CALGARY, ALBERTA–(Marketwired – Jan. 11, 2017) – Delphi Energy Corp. (TSX:DEE) (“Delphi” or the “Company“) is pleased to announce that the Company’s Board of Directors has approved the 2017 capital and operating budget following the closing of the previously announced $50.0 million Bigstone Montney Transaction (the “Transaction”) and the announcement of a new $80.0 million senior secured credit facility with Alberta Treasury Branches, as syndicate lead, which also includes the Bank of Nova Scotia.
Delphi’s drilling program in 2017 will more than double as compared to 2016 with the addition of a second drilling rig. The Company’s production growth profile through 2017 is largely weighted to the second half of the year, with fourth quarter of 2017 production expected to average approximately 11,000 to 11,500 barrels of oil equivalent per day (“boe/d”), representing approximately 60 percent growth (absolute and per share) over production in the fourth quarter of 2016.
Condensate production is forecast to more than double in the fourth quarter of 2017 as compared to the fourth quarter of 2016, with average production levels increasing to approximately 2,800 barrels per day (“bbls/d”).
Fourth quarter 2017 run-rate funds from operations (“FFO”) are forecast to increase approximately 145 percent (absolute and per share) to $72.0 to $80.0 million from fourth quarter 2016 levels.
2017 Budget and Development Plan
Delphi’s 2017 capital program is forecast to be $65.0 to $70.0 million targeting an increase in annual production of approximately 25 percent (absolute and per share) to 9,000 to 9,500 boe/d. Annual 2017 FFO are forecast to increase approximately 82 percent (absolute and per share) based on an average West Texas Intermediate (“WTI”) oil price of US$55.00 per barrel and an average New York Mercantile Exchange (“NYMEX”) natural gas price of US$3.25 per million British thermal units (“mmbtu”). As a result, the Company’s increasing cash flow is expected to reduce bank debt to annualized fourth quarter 2017 FFO of 0.8 times and total debt to annualized fourth quarter 2017 FFO of 1.5 times. The contemplated 2017 capital program is net of an estimated $10.6 million of carried capital remaining from the total joint drilling commitment of $20.0 million relating to the Transaction.
The 2017 development plan contemplates the drilling of 13 gross (8.4 net) Bigstone Montney horizontal wells and the completion, tie-in and well site equipping of 14 gross (9.0 net) wells. A second rig commenced drilling operations in December 2016 and is expected to remain active throughout our 2017 drilling program, allowing the Company to proceed with pad drilling that will realize further cost savings.
The Company continues to innovate field operations, greatly reducing costs while significantly improving well results. Well stimulation design innovations continue to enhance well productivities, field condensate yields and well economics. Continued Montney drilling to the west at Bigstone is resulting in ultra-rich field condensate yields. Field condensate yields of the most recent wells have increased two to four times compared to the average yields realized from the previous 25 wells. Increased condensate yields of this magnitude on new wells, combined with higher forecast condensate prices in 2017 have the compound result of doubling revenue per boe and increasing unhedged field operating netbacks per barrel of oil equivalent (“boe”) by a factor of three times to $30.00 to $35.00 per boe compared to 2016 netbacks.
Cash costs are forecast to decrease by approximately ten to twelve percent over 2016, with a continued focus on cost saving initiatives and significant production growth. Crown royalties are forecast to increase with higher prices largely offset by a decreased percentage of production relating to prior years gross overriding royalties arrangements.
The Company has the required firm service transportation for 100 percent of forecasted 2017 natural gas production growth. The contracted Alliance full path service to Chicago with its incremental priority interruptible service, together with the existing and incremental 2018 contracted firm service on TransCanada Pipeline Limited, will provide the Company with sufficient firm service to handle Delphi’s growth plans beyond 2017. Delphi’s Bigstone Montney field compression and dehydration facilities are also sufficient for the forecasted growth in 2017.
To efficiently increase future natural gas processing capacity through 2019, the Company is continuing its evaluation to utilize approximately 35 mmcf/d of owned under-utilized sweet gas processing capacity in the greater Bigstone area. Coincident with the Company’s plans to pursue richer Montney production to the west, the production also becomes less sour and even turns sweet into the West Bigstone Montney area. Sweetening of sour Montney production would allow for processing at both the Bigstone West gas plant located at 14-28-59-22W5, where the Company owns a 25 percent working interest and at Delphi’s 100 percent owned and operated Negus gas plant at 11-3-60-25W5.
Delphi continues to maintain a strong risk management position on both volumes and pricing. The Company believes that reducing commodity price volatility through an active and strategic hedging program both reduces downside cash flow risk while protecting the economics of new capital being deployed. Protecting simple payouts for new wells of approximately one year through a strategic hedging program ensures the ability to effectively reinvest post-payout free cash flow. The Company has approximately 20 million cubic feet per day (“mmcf/d”) of its 2017 forecast natural gas production hedged at an average price of CDN$4.21 per mmbtu and approximately 1,000 bbls/d of condensate hedged at an average WTI price of CDN$66.70 per barrel (“bbl”).
| Natural Gas | Q1/17 | Q2 – Q4/17 | 2018 | 2019 |
| Percent Hedged * | 64% | 58% | 30% | 21% |
| Hedge Price (CDN $/mmbtu) | $4.21 | $4.21 | $3.77 | $3.89 |
| Crude Oil | Q1/17 | Q2 – Q4/17 | 2018 | 2019 |
| Percent Hedged * | 63% | 42% | 14% | 14% |
| Floor Price (WTI CDN $/bbl) | $66.78 | $66.67 | $70.00 | $70.00 |
| Ceiling Price (WTI CDN $/bbl) | $66.78 | $66.67 | $70.00 | $70.00 |
| * Based on average 2017 production of 33.5 mmcf/d of natural gas and 2,150 bbls/d of field condensate. |
Operational Success Continues
The ongoing drilling and completion operations and continued favorable results meeting or exceeding the Company’s expectations are providing validated increased support for the 2017 forecast. The combination of new development moving further to the west on the Company’s Bigstone Montney property, along with Delphi’s third generation frac design, has resulted in a significant improvement in field condensate to gas rate yields and increasing condensate yield assumptions from 40 barrels per million cubic feet (“bbls/mmcf”) to 100 bbls/mmcf over the life of the well.
Completion operations at the Company’s 16-9-60-23W5 well (“16-9”) (61.8 percent working interest) have concluded and the well was brought on production in the final days of December 2016. 16-9 was drilled to a total depth of 6,034 metres with an extended-reach horizontal lateral in the Montney of 2,855 metres. The well was completed through a 40-stage slickwater frac design with total sand pumped of approximately 11.4 million pounds, with concentrations over 1.8 tonnes per horizontal metre. The well was flowed on clean-up for seven days, recovering approximately 26 percent of the initial load frac water. Over the last 24-hours prior to running production tubing and being brought on production, the well flowed on clean-up at an average rate of 8.5 mmcf/d of raw gas and 1,587 bbls/d of field condensate (215 bbls/mmcf of sales gas). Total sales production for 16-9 over this 24-hour period was approximately 3,104 boe/d, including an estimated plant natural gas liquids (“NGL”) yield of 40 bbls/mmcf of sales gas.
The Company has also finished completion operations at 14-21-60-23W5 (“14-21”) (59.3 percent working interest). 14-21 is a direct offset to the 13-21-60-23W5 (“13-21”) Bigstone Montney well that was brought on production in the first quarter of 2016. Over the first 180 days on production, 13-21 averaged 962 boe/d with a field condensate to sales gas ratio of 166 bbls/mmcf. Similar to 13-21, 14-21 was completed with a slickwater frac design over 40-stages and flowed on clean-up over a 2.5 day period prior to being put on production inline for a 24-hour period. Over the final twelve hours of this 24-hour inline period, 14-21 flowed at an average rate of 5.9 mmcf/d of raw gas and 1,663 bbls/d of field condensate (327 bbls/mmcf of sales gas). Total sales production for 14-21 over this twelve-hour period was approximately 2,711 boe/d, including an estimated plant NGL yield of 40 bbls/mmcf of sales gas.
The Company concluded drilling operations on its sixth well of the 2016 capital program at 16-21-60-23W5 (“16-21”) (59.3 percent working interest) in late December 2016. The well was drilled to a total depth of 5,832 metres in 27 days with a horizontal lateral in the Montney of 2,858 metres. A 40-stage frac completion liner was installed with fracturing operations scheduled to commence within the next seven days. 16-21 is expected to be brought on production in February 2017.
Delphi commenced drilling its first well of the 2017 capital program (based on an anticipated rig release date) with a spud in mid-December at 15-8-60-23W5 (“15-8”) (65 percent working interest). 15-8 is a follow-up location to 16-9 and is the first well being drilled with the second rig that was brought in to support our 2017 program. Initial results from 16-9 continue to outperform Delphi’s expectations as the Company moves westward on its Montney lands at Bigstone. 15-8 will be the western most Bigstone Montney well drilled by Delphi and completed with slickwater fracs to date.
The Company also commenced drilling its second well of the 2017 program in late December at 15-11-60-23W5 (“15-11”) (65 percent working interest). 15-11 is a direct offset to the recent 14-11-60-23W5 (“14-11”) Bigstone Montney well that was brought on production in mid-September 2016.
2017 Guidance
The following table highlights the major assumptions with respect to Delphi’s 2017 full year guidance and includes revised 2016 guidance.
| 2017 Full Year Guidance |
Updated 2016 Full Year Guidance |
|
| NYMEX Natural Gas Price (US $ per mmbtu) | $3.25 | $2.45 |
| WTI Oil Price (US $ per bbl) | $55.00 | $43.00 |
| Natural Gas Liquids Price (CDN $ per bbl) | $28.00 | $20.00 |
| Foreign Exchange Rate (US/Cdn) | 1.33 | 1.33 |
| Gross Capital Program ($ million) | $65.0 – $70.0 | $42.0 – $44.0 |
| Gross Well Count Drilled (net) | 13 (8.4) | 6.0 (4.5) |
| Gross Well Count On Production (net) | 14 (9.0) | 6.0 (4.8) |
The Company is forecasting significant absolute and per share growth across all measures during 2017, while maintaining balance sheet strength. 2017 guidance is highlighted by a significant increase in drilling activity funded in part by the $20.0 million drilling carry relating to the Transaction, of which approximately $9.4 million was incurred in the fourth quarter of 2016.
The Company has revised 2016 guidance to largely reflect the Transaction coupled with production curtailments and weather delays that all impacted production volumes and capital expenditures in the fourth quarter, as well as year-end debt. Delphi’s fourth quarter 2016 production volumes were negatively impacted by approximately 625 boe/d of curtailments, disposition volumes relating to the Transaction and wet weather delaying field operations. Year-end 2016 debt will be approximately twelve percent lower than forecast as a result of the Transaction proceeds.
Delphi exited 2016 producing approximately 8,600 boe/d achieving exit guidance, net of the Transaction disposition of 450 boe/d. After significant wet weather delays, 16-09 and 14-21 came on production late in December, contributing to the exit production rate as forecast but having minimal impact to the fourth quarter average volumes. Delphi’s current production capability is on track with its 2017 forecast.
| 2017 Full Year Guidance |
Updated 2016 Full Year Guidance |
Percentage Variance |
|
| Average Production (boe/d) | 9,000 – 9,500 | 7,300 – 7,400 | 26% |
| Natural Gas (mmcf/d) | 32.0 – 35.0 | 28.0 – 29.0 | 18% |
| Field Condensate (bbls/d) | 2,100 – 2,200 | 1,350 – 1,450 | 54% |
| NGL’s (bbls/d) | 1,400 – 1,500 | 1,100 – 1,200 | 26% |
| Percent Liquids (%) | 40 | 35 | 14% |
| Production per share (per million shares) | 60 | 47 | 28% |
| Exit Production Rate (boe/d) | 11,000 – 12,000 | 8,600 | 34% |
| Funds from Operations (“FFO”) ($ million) | $52.0 – $57.0 | $29.0 – $31.0 | 82% |
| Net Debt at December 31 ($ million) (1) | $120.0 – $125.0 | $109.0 – $111.0 | 11% |
| Total Debt / Q4 FFO (annualized) | 1.4 – 1.6 | 3.6 | (58%) |
| Bank Debt / Q4 FFO (annualized) (2) | 0.7 – 0.8 | 1.6 | (53%) |
| (1) Net debt includes the 5-year senior secured notes at $60 million, not the carrying value per the statement of financial position, and includes outstanding Letters of Credit of $6.6 million and working capital. (2) Bank debt is net debt less the senior secured notes of $60 million. | |||
Operational momentum continues to build throughout 2017, exiting the year with a very strong fourth quarter and setting up for continued growth into 2018 and beyond. As Delphi ramps up an increased level of field activity in 2017, the Company remains focused on our culture of strong capital discipline as demonstrated over the past three years.
| Q4 2017 Forecast |
Q4 2016 Forecast |
Percentage Variance |
|
| Production (boe/d) | 11,000 – 11,500 | 7,000 | 61% |
| Production per share (per million shares) | 73 | 45 | 61% |
| Q4 FFO ($ million) | $18.0 – $20.0 | $7.5 – $8.0 | 145% |
| Annualized FFO ($ million) | $72.0 – $80.0 | $30.0 – $32.0 | 145% |
| Annualized FFO per share | $0.46 – $0.51 | $0.20 | 143% |
| Cash Netback Including Hedges ($/boe) | $18.00 | $12.25 | 47% |
| Cash Netback Excluding Hedges ($/boe) | $18.50 | $8.75 | 111% |
Outlook
Delphi is positioned to deliver exceptional per share growth metrics in 2017 as a result of continued focus on margin growth, profitability and the successful execution of strategic initiatives over the past two years, despite challenging commodity prices.
The Company’s successful margin growth is a result of the high quality Bigstone Montney asset base, majority ownership in strategic infrastructure, firm take away capacity and proven expertise in developing its world-class, liquids-rich asset. Delphi’s strong hedge position has protected cash flow and economic returns through the entire period of lower commodity prices, creating the flexibility to pursue margin growth initiatives.
Delphi’s strategic initiatives successfully completed over the past 24-months include;
The Company has successfully managed this prolonged commodity price downturn since the fourth quarter of 2014 and as a result of recent strategic initiatives, is now in a better overall corporate position to significantly grow production and funds from operations. The production rate in the fourth quarter of 2017 is forecast to be in context of Delphi’s corporate production from the fourth quarter of 2014, while run rate funds from operations is forecast to be 20 percent greater. Total debt at December 31, 2017 is forecast to be 30 percent lower than at year-end 2014, while the shares outstanding have remained unchanged to date.
Delphi is well now positioned to achieve significant production, cash flow and reserve growth over the near and long term to the benefit of all our stakeholders.
About Delphi Energy Corp.
Delphi Energy Corp. is an industry-leading producer of liquids-rich natural gas. The Company has achieved top decile results through the development of our high quality Montney property, uniquely positioned in the Deep Basin of Bigstone, in northwest Alberta. Delphi continues to outperform key industry players by improving operational efficiencies and growing our dominant Bigstone land position in this world-class play. Delphi is headquartered in Calgary, Alberta and trades on the Toronto Stock Exchange under the symbol DEE.
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