CALGARY, ALBERTA–(Marketwired – Nov. 9, 2016) – GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO)(OTCQX:GXOCF) is pleased to announce results for the third quarter of 2016 and to provide an operational update and guidance.
Granite’s focus throughout 2016 continues to be the rapid transition of its 100%-owned Alberta Bakken oil resource to a proven, full-scale gas injection enhanced oil recovery (EOR) scheme as efficiently as possible, positioning the Company for sustainability with the emphasis on maximizing long-term shareholder value.
Starting in April 2016 and continuing into the third quarter, the Company took advantage of low gas prices and ramped up gas injection by over 60% allowing it to reach its re-pressurization goals ahead of schedule. As well, further advancing the project, Granite pursued several strategic EOR testing projects and process-driven capital cost reductions which will remain regardless of oil pricing.
The Company is very pleased in the culmination of these achievements. A five well drilling program initiated late in the third quarter has resulted in five of the most capital-efficient wells in the pool’s history. These wells have been drilled, completed and tied in for an average cost of $1.2 million, 55% less than the Company’s average well costs in 2015, and approximately 40% less than booked costs in the Company’s most recent independent reserve report. Additionally, through the combination of re-pressurization, optimized horizontal placement and refined completions techniques, the first four wells tested at an average final rate of approximately 400 bbls/d per well at the end of a four day test period. The first three of these wells continue to flow at restricted rates with lower initial declines, meeting the Company’s long-term objectives. The fourth well has been brought on in the past few days and the fifth well is currently in the early testing stages.
These five new wells represent the summation of more than three years of engineering and geoscience testing and refinement to be applied to the long term development of the pool, allowing the Company to add producing barrels at its lowest cost ever. Importantly, these initial efforts have been focused on a small, 2.5 section area of the surrounding 24 section EOR approval area. The Company is confident that these results are repeatable and can be applied over its entire EOR approval area at a prudent pace.
The Company now has a 20 year optimized drilling inventory of over 130 locations and has developed a model for the pool with the Company objective of recovering over 20% of the estimated 200 mmbbls of oil in place under its currently approved EOR Scheme as efficiently as possible. With approximately 2.5% of the estimated oil in place recovered to date, the Company is well-positioned for the future.
Going forward, the Company is ahead on its injection and re-pressurization schedule with ten current injectors and will only be drilling wells within the area supported by the EOR scheme. With all facilities, land and infrastructure in place, general capital requirements in the EOR area have dramatically dropped year over year and future budgets will be almost entirely allocated to bringing new, low-cost production on-stream. Future savings are also anticipated as the Company’s oil production continues to rebalance towards flowing wells versus pumping wells. The Company anticipates only $13 million of total development capital is required to grow the production within the EOR Scheme area 3 to 5% per year over the next several years as declines shallow and continued efficiencies are realized. The Company will closely monitor the pool and manage for the long-term, growing the production for several years, then determining the roll over point at which it will maintain flat production with reduced capital requirements.
Granite will also continue to pursue its significant inventory of opportunities on its large defined 100%-owned oil fairway with a portion of its free cash flow. The Company is allocating approximately $3 million of exploration and delineation capital for the next few years. In 2017, Granite is planning two high-priority exploration wells on recently acquired lands, as well as a step-out delineation well that, if successful, would significantly expand the current potential of the EOR scheme area.
Despite the continued oil price volatility, the Company is on solid ground with its operational flexibility and strong netbacks, as well as low debt metrics and a strong hedge position. The Company will continue to prioritize its dividend and its advanced EOR Scheme. Prolonged dips in crude oil prices can be managed by reducing capital and growth to maintain the dividend and its sustainability while still creating future value by improving overall pool declines. Granite’s 15 year model can be found in the Company’s updated presentation on the web site at www.graniteoil.ca.
Fourth quarter production is estimated to be 3,000 – 3,100 bbls/d of crude oil. Production levels will be determined by a number of factors including: results from the well which is currently being tested; prevailing commodity prices; and the management of production volumes related to 1,150 bbls/d coming from restricted, flowing wells. Granite will retain its long-term focus on maximizing value and oil recoveries from the Bakken oil pool with near-term production managed to best achieve that goal.
Financial and Operating Highlights
Financial and operational highlights for the three and nine month periods ended September 30, 2016 are set out below and should be read in conjunction with the financial statements and related management’s discussion and analysis available for review at www.granite.ca and www.sedar.com. This is the fourth interim period completed by Granite following its disposition of certain oil and gas properties pursuant to its May 2015 corporate reorganization. Prior period information is not presented in the following table due to its limited comparability resulting from these dispositions.
|Three Months Ended September 30||Nine Months Ended September 30,|
|2016 (6)||2016 (6)|
|(000s, except per share amounts)||($)||($)|
|Oil and natural gas revenues||11,582||31,436|
|Funds from operations (1)||6,061||18,033|
|Per share – basic||0.18||0.56|
|Per share – diluted (7)||0.18||0.56|
|Cash flow from operating activities||8,819||20,105|
|Net income (loss)||1,052||(6,216)|
|Per share – basic||0.03||(0.19)|
|Per share – diluted (7)||0.03||(0.19)|
|Capital expenditures (2)||6,244||16,297|
|Net debt (3)||29,323||29,323|
|Weighted average – basic||33,598||31,942|
|Weighted average – diluted (7)||33,922||32,280|
|Natural gas (mcf/d)(8)||145||145|
|Crude oil (bbls/d)||2,728||2,804|
|Average wellhead prices|
|Natural gas ($/mcf)||2.50||1.51|
|Crude oil and NGLs ($/bbl)||45.95||40.70|
|Combined average ($/boe)(9)||45.68||40.43|
|Operating netback ($/boe)(4)||28.67||27.73|
|Gross (net) wells drilled|
|Oil (#)||3 (3.0)||7 (7.0)|
|Dry and abandoned (#)||– (-)||– (-)|
|Total (#)||3 (3.0)||7 (7.0)|
|Average working interest (%)||100||100|
|(1)||Funds from operations and funds from operations per share are not recognized measures under International Financial Reporting Standards (IFRS). Refer to the commentary below under “Reader Advisory – Non-GAAP Measurements” for further discussion.|
|(2)||Total capital expenditures, excluding acquisitions and excluding non-cash transactions. Refer to commentary in the Management’s Discussion and Analysis under “Capital Expenditures and Acquisitions” for further information.|
|(3)||Net debt, which is calculated as current liabilities (excluding derivative financial instruments) and bank debt less current assets (excluding derivative financial instruments), is not a recognized measure under IFRS. Please refer to the commentary below under “Reader Advisory – Non-GAAP Measurements” for further discussion.|
|(4)||Operating netback, which is calculated by deducting royalties, operating expenses and transportation expenses from oil and gas revenue and adjusting for any realized hedging on financial instruments, is not a recognized measure under IFRS. Please refer to the commentary below under “Reader Advisory – Non-GAAP Measurements” for further discussion|
|(5)||For a description of the boe conversion ratio, refer to the commentary below under “Reader Advisory – Other Measurements” for further discussion.|
|(6)||Refer to the description of the disposition by Granite of certain oil and gas properties pursuant to its May 2015 corporate reorganization and the comparability of prior period information in the Management’s Discussion and Analysis under “About Granite Oil Corp.”|
|(7)||The Company uses the weighted average common shares (basic) when there is a net loss for the period to calculate net income (loss) per share diluted. The Company uses the weighted average common shares (diluted) to calculate the funds from operations diluted.|
|(8)||Commencing in March 2016, the Company began injecting 100 percent of its natural gas production into the Alberta Bakken property pursuant to the EOR scheme. Any gas sales reflected post March 2016 are the result of conservation efforts while planned injector maintenance occurs.|
|(9)||Combined average realized prices includes all oil, gas and NGL sales revenue, excluding other income|
With the Company’s 2016 capital program largely complete, Granite is looking forward to 2017. While the current year was challenging, with significant commodity price volatility and crude oil prices reaching record lows during the first quarter of 2016, Granite will exit the year having made dramatic improvements to its drilling design, gas flood effectiveness, associated capital efficiencies and recycle ratios.
The Company allocated significant capital throughout 2016 to expanding its gas flood infrastructure and land base as well as obtaining additional data on its EOR scheme through strategic testing initiatives. Granite also dramatically expanded its gas injection volumes during the year through the purchase of supplemental gas in order to take advantage of record low natural gas prices through mid-2016 to speed up re-pressurization of targeted portions of the pool. Having succeeded in this re-pressurization process, the Company has curtailed the purchase of additional gas as it matches current gas injection volumes to production levels.
Granite approaches 2017 with an excellent financial position, exiting the third quarter with less than $30 million of net debt and a strong hedge portfolio going into 2017 consisting of 1,000 bbls/d hedged for the first half at an average US$48.05 WTI and 750 bbls/d for the second half at an average of US$52.23 WTI. Third quarter operating netbacks averaged $28.67 per BOE, reflecting Granite’s almost 100% oil weighting and low-cost structure, which provides the company with excellent cash flow generation capabilities.
In 2017 the Company will target over 90% of its budget on drilling activity in the Core Bakken pool, with a small portion of the budget targeting exportation activities west of the pool, all on 100% Granite-owned lands. Granite will provide 2017 guidance during December 2016.