CALGARY, ALBERTA–(Marketwired – June 16, 2016) – GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO)(OTCQX:GXOCF) is pleased to announce its updated budget and guidance for the remainder of 2016.
With low commodity prices through the first half of 2016, Granite’s primary focus was to create long-term value with the expansion of its Gas Injection – Enhanced Oil Recovery (‘EOR’) scheme in its 100%-owned Alberta Bakken oil pool. Throughout the first and second quarter, the Company implemented a major EOR expansion and optimization project. In the first quarter the Company reached a major milestone in its development by achieving a Voidage Replacement Ratio (“VRR”) of over 100% in the core of the oil pool, covering 23 sections and containing an internally estimated original oil in place of approximately 200 million barrels. Since ramping up voidage replacement, the Company is seeing a material improvement on the rate of production decline on a pool-wide basis from both historical wells drilled before 2015 and from its EOR-optimized wells drilled in 2015. A figure illustrating these results is included in Granite’s current corporate presentation which is available at www.graniteoil.ca. Granite has recently ramped up its production with increased 2016 drilling and continues to maintain a VRR of over 100%. Going forward, Granite will utilize built-in spare capacity from its recent facility expansion to match production growth with gas injection and maintain a minimum VRR of 100%.
In response to an improving oil price outlook for the second half of 2016, and having effectively stabilized its base production with its expanded EOR initiatives, Granite has begun to allocate capital to measured production growth and resource development while continuing to maintain its sustainable dividend.
Updated 2016 Budget and Guidance
Granite has now increased its 2016 capital budget to $17.0 million from $10.2 million. The updated capital budget includes approximately $10.0 million on development drilling and completions, approximately $5.0 million on facilities, injectors and land, and approximately $2.0 million on delineation and exploration projects on its highly prospective Alberta Bakken fairway. The increased budget is directed to: a return to measured production growth in the core of the Company’s Bakken oil pool; continued optimization and expansion of its EOR scheme with the conversion of three producing wells to injectors, bringing its injector count to a total of ten; setting up for future development of the Company’s West Bakken acreage through the drilling of an exploration well; and seeking regulatory approval for a pilot gas flood scheme.
Granite expects that its oil production volumes will average 3,200 bbl/d for the second half of 2016. Assuming average US$WTI prices of $50.00 per barrel, Granite forecasts second-half 2016 cash flow of $14.6 million, matching budgeted capital expenditures and dividends during the period, and year-end net debt of $24.9 million.
Second Quarter Update
Granite continues to make material gains in reducing its capital costs, with the cost of its two most recent wells, drilled late in the quarter in the core Bakken oil pool, averaging $1.2 million, including drilling, completion and tie-in costs. As a Company first, Granite drilled these wells back to back on the same pad realizing significant drilling and completion efficiencies and cost reductions. These costs represent a 30% reduction in all-in well costs from the $1.7 million at the start of the year.
Subsequent to bringing these two wells on production late in the quarter, Granite’s current oil production is approximately 3,200 bbl/d. Second quarter oil production is expected to average approximately 2,900 bbl/d. Total capital expenditures during the second quarter is estimated to be approximately $5 million, which included the drilling of three, 100% working interest oil wells plus approximately $1.0 million on one time facilities expansions and land.
Granite is excited about its outlook for the second half of 2016. The Company has navigated the low oil price cycle while maintaining its dividend and also significantly advancing its EOR project, reducing its costs and improving its balance sheet. In combination with improving oil prices the Company is well positioned for sustainable growth and further developing its large inventory of organic opportunities.