CALGARY, ALBERTA–(Marketwired – Nov. 30, 2016) – Virginia Hills Oil Corp. (TSX VENTURE:VHO) (“Virginia Hills” or the “Company”) announces its operating and financial results as at and for the three and nine months ended September 30, 2016, and provides a general corporate operational. The Company’s unaudited interim financial statements and related Management’s Discussion and Analysis (“MD&A”) for the three and nine months ended September 30, 2016 are available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com or on the Company’s website at www.virginiahillsoil.com.
Oil and natural gas prices have continued to be volatile over the first nine months of 2016. Benchmark crude oil monthly average WTI prices ranged from a low of USD $30.62/bbl in February 2016 to a high of USD $49.94/bbl in October. Benchmark WTI pricing in the third quarter of 2016 slipped lower by approximately 1% from the average achieved in the second quarter of 2016 to average USD $44.94/bbl. Historically, Virginia Hills’ realized commodity prices have tracked the Canadian benchmark oil price due to its corporate production and revenue weighting derived from light oil and natural gas liquids of 97% of and 99%, respectively. The Company’s Q3 2016 realized corporate average prices decreased approximately 16% to $51.54 per boe compared to $61.38 per boe in Q2 2015 due to lower pricing. The Company expects its future corporate pricing to track the WTI benchmark pricing as it has not hedged any of its future production.
During the third quarter, the Company drilled its third long-leg horizontal well in its core Red Earth operating area at Loon 102/16-27-086-09W5 (“02/16-27”) and achieved the fastest drilling time, based on public record, to the Slave Point Formation with measured depths ranging from 2,500 meters to 3,000 meters. The well’s 30-day initial production rate was 100 bbl/d of light oil, which is in line with the Company’s previously disclosed acid frac type curve for the Red Earth area. The 02/16-27 well was drilled within one of the Company’s water flood project areas approximately 200 meters away from an existing water injection well. At year end 2015, the Company had twelve long leg horizontals producing within in its existing water flood projects spaced a distance of 200 meters from off-setting water injection, on average these twelve wells had approximately 200 mbbl of recoverable light oil reserves assigned to them on a proved plus probable basis. The 02/16-27 well is performing in line with historical analogs. The Company maintains a significant water flood project area in the greater Red Earth area and currently has 4.5 net sections under water flood out of a total development area of 22.0 net sections.
During the third quarter, the Company expensed approximately $0.6 million or $4.90 per boe on production and cost optimization projects. Specifically the Company completed sand clean outs and pump optimization projects on four (3.6 net) wells and installed field compression to reduce flaring at one field water injection facility. Net incremental production on a quarter over quarter basis associated with these projects was 50 boe/d (90% light oil and NGLs). The Company will continue to monitor the aggregate performance of these projects and, if warranted, all or a portion of these expenditures may be re-classified to capital from operating costs at year end if both incremental reserves are added and they are deemed non-occurring in nature.
As announced its press release on August 26, 2016, Virginia Hills initiated a process to review strategic alternatives with a view of maximizing the value of the Company’s significant Slave Point light oil resource base. The Company does not have any further update at this time as it continues to evaluate different alternatives in light of its current financial position. Any strategy, if taken, is subject to material uncertainty and could have a material impact on the Company’s financial position and results of operations. Virginia Hills does not intend to disclose developments with respect to this process unless and until the board of directors of the Company has approved a definitive transaction or other course of action or otherwise deems that disclosure of developments is appropriate or otherwise required by law. There are no guarantees that the process will result in a transaction of any form or, if a transaction is entered into, as to its terms or timing.
THIRD QUARTER FINANCIALS
|Three months ended
|Nine months ended
|(Canadian $000, except per unit amounts)||2016||2015||2016||2015|
|Petroleum and natural gas sales||$ 6,289||$ 8,302||$ 17,149||$ 23,738|
|Funds flow from (used in) operations (2)||(366)||1,079||(1,398)||3,502|
|Per share – basic||(0.02)||0.05||(0.07)||0.29|
|Per share – diluted||(0.02)||0.05||(0.07)||0.29|
|Net income (loss)||(30,580)||(3,098)||(38,160)||340|
|Per share – basic||(1.46)||(0.16)||(1.87)||0.03|
|Per share – diluted||(1.46)||(0.16)||(1.87)||0.03|
|Capital expenditures (3)||1,830||7,246||1,991||10,093|
|Net debt (2)(4)||112,660||110,949||112,660||110,949|
|Common Shares Outstanding (1)|
|Weighted average – basic||20,954||19,724||20,354||12,050|
|Weighted average – diluted||20,954||19,724||20,354||12,050|
|Number of days||92||92||274||273|
|Oil and NGL (bbl/d)||1,285||1,416||1,307||1,482|
|Natural gas (mcf/d)||250||325||244||304|
|Total production (boe/d)||1,326||1,470||1,347||1,533|
|Average realized prices (5)|
|Oil and NGL ($/bbl)||53.04||63.44||47.60||58.49|
|Natural gas ($/mcf)||0.90||1.18||0.87||0.89|
|Netback per boe ($) (2)|
|Petroleum and natural gas sales||51.54||61.36||46.45||56.73|
|Production and transportation expenses||(31.36)||(29.85)||(31.00)||(26.86)|
|Field netback (2)||13.81||24.98||11.24||24.73|
|(1) Shares and per share amounts for comparative periods reflect the 100:1 share consolidation that occurred April 15, 2015 concurrent with the capital reorganization as though the consolidation took place at the beginning of the earliest period.|
|(2) Non-GAAP measure. See Reader Advisory for further information on such terms.|
|(3) Capital expenditures exclude amounts paid for acquisitions.|
|(4) Net debt is defined as current assets minus current liabilities, plus outstanding bank debt.|
|(5) Before the effects of derivative financial instruments, but includes gains or losses on fixed price, physical contracts that are not considered derivative instruments.|
GUIDANCE FOR 2016
At the end of the third quarter and into the beginning of the fourth quarter of 2016, the oil and gas industry was affected by extremely wet surface conditions in Alberta which resulted in limited surface access in certain areas. At current commodity prices the Company did not deem it feasible to initiate any additional field activities until frozen ground conditions were present later in the fourth quarter. These conditions will result in the deferral of certain of the Company’s water flood related projects to the first quarter of 2017 from the fourth quarter of 2016.
As a result, the Company is anticipating its 2016 exit volumes to range from 1,325 boe/d (97% light oil and NGLs) to 1,400 boe/d (97% light oil and NGLs), with an additional 100 bbl/d of light oil water flood production previously scheduled to be online in the fourth quarter of 2016 to be brought on line during the first quarter of 2017.