CALGARY, ALBERTA–(Marketwired – Dec. 14, 2016) – Raging River Exploration Inc. (“Raging River” or the “Company“) (TSX:RRX) announces that the Company’s board of directors (the “Board”) has approved a 2017 capital budget of $310 million.
The budgeted capital expenditures are expected to increase average production to 22,500 boe/d (93% oil) representing a year over year production per share growth of 25% in 2017. The approved capital budget approximates forecasted cash flow of $310 million at WTI of US$54.00/bbl. The commitment to the protection of the balance sheet is paramount with expected exit 2017 net debt of approximately $210 million representing a 0.7 times debt to forecasted 2017 funds flow from operations.
2016 BUDGET & OPERATIONS UPDATE
With the weather cooperating through November and early December, the Raging River team has caught up in its execution efforts. Exit production guidance of 21,600 boe/d has been exceeded based on the field estimated production numbers for the first 10 days of December. To continue strong production additions into 2017, the Board has expanded the 2016 exploration and development capital budget to $210 million, an increase of $15 million. This is expected to allow Raging River to enter 2017 with 35-40 drilled uncompleted wells in addition to getting a head start on the significant facility projects scheduled for the first quarter.
It is now expected that at total of 282 net wells will be drilled in 2016. This is inclusive of 7 net wells that have been drilled as new injection wells for our existing waterfloods.
Maintenance capital to hold production flat at fourth quarter levels of 20,250 boe/d is $220 million inclusive of a $35 million allocation to Enhanced Oil Recovery (“EOR”) initiatives.
In setting our capital budget of $310 million, the Company factored in current commodity pricing and the strength of our 3,600 well inventory. Raging River determined that a prudent approach was to execute on a budget which approximated cash flow as the returns on capital from the development program significantly exceed corporate thresholds. This budget will provide production per share growth of approximately 25% while maintaining a strong balance sheet with approximately $190 million of available credit capacity to execute on any accretive acquisitions that arise. The resulting guidance is:
|Average daily production|
|Crude oil and NGL’s (bbls/d)||20,900|
|Natural gas (mcf/d)||9,600|
|Barrels of oil equivalent (boe/d)||22,500|
|Crude oil – WTI ($US/bbl)||54.00|
|Exchange rate ($Cdn/$US)||1.32|
|Natural gas – AECO ($/GJ)||3.00|
|Cdn Light Sweet ($Cdn/bbl)||66.66|
|Operating cashflow ($000)||327,200|
|Financial charges ($000)||8,800|
|Cash taxes ($000)||–|
|Funds flow from operations ($000)||310,200|
|Per share – basic||1.34|
|2017 exit net debt ($000)||206,000|
|2017 exit net debt to funds flow from operations||0.66:1|
|Oil and gas sales||57.27|
|Funds flow netback||37.78|
|Drilling, completion & equipping ($000)||260,000|
|Land, seismic and maintenance ($000)||10,000|
|Waterflood and gas conservation ($000)||40,000|
Approximately 85% or $260 million of the approved $310 million capital budget will be directed towards the development drilling of 336 net wells. We are strongly encouraged by the results of our 30 extended reach horizontal (“ERH”) wells that were drilled in the third and fourth quarters of 2016. As a result, our 2017 budget will see approximately 135 ERH wells drilled across our asset base. Execution of this program will result in using approximately 9% of Raging River’s currently defined economic drilling inventory of 3,600 net wells.
Based on encouraging results to date, the EOR program will continue to see significant capital allocation in 2017 including 9 new wells drilled for injection and the conversion of 60 horizontal wells from producers to injectors. The new drills, plus conversions when combined with waterflood infrastructure expenditures will result in 11.5% or $35 million of our total capital budget being dedicated to EOR.
EOR is a long term initiative expected to provide significant value creation to our shareholders. The long term benefits of dedicating approximately $25 million per year to EOR is predicted to result in an approximate 20-25% decrease to our corporate decline rate, provide rates of return of greater than 30% and be self-funding after four years.
Corporate social responsibility continues to be priority for the Company. Approximately $5 million of capital has been allocated to gas conservation and abandonments. The gas conservation projects will allow a meaningful reduction in our methane emissions while at the same time providing economic benefits to our shareholders through increased sales of natural gas associated with our oil production. Abandonment of wells and facilities that are no longer required for the development of our resources will continue to be a priority. Raging River continues to abandon and reclaim approximately 10% of the wells and facilities on our abandonment list annually, ensuring that our license liability rating is always in the top decile in the industry.
Raging River’s borrowing base was reviewed and the syndicate of lenders underwriting the Company’s credit facilities have confirmed an increase in our borrowing facility to $400 million. The next borrowing base redetermination is scheduled for April 2017.
2018 AND BEYOND
Although no 2018 capital budget has been established, based on WTI prices remaining flat at approximately US$55/bbl, the Company anticipates continuing to grow at 15% production per share while underspending cashflow by approximately $50 million. 2018 exit production is forecast to be approximately 27,000 boe/d or 30% above fourth quarter 2016 levels.
Our 10 year business model is robust, defined and generates meaningful free cashflow and earnings above growth capital. The Company has been built to withstand the volatility in commodity prices and provide meaningful per share growth to our shareholders. The team at Raging River is proud to have delivered superior results to our shareholders. Since our inception in March 2012, we have delivered greater than 350% profitable production per share growth. During the longest commodity bear market in recent history which started in July 2014, your team has delivered greater than 60% profitable production per share growth. Per share growth has and will continue to be accomplished through excellence in execution, selective accretive acquisitions, maintenance of a pristine balance sheet and diligent development of new plays and play extensions.