CALGARY, ALBERTA–(Marketwired – Feb. 7, 2017) – Chinook Energy Inc. (“Chinook” or the “Company”) (TSX:CKE) today announced its unaudited 2016 year end results and the results of its year end reserve evaluation effective December 31, 2016 as prepared by its independent evaluator.
Chinook’s audit of its 2016 annual consolidated financial statements is not yet complete and accordingly all financial amounts referred to in this news release are unaudited and represent management’s estimates. Readers are advised that these financial estimates are subject to audit and may be subject to change as a result.
Unaudited 2016 Year-End Results
Chinook’s average daily production for 2016 was 3,716 boe/d, which excludes the results of Craft Oil Ltd. (“Craft”) from its acquisition on June 10, 2016 to its disposition on December 12, 2016 (“Chinook Unconsolidated”). Chinook Unconsolidated’s average production for the fourth quarter of 2016 was 2,593 boe/d and the Company exited 2016 at approximately 3,030 boe/d. Projected outflow from operations for Chinook Unconsolidated for 2016 is estimated at $5.2 million or $0.02 per weighted average basic common share outstanding. Chinook exited 2016 with no bank debt and with an approximate $15.6 million working capital surplus.
During 2016, Chinook focused on the development of its Montney acreage at Birley/Umbach in northeastern British Columbia and the continued rationalization of its asset base. During the first quarter of 2016, Chinook commenced production from its new 25 mmcf/d A-72-F compression facility at Birley. In June 2016, Chinook completed the sale of the majority of its Alberta oil and natural gas assets, including undeveloped lands in exchange for 70% of the common shares of Craft which were then distributed to Chinook’s shareholders on December 12, 2016. During 2016, Chinook also completed the sale of oil and natural gas properties in the Gold Creek area of northwestern Alberta, which, in addition to other minor dispositions and customary closing adjustments, resulted in net proceeds of $8.7 million.
During the fourth quarter of 2016, Chinook drilled three (2.62 net) horizontal wells in the Birley/Umbach area of northeastern British Columbia, targeting liquids-rich natural gas in the Montney. As previously disclosed, the drilling of these wells was completed on schedule and under budget by approximately 26% with average drilling costs of approximately $1.28 million per well ($1.12 million, net). The Company expects to complete and tie-in the three wells during the first quarter of 2017.
2016 Independent Reserves Evaluation
McDaniel & Associates Consultants Ltd. (“McDaniel”) evaluated all of Chinook’s properties effective December 31, 2016 pursuant to a report dated February 7, 2017 (the “McDaniel Report”). The independent reserve evaluation was prepared in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101 (“NI 51-101”). The reserve evaluation was based on McDaniel’s forecast pricing and foreign exchange rates at December 31, 2016. The Reserves, Safety and Environmental Committee of the Board and the Board of Directors of Chinook have reviewed and approved the McDaniel Report.
Reserves included herein are stated on a Company gross basis (working interest before deduction of royalties and without including any royalty interests) unless noted otherwise. The reserves analysis presented herein excludes the effect of consolidation of Craft and contemplates the unconsolidated reserves of Chinook only. Approximately 7.3 mmboe Proved and 11.5 mmboe Proved plus Probable reserves (along with $9.6 million and $15.2 million of FDC, respectively) were disposed to Craft in return for 152,251,953 shares of Craft. Any portion of analysis involving production, capital or reserves excludes the portion of Craft consolidated into Chinook’s financials after June 10, 2016. This news release contains several cautionary statements that are specifically required by NI 51-101 under the heading “Reader Advisory” and throughout the release. In addition to the information contained in this news release more detailed reserves information will be included in Chinook’s Annual Information Form for the year ended December 31, 2016, which will be filed on SEDAR at www.sedar.com in March 2017. Values in the following tables may not add due to rounding.
Reserves Breakdown (Company gross) (1)
(December 31, 2016, McDaniel price forecast)
(mboe) | 2016 | 2015 |
Proved Producing | ||
Total proved producing | 5,493 | 8,893 |
Proved | ||
Total proved | 14,746 | 19,182 |
Proved Plus Probable | ||
Total proved plus probable | 26,488 | 30,634 |
Note: |
(1) Gross reserves are the Company’s working interest reserves before royalty deductions and do not include royalty interest volumes. |
Company Gross and Net Reserves as at December 31, 2016
The following table summarizes the Company’s gross and net reserve volumes utilizing McDaniel’s forecast pricing and cost estimates at December 31, 2016.
Light and medium oil | Heavy oil | Conventional Natural Gas | Natural gas liquids | Oil equivalent (6:1) | |||||||
Reserves category | Gross (1) (mbbl) | Net (2) (mbbl) | Gross (1) (mbbl) | Net (2) (mbbl) | Gross (1) (mmcf) | Net (2) (mmcf) | Gross (1) (mbbl) |
Net (2) (mbbl) | Gross (1) (mboe) | Net (2) (mboe) | |
Total company | |||||||||||
Proved | |||||||||||
Developed producing | 46 | 38 | – | – | 28,293 | 23,981 | 731 | 589 | 5,493 | 4,623 | |
Developed non-producing | 7 | 6 | – | – | 1,821 | 1,553 | 47 | 37 | 358 | 303 | |
Undeveloped | – | – | – | – | 45,457 | 37,264 | 1,319 | 1,106 | 8,895 | 7,317 | |
Total proved | 53 | 44 | – | – | 75,571 | 62,798 | 2,097 | 1,732 | 14,746 | 12,243 | |
Probable | 33 | 29 | – | – | 60,475 | 48,573 | 1,631 | 1,330 | 11,743 | 9,454 | |
Total proved plus probable | 86 | 73 | – | – | 136,046 | 111,371 | 3,728 | 3,062 | 26,488 | 21,697 |
Note: |
(1) Gross reserves are the Company’s working interest reserves before royalty deductions and do not include royalty interest volumes. |
(2) Net reserves are after royalty deductions and include royalty interest volumes. |
Company Gross Reserve Reconciliation for 2016
(Company gross reserves before deduction of royalties payable)
6:1 Oil Equivalent (mboe) | ||||||
Total Proved | Probable | Proved Plus Probable |
||||
December 31, 2015 – opening balance | 19,182 | 11,452 | 30,634 | |||
Additions and extensions | 3,769 | 3,960 | 7,729 | |||
Acquisitions | – | – | – | |||
Dispositions | (7,525) | (4,267) | (11,792) | |||
Technical revisions | 687 | 600 | 1,287 | |||
Economic factors | (7) | (3) | (10) | |||
Production | (1,360) | – | (1,360) | |||
December 31, 2016 – closing balance | 14,746 | 11,743 | 26,488 | |||
During 2016, Chinook completed the aforementioned disposition of the majority of its Alberta oil and natural gas assets, which, in addition to dispositions in the Gold Creek area of northwestern Alberta, other minor dispositions and customary closing adjustments, resulted in net proceeds of $8.7 million and the Craft shares. Dispositions of the Company’s Alberta non-Montney assets represented the majority of the proved plus probable reserve reductions of approximately 11.8 mmboe.
Year over year, McDaniel recorded net positive technical revisions related to performance of approximately 1.3 mmboe on a proved plus probable reserves basis.
Of particular note, Chinook added a total of 7.7 mmboe on a proved plus probable basis. The additions are focused in the Company’s core Montney area of Birley/Umbach, British Columbia and include six proved undeveloped locations and four probable additional undeveloped locations. At December 31, 2016, in addition to the six (4.7 net) Proved Developed Producing wells, McDaniel recognized a total of 26 undeveloped locations, 16 (14.2 net) Proved undeveloped locations and 10 (8.5 net) Probable undeveloped locations. As at the date of the McDaniel Report, approximately 15% of Chinook’s greater Birley/Umbach Montney acreage was booked.
Reserve Life Index (“RLI”)
As at December 31, 2016, Chinook’s proved plus probable RLI was 16.6 years based upon the McDaniel Report and the forecast 2017 production volumes from the report, while Chinook’s proved RLI was 9.5 years. The following table summarizes the RLI:
Proved | ||
Reserves (mboe) | 14,746 | |
2017 Forecast production – Proved (mboe) (1) | 1,559 | |
Reserve life index (years) | 9.5 | |
Proved Plus Probable | ||
Reserves (mboe) | 26,488 | |
2017 Forecast production – Proved Plus Probable (mboe) (1) | 1,594 | |
Reserve Life Index (years) | 16.6 |
Note: |
(1) As evaluated by an independent reserve evaluator as at December 31, 2016. |
Net Present Value (“NPV”) Summary (before tax) as at December 31, 2016
(December 31, 2016, McDaniel price forecast)
Benchmark commodity prices used are adjusted for the quality of the commodities produced and for transportation costs. The calculated NPVs include a deduction for estimated future well abandonment and reclamation but do not include a provision for interest, debt service charges and general and administrative expenses. It should not be assumed that the NPV estimates represent the fair market value of the reserves.
($ thousands) | Undiscounted | Discounted at 5% |
Discounted at 10% |
Discounted at 15% |
Discounted at 20% |
Proved developed producing | 32,894 | 29,936 | 26,970 | 24,479 | 22,447 |
Proved developed non-producing | 4,169 | 3,182 | 2,498 | 2,019 | 1,673 |
Total proved developed | 37,062 | 33,118 | 29,469 | 26,498 | 24,120 |
Proved undeveloped | 74,216 | 51,388 | 36,317 | 26,023 | 18,742 |
Total proved | 111,279 | 84,506 | 65,786 | 52,520 | 42,862 |
Probable additional | 156,359 | 94,867 | 61,917 | 42,764 | 30,799 |
Total proved plus probable | 267,638 | 179,373 | 127,703 | 95,284 | 73,661 |
Net Present Value Summary (after tax) as at December 31, 2016
(December 31, 2016, McDaniel price forecast)
The after-tax NPV of Chinook’s oil and natural gas properties reflects the tax burden on the properties on a stand-alone basis and does not consider the business-entity-level tax situation, or tax planning. It does not provide an estimate of the value at the level of the business entity, which may be significantly different. The financial statements and the management’s discussion and analysis of Chinook should be consulted for information at the level of the business entity.
($ thousands) | Undiscounted | Discounted at 5% |
Discounted at 10% |
Discounted at 15% |
Discounted at 20% |
Proved developed producing | 32,894 | 29,936 | 26,970 | 24,479 | 22,447 |
Proved developed non-producing | 4,169 | 3,182 | 2,498 | 2,019 | 1,673 |
Total proved developed | 37,062 | 33,118 | 29,469 | 26,498 | 24,120 |
Proved undeveloped | 74,216 | 51,388 | 36,317 | 26,023 | 18,742 |
Total proved | 111,279 | 84,506 | 65,786 | 52,520 | 42,862 |
Probable additional | 156,359 | 94,867 | 61,917 | 42,764 | 30,799 |
Total proved plus probable | 267,638 | 179,373 | 127,703 | 95,284 | 73,661 |
McDaniel & Associates Consultants Ltd. Price Forecast as at December 31, 2016 (1)
WTI Crude Oil (US$/bbl) |
Edmonton Light Crude Oil (Cdn$/bbl) |
Henry Hub Natural Gas (US$/mmbtu) |
AECO Natural Gas (Cdn$/mmbtu) |
British Columbia Average Plantgate Gas (Cdn$/mmbtu) | Edmonton Condensate and Natural Gasoline (Cdn$/bbl) |
Ethane (Cdn$/bbl) |
Propane (Cdn$/bbl) |
Butane (Cdn$/bbl) |
US/Cdn Exchange (US$/Cdn$) |
||
2017 | 55.00 | 69.80 | 3.40 | 3.40 | 2.90 | 72.80 | 12.80 | 23.30 | 43.50 | 0.750 | |
2018 | 58.70 | 72.70 | 3.20 | 3.15 | 2.65 | 75.80 | 11.80 | 23.70 | 47.90 | 0.775 | |
2019 | 62.40 | 75.50 | 3.35 | 3.30 | 2.90 | 78.60 | 12.40 | 26.20 | 49.80 | 0.800 | |
2020 | 69.00 | 81.10 | 3.65 | 3.60 | 3.20 | 84.30 | 13.60 | 28.30 | 56.40 | 0.825 | |
2021 | 75.80 | 86.60 | 4.00 | 3.90 | 3.50 | 89.80 | 14.80 | 30.30 | 63.40 | 0.850 | |
Average | 64.18 | 77.14 | 3.52 | 3.47 | 3.03 | 80.26 | 13.08 | 26.36 | 52.20 | 0.800 |
Note: |
(1) Prices escalate at two percent per year after 2021. |
The above pricing table was utilized by McDaniel in its evaluation of Chinook’s reserves as at December 31, 2016. When compared to the December 31, 2015 price forecast, commodity pricing for the year 2017 has increased for Edmonton Light Crude Oil, AECO Natural Gas and British Columbia Average Plantgate Gas by 5%, 6% and 12%, respectively. However, the longer term price forecast decreased on average over the following 10 years for the same commodities by 6%, 11% and 13%, respectively.
Future Development Costs (“FDC”)
Changes in forecast FDC occur annually as a result of development activities, acquisition and disposition activities and capital cost estimates that reflect the independent evaluator’s best estimate of what it will cost to bring the proved undeveloped and probable reserves on production using forecast prices and costs.
($ millions) | ||
2016 | 2015 | |
Total proved | 74.2 | 61.8 |
Total proved plus probable | 115.1 | 95.0 |
Finding and Development Costs (“F&D”)
Finding and development costs below are calculated as the Exploration and Development costs excluding the acquisitions, dispositions, abandonment and furniture and fixtures plus the change in undiscounted FDC excluding that FDC associated with acquisitions and dispositions, divided by the reserve additions excluding acquisition and divestiture. Chinook’s F&D costs, net of acquisition, disposition, abandonment and furniture and fixture costs, which indicates the capital spent per barrel of oil equivalent added, net of acquisition and disposition changes in volume, are below.
Total Finding and Development Costs (Proved Reserves) ($ thousands, except per unit amounts) |
2016 | 2015 | 2014 | Three-Year Total | |||||
Exploration and development costs excluding acquisitions, dispositions, abandonment and furniture & fixtures | |||||||||
(unaudited) (1) | 7,465 | 44,281 | 77,542 | 129,288 | |||||
Net change from previously allocated future development capital | 22,102 | 25,618 | 6,820 | 54,540 | |||||
Total exploration and development costs including the net change in FDC | 29,567 | 69,899 | 84,362 | 183,827 | |||||
Reserve additions excluding acquisitions and dispositions (mboe) | 4,449 | 4,732 | 3,473 | 12,654 | |||||
Total proved finding and development costs (per boe) | 6.65 | 14.77 | 24.29 | 14.53 | |||||
Total Finding and Development Costs (Proved plus Probable Reserves) ($ thousands, except per unit amounts) |
2016 | 2015 | 2014 | Three-Year Total | |||||
Exploration and development costs excluding acquisitions, dispositions, abandonment and furniture & fixtures | |||||||||
(unaudited) (1) | 7,465 | 44,281 | 77,542 | 129,288 | |||||
Net change from previously allocated future development capital | 35,391 | 30,530 | 19,910 | 85,831 | |||||
Total exploration and development costs including the net change in FDC | 42,856 | 74,811 | 97,452 | 215,119 | |||||
Reserve additions excluding acquisitions and dispositions (mboe) | 9,006 | 7,474 | 4,797 | 21,277 | |||||
Total proved plus probable finding and development costs (per boe) | 4.76 | 10.01 | 20.32 | 10.11 |
Note: |
(1) Excludes non-cash costs, including decommissioning liabilities. |
Total exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs, generally will not reflect the total cost of reserve additions in that year.
Recycle Ratio
The recycle ratios are calculated as the forecasted 2017 annual netback per boe divided by the 2016 F&D costs per boe set forth above. The recycle ratio is comparing the netback as estimated by the Company for 2017 (revenue including commodity price contracts, less royalties and field operating expenses) to the cost of finding new reserves in 2016.
Total Proved | |
Forecast 2017 operating netback including commodity price contracts ($/boe) (1) | 10.52 |
2016 F&D costs ($/boe) (unaudited) | 6.65 |
Recycle ratio | 1.6x |
Total Proved Plus Probable | |
Forecast 2017 operating netback including commodity price contracts ($/boe)(1) | 10.52 |
2016 F&D costs ($/boe) (unaudited) | 4.76 |
Recycle ratio | 2.2x |
Note: |
(1) As determined from the Company’s 2017 budget using strip commodity pricing as of January 24, 2017. |
Corporate Net Asset Value
The Company’s net asset value as of December 31, 2016 is detailed in the following table. This net asset value determination is a “point-in-time” measurement and does not take into account the possibility of Chinook being able to recognize additional reserves through successful future capital investment in its existing properties beyond those included in the McDaniel Report.
December 31, 2016 | Before Tax NPV 5% | Before Tax NPV 10% | Before Tax NPV 15% | ||||
($ thousands) | $/share | ($ thousands) | $/share | ($ thousands) | $/share | ||
Proved developed producing reserves NPV (1)(2) | 29,936 | 0.14 | 26,970 | 0.12 | 24,479 | 0.11 | |
Total proved reserves NPV (1)(2) | 84,506 | 0.39 | 65,786 | 0.30 | 52,520 | 0.24 | |
Proved plus probable reserves NPV (1)(2) | 179,373 | 0.83 | 127,703 | 0.59 | 95,284 | 0.44 | |
Undeveloped acreage (3) | 48,627 | 0.22 | 48,627 | 0.22 | 48,627 | 0.22 | |
Working capital surplus (4) | 15,573 | 0.07 | 15,573 | 0.07 | 15,573 | 0.07 | |
Net asset value (basic) (5)(6) | 243,572 | 1.13 | 191,902 | 0.89 | 159,484 | 0.74 | |
After Tax NPV 5% | After Tax NPV 10% | After Tax NPV 15% | |||||
($ thousands) | $/share | ($ thousands) | $/share | ($ thousands) | $/share | ||
Proved developed producing reserves NPV (1)(2) | 29,936 | 0.14 | 26,970 | 0.12 | 24,479 | 0.11 | |
Total proved reserves NPV (1)(2) | 84,506 | 0.39 | 65,786 | 0.30 | 52,520 | 0.24 | |
Proved plus probable reserves NPV (1)(2) | 179,373 | 0.83 | 127,703 | 0.59 | 95,284 | 0.44 | |
Undeveloped acreage (3) | 48,627 | 0.22 | 48,627 | 0.22 | 48,627 | 0.22 | |
Working capital surplus (4) | 15,573 | 0.07 | 15,573 | 0.07 | 15,573 | 0.07 | |
Net asset value (basic) (5)(6) | 243,572 | 1.13 | 191,902 | 0.89 | 159,484 | 0.74 |
Notes: |
(1) Evaluated by the independent reserve evaluator as at December 31, 2016. Net present value of future net revenue does not represent the fair market value of the reserves. |
(2) Net present values for before and after tax are based on McDaniel’s December 31, 2016 price forecast. |
(3) Undeveloped land value has been valued internally by Chinook at an average of $415 per acre over 117,210 net undeveloped acres. |
(4) Working capital surplus as at December 31, 2016, including positive working capital (estimated and unaudited). See “Working Capital Surplus” in the Reader Advisory below. |
(5) Net asset value is the sum of proved plus probable reserves, undeveloped acreage and working capital surplus. |
(6) Basic shares as at December 31, 2016 totaled 216,442,834 common shares. |
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and natural gas exploration and development company which is focused on realizing per share growth from its large contiguous Montney liquids-rich natural gas position at Birley/Umbach, British Columbia.