in compliance with all covenants of the credit facilities. Total net debt has decreased by $52.0 million from $173.7 million at the end of the previous year, primarily from the disposition of the Company’s Wapiti and Greater Hythe assets for net proceeds of $60.2 million. At December 31, 2015, the Company’s net debt to funds from operations ratio was 2.3:1.
Delphi has continued to innovate drilling and completion techniques to drive costs lower, improving year over year capital efficiencies. Drilling and completion costs for the six wells drilled in 2015 averaged $8.1 million, with the most recent three wells drilled and completed for $7.0 million, a 33 percent reduction from the 2014 average costs of $10.4 million.
Delphi has recently brought on production the 13-21-60-23W5M (“13-21”) well (0.66 net), the western most Montney well drilled and completed with slickwater fracs by the Company to date. The 13-21 well was fraced over 37 stages with the largest sand tonnage and slickwater volumes for Delphi Montney wells to date. Although the 13-21 has been on production for less than two weeks, initial production results are encouraging. Initial production has been restricted to flow up the tubing only in an effort to understand the impact to field condensate and natural gas production. Preliminary data indicate field condensate yields more than double that of the well producing 800 metres to the east at 15-21-60-23W5M, which came on production in February of 2014. Average production rates over the first 30 days will be reported as the production data becomes available.
The 14-27-60-23W5M (“14-27”) infill well that was drilled at the end of 2015 and completed in early January, utilizing a 37 stage slickwater frac design, has achieved the highest NGL yield during its first 30 days of production of all wells drilled to date in Bigstone. With condensate being the most valuable product of the Company’s natural gas and NGL commodity mix, higher condensate yields are a key driver to increase revenue per boe. In 2015, the realized condensate price before hedging gains was $54.71 per barrel compared to Edmonton light oil reference pricing of $57.11 per barrel and WTI pricing of US$48.76 per barrel.
Innovation of the Company’s frac design continues to deliver encouraging results. With higher field condensate yields Delphi will be increasing its drilling activity to the west of the current development trend at Bigstone. Additionally, tighter inter-well spacing is currently being evaluated to distances as low as 200 metres from the current approximate 400 metres.
The following table has been updated to reflect new well production data since it was previously released and continues to illustrate the significant impact the slickwater fracturing technique has had on well performance at Bigstone in comparison to smaller conventional frac methods.
To view the Initial Production (IP) Rate Well Performance table, please visit the following link:
The Company continues to pursue opportunities to reduce operating costs at its Bigstone property. Delphi estimates $6.5 million in reduced operating costs in 2016 over 2015, as the more efficient Montney production replaces the lower netback properties disposed of in 2015. A new fuel gas pipeline accessing higher quality fuel gas has been installed and the 7-11 compression and dehydration facility has been expanded with an owned compressor replacing two existing rental compressors resulting in reduced maintenance and rental costs as well as increased throughput capacity. In addition, with the disposition of the lower netback properties, the Company has reduced its staff from 36 to 24 (33 percent), resulting in expected general and administrative savings of $2.0 – $2.5 million.
Addressing and optimizing the Company’s overall cost structure continues to be a primary focus to maximize profitability. Reduced capital costs and lower operating costs combined with a superior asset has enabled the Company to continue to deploy capital to its Montney play and continue to provide high return on investment. Targeting reductions of 30 percent for capital costs, operating costs and general and administrative costs will enable the company to grow and profit in the current environment.
On December 1, 2015, Delphi began delivering the majority of its natural gas production on its Alliance pipeline firm capacity into the Chicago market rather than the AECO market. Well in advance of commencement of these deliveries, the Company continued execution of its successful risk management strategy to protect its revenue stream into the Chicago market through NYMEX, Chicago basis and Cdn/US foreign exchange rate contracts. As a result, the Company is protected through 2016 with approximately 75 percent of its natural gas production hedged at an average price of Cdn. $4.43 per mcf (excluding transportation costs). For 2017, the Company has approximately 50 percent of its natural gas production contracted at an average price of Cdn $4.24 per mcf (excluding transportation costs). Delphi also has approximately 43 percent of its condensate volumes contracted at a floor price of $76.49 per barrel. The table below summarizes the Company’s current commodity price risk management contracts for 2016 and future years.
|Natural Gas (Cdn)||2016||2017|
|% Hedged (1)||8%||7%|
|Hedge Price (Cdn $/mcf) (2)||$3.84||$3.96|
|Strip Price (Cdn $/mcf)||$1.83||$2.63|
|Natural Gas (US)||2016||2017||2018||2019|
|% Hedged (1)||67%||43%||14%||6%|
|Hedge Price (US $/mmbtu)||$3.50||$3.23||$2.79||$2.81|
|Strip Price (US $/mmbtu)||$2.20||$2.71||2.78||$2.82|
|% Hedged in Cdn $ (3)||99%||113%||99%||100%|
|Hedge Price (Cdn $/mmbtu) (4)||$4.50||$4.28||$3.70||$4.02|
|% Hedged (1)||43%|
|Floor Price (WTI Cdn $/bbl)||$78.50|
|Ceiling Price (WTI Cdn $/bbl) (5)||$85.00|
|Strip Price (WTI Cdn $/bbl)||$53.99|
|(1)||Percent hedged is based on expected 2016 average natural gas production of 35 mmcf/d and 1,850 bbls/d of condensate and C5+, consistent with guidance.|
|(2)||Before deduction of transportation costs to ship production to AECO on the TCPL pipeline.|
|(3)||Percent of US $hedge value locked in with Cdn/US FX hedges.|
|(4)||Before deduction of transportation costs to ship production to Chicago on the Alliance pipeline.|
|(5)||400 bbls/d have upside to a ceiling price of $85.00 per barrel at a deferred cost of $4.02 per barrel.|
Delphi has reduced its natural gas price expectations in light of the current warm winter in North America reducing the demand for natural gas for heating purposes. Delphi’s 2016 guidance now incorporates a NYMEX natural gas price of US $2.00 per mmbtu reducing cash flow only slightly due to the Company’s significant natural gas hedge position. The Company still expects to drill 4-5 gross wells on lower capital expenditures as evidenced by our most recent three wells. In the current environment, quarterly production will be managed in the context of the Company’s Alliance Pipeline commitments and risk management position. The table below summarizes the Company’s current guidance for 2016.
|Average Annual Production (boe/d)||8,300 – 8,800|
|Exit Production Rate (boe/d)||8,500 – 9,500|
|NYMEX Natural Gas Price (US $ per mmbtu)||$2.00|
|WTI Oil Price (US $ per bbl)||$38.00|
|Natural Gas Liquids Price (Cdn $ per bbl)||$16.50|
|Foreign Exchange Rate (US/Cdn)||1.35|
|Well Count||4.0 – 5.0|
|Net Capital Program ($ million)||$33.0 – $38.0|
|Funds from Operations (“FFO”) ($ million)||$32.0 – $37.0|
|Net Debt at December 31 ($ million)||$121.0 – $126.0|
|Net Debt / Q4 FFO (annualized)||3.0 – 3.5|
Delphi continues to navigate this very challenging low commodity price environment with a singular focus on its core Bigstone Montney asset. This focused effort is successfully improving foundational cash generating efficiencies that will be more fully recognized as the rate of capitalization and production growth accelerates into the recovery phase of this commodity price cycle.
The Company continues to manage its production volumes in the context of its risk management program, contracted processing and transportation arrangements and new well “slow-back” production practices. Delphi expects the first quarter 2016 to average approximately 8,400 boe/d (65 percent natural gas), with current production capability estimated at approximately 9,300 boe/d.
Continued innovation of our well design, driving costs lower, while maintaining full ownership and control of our infrastructure are both paramount in our continued effort towards top decile capital and cash generating efficiencies. Generating margin growth trumps production growth in the current environment. The Company’s significant risk management position through 2016 and 2017, protects both the equity account and the balance sheet, while contributing to a meaningful capital program of four to five wells in 2016. Delphi’s significant drilling inventory is immediately accessible to deliver production growth into a strengthening commodity price environment.
On behalf of the Board of Directors and all the employees of Delphi, we would like to thank our shareholders for their continued support.
CONFERENCE CALL AND WEBCAST
A conference call and webcast to review 2015 results is scheduled for 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) on Thursday, March 17, 2016. The conference call number is 1-800-355-4959. A brief presentation by David Reid, President and CEO and Brian Kohlhammer, Senior VP Finance & CFO, will be followed by a question and answer period. The conference call will also be broadcast live on the internet and may be accessed through the Delphi Energy website at www.delphienergy.ca.
A taped rebroadcast will be available until 6:00 p.m. Mountain Time, Thursday, March 24, 2016. To access the rebroadcast, dial 1-800-408-3053 or 905-694-9451. The passcode is 8832194. It will also be available on Delphi’s website. Delphi’s annual and fourth quarter 2015 financial statements and management’s discussion and analysis are available on Delphi’s website at www.delphienergy.ca and SEDAR at www.SEDAR.com.
Delphi Energy is a Calgary-based company that explores, develops and produces oil and natural gas in Western Canada. The Company is managed by a proven technical team. Delphi trades on the Toronto Stock Exchange under the symbol DEE.