Granite is pleased with its accomplishments throughout 2016. Notwithstanding record low oil prices, it was a transformational year that saw major advancements in the Company’s Gas Injection Enhanced Oil Recovery (“EOR”) Scheme over its Bakken pool and significant, permanent efficiency gains in its capital spending making the Company stronger going into 2017 and beyond.
In December 2015 Granite received approval from the Alberta Energy Regulator to expand the Company’s highly effective EOR Scheme across 24 contiguous sections of its 100%-owned Alberta Bakken oil pool. Granite focused relentlessly on the effective transition of the pool to full-scale EOR. Throughout 2016, Granite converted three additional producing wells to gas injectors and took advantage of seasonally low gas prices to increase its gas injection by over 60%. By prioritizing this transition, Granite returned significant portions of the heart of the pool to original pressure conditions ahead of schedule.
The Company also continued to optimize its development drilling program with modifications to well and completion design, and focused primarily on drilling EOR-specific wells. With more data, results from the 15 EOR-specific wells drilled and completed throughout 2015 and 2016 continue to out-perform. These results include increased oil recovery per meter of lateral section by a Company-estimated 2.4 times along with improved decline profiles. Granite continues to rapidly learn and optimize, with the wells drilled in the second half of 2016 performing significantly better than those drilled in the first half of 2016. As well, adjusting for lost production through the conversion of producing wells to gas injectors, the Company’s historical base production has also shown reduced declines from its gas injection support, meeting a major objective of 2016 in getting its decline below 20%. Please refer to the new corporate presentation at www.graniteoil.ca.
Granite also reduced all-in well costs by over 55% from $2.67 million in 2015 to $1.2 million by the end of 2016. These gains were primarily achieved through operational optimization and well design resulting in similar cost savings realized on the first two wells of 2017 despite recent increases in service costs. When combined with the significant improvement in recovery, these wells are the most capital efficient including recycle ratios at current oil prices, in the Company’s history.
Granite’s budget for 2017 will continue a trend of decreasing capital as the Company and its Bakken asset become more efficient. In 2017, Granite will be sustainable, funded by internally generated funds from operations, grow production year over year, and maintain the divided of $0.42/share per year. The budget will continue to focus on maximizing long-term shareholder value by advancing its free cash flow-generating Bakken oil pool and exploring its high-impact Bakken land position.
Firstly, Granite will continue to improve the Company’s annual production decline rate, reducing future maintenance and growth capital requirements, and prioritize the most efficient recovery of the Company’s large oil in place. Secondly, the Company will execute a high-impact exploration program on strategic lands acquired in 2016 within its 100%-owned, 80 section Bakken oil fairway. The exploration program will include three wells targeting high-priority Bakken targets that have been high-graded over several years of geosciences work.
Based on an average WTI oil price of $55 US, Granite’s capital program and dividend obligations will be fully funded by internally generated funds from operations. Details of Granite’s 2017 budget include:
- Annual average production volumes of approximately 3,050 bbl/d oil, representing an eight percent year over year growth;
- Annual dividend payments totaling $14.5 million at the current dividend rate of $0.035/share per month (current yield of seven percent);
- Capital expenditures of approximately $16.5 million, consisting of:
- $13.5 million of development capital put towards the drilling and completion of 10, 100% working interest, EOR-specific Bakken horizontal wells, and continued EOR expansion through the conversion of three additional producing wells to gas injection wells; and
- $3.0 million of exploration capital put towards the drilling of high-priority exploration targets;
- Top-tier forecasted operating and G&A costs of $6.25 and $2.25 per barrel of oil, respectively; and
- Maintain its strong and flexible financial position with a net debt of approximately $31 million on a $60 million bank line, with a top-tier debt to funds from operations ratio of 1.0 times.
|2017 Budget||(Based on US $55 WTI)|
|Funds From Operations||$MM||30.0|
|Exit Net Debt||$MM||31|
|All-in Payout Ratio||%||100|
|Capex per Well||$MM||1.2|
|Operating and Transportation||$/bbl||7.50|
|Differential to WTI||US$/bbl||14.00|
|USD/CAD FX Rate||$||0.74|
|Positive Quality Adjustment||US$/bbl||2.09|
For the first half of 2017, the Company has an average of 1,000 bbls/d of oil hedged at an average of US $48.05/bbl WTI.
For the second half of 2017, Granite has an average of 750 bbls/d of oil hedged at an average of US $52.23/bbl WTI.
Fourth Quarter 2016
Granite drilled three horizontal production wells during the fourth quarter of 2016 and averaged approximately 3,000 boe/d including approximately 2,950 bbls/d of oil, representing an 8% quarter over quarter growth. The Company averaged approximately 3,050 bbls/d of oil in the final two months of 2016 with several wells flowing at restricted rates, as it continues to focus on building and strengthening the base production. Capital expenditures were approximately $5.0 million, including $3.8 million for drilling and completions operations.
Granite enters 2017 in a strong position, both operationally and financially. With lower decline rates, a deep inventory of increasingly efficient drilling, 100% ownership and a strong balance sheet, Granite will continue its focus on improving the value of its unique asset.
Granite will also continue to closely monitor oil prices and other critical factors. With its solid financial position and operational flexibility, the Company is well-positioned to continue creating long-term shareholder value through a range of commodity pricing.