CALGARY, ALBERTA–(Marketwired – Sept. 22, 2016) – GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO)(OTCQX:GXOCF) is pleased to provide an operational update and updated guidance for the remainder of 2016.
Granite is the 100% owner and operator of a large Bakken oil pool located in southern Alberta. The Company’s primary focus continues to be prudent management of the development and exploitation of the oil pool to ensure maximum efficient oil recovery from this unique asset; along with the payment of dividends to shareholders for many years to come. In 2016 the Company met its key strategic objective of returning a substantial portion of the core of the oil pool to original reservoir pressure conditions. This process included capital investment totaling $5.6 million and the shutting in of nine producing wells over the course of 2015 and 2016 as the Company prioritized expansion of the EOR scheme over near-term production growth. Granite has recently drilled two wells into the re-pressured area of the oil pool. These oil wells have provided the best capital efficiencies in the Company’s history through the combination of reduced costs and well productivity. Going forward, the Company has shifted into a harvest model with the bulk of its capital spending to be focused on development drilling.
Key 2016 Achievements
- The significant expansion of the gas injection EOR scheme with Granite taking advantage of low gas prices to re-pressure large areas of the core of its Bakken oil pool.
- The optimization of development drilling processes, in conjunction with the expanded EOR scheme, has resulted in best-ever capital efficiencies and an expanded inventory of drilling locations.
- The completion of the majority of its long term facility expansion during a period of reduced service and equipment costs.
- The acquisition of 28,000 net acres of prospective lands near the core of Granite’s Bakken property.
Granite has now successfully drilled, completed and is testing the second well of a five well development drilling program to be carried out in the second half 2016. The 10-24 well targeted a re-pressured portion of the Bakken oil pool. The well has produced an average of 370 bbls/d of oil and 900 mscf/d of natural gas over a nine-day test. Currently, the well is flowing at a restricted rate of approximately 350 bbls/d of oil and 1500 mscf/d of natural gas, with a wellhead pressure of 610 PSI. The all-in well costs were $1.2 million for each of these two wells, and both wells have exhibited strong initial oil production rates.
Granite’s third quarter production is expected to average approximately 2,800 bbls/d with current oil production in excess of 3,000 bbls/d.
By the end of 2016, Granite will have increased its gas injector well count to 11 up from six at the beginning of the year. As a result, a substantial portion of the core Bakken oil pool area has been returned to original reservoir pressure conditions, satisfying Granite’s key strategic objective for 2016. The process of expanding the EOR scheme over the course of 2015 and 2016 included the shutting in of nine producing wells designated for future conversion to injector wells, of which five wells have been converted to injector wells to date. This process has decreased Granite’s oil production by approximately 290 bbl/d since the beginning of 2015.
The Company has been successful at reducing well costs with the all-in cost of four of the most recent five wells being $1.2 million relative to the original 2016 budgeted costs of $1.8 million. Well costs have been materially and permanently reduced, due primarily to process improvements which have been developed over the past two years, including the adoption of: monobore drilling, optimized drill bits and mud systems, sliding sleeve completion technology and the use of an increased number of smaller fracs. Granite continues to work to reduce costs and is targeting all-in well costs of $1.1 million go-forward.
With demonstrated cost reductions and a large re-pressured area of the Bakken oil pool, Granite has optimized its processes and has recently achieved the best capital efficiencies in Company history. The Company has expanded its development drilling inventory to now include over 135 locations in the core area of its Bakken oil pool, which are set out in a new corporate presentation at www.graniteoil.ca.
The remaining three wells of Granite’s current development drilling program will be drilled during the fourth quarter. Granite anticipates its fourth quarter oil production to average 3,100 bbls/d and that it will incur capital expenditures of $4.0 million. Based on internal projections, year-end debt is expected to be approximately $31 million which equates to an annualized debt to cash flow of 1.2x.
With the major expansion of the EOR scheme complete, the bulk of Granite’s capital expenditures for the remainder of 2016 and going forward will be on development drilling. With the two most recent wells demonstrating positive results, Granite is on-track to continue its low-cost drilling program through the remainder of 2016 and beyond.