CALGARY, Alberta, Nov. 09, 2017 (GLOBE NEWSWIRE) — GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO) (OTCQX:GXOCF) is pleased to announce its unaudited financial and operating results for the three and nine months ended September 30, 2017.
Third Quarter 2017 Financial and Operating Highlights
Selected financial and operating information is outlined below and should be read with Granite’s unaudited interim consolidated financial statements and related Management’s Discussion and Analysis (MD&A”) which are available at www.sedar.com and our website at www.graniteoil.ca.
|Three Months Ended September 30th,||Nine Months Ended September 30th,|
|(000s, except per share amounts)||($)||($)||($)||($)|
|Oil and natural gas revenues||12,676||11,582||40,915||31,436|
|Funds from operations (1)||6,218||6,061||19,521||18,033|
|Per share – basic||0.18||0.18||0.58||0.56|
|Per share – diluted (2)||0.18||0.18||0.57||0.56|
|Net income (loss)||(2,996||)||1,052||(612||)||(6,216||)|
|Per share – basic||(0.09||)||0.03||(0.02||)||(0.19||)|
|Per share – diluted (2)||(0.09||)||0.03||(0.02||)||(0.19||)|
|Capital expenditures (3)||3,531||6,244||14,168||16,297|
|Net debt (4)||36,893||29,323||36,893||29,323|
|Dividends declared (per share)||0.1050||0.1050||0.3150||0.3150|
|Weighted average – basic||34,171||33,598||33,723||31,942|
|Weighted average – diluted||34,443||33,922||34,083||32,280|
|Natural gas (mcf/d) (6)||499||145||558||145|
|Crude oil (bbls/d)||2,579||2,728||2,749||2,804|
|Average wellhead prices|
|Natural gas ($/mcf)||2.95||2.50||2.81||1.51|
|Crude oil and NGLs ($/bbl)||52.85||45.95||53.95||40.70|
|Combined average ($/boe) (7)||51.76||45.68||52.74||40.43|
|Operating netback ($/boe) (8)||29.53||28.67||29.21||27.73|
|Gross (net) wells drilled|
|Oil (#)||2 (2.0)||3 (3.0)||8 (8.0)||7 (7.0)|
|Total (#)||2 (2.0)||3 (3.0)||8 (8.0)||7 (7.0)|
|Average working interest (%)||100||100||100||100|
(1) Funds from operations and funds from operations per share are not recognized measures under International Financial Reporting Standards (IFRS). Refer to the commentary in the Management’s Discussion and Analysis under “Non-GAAP Measurements” for further discussion.
(2) The Company uses the weighted average common shares (basic) when there is a net loss for the period and the weighted average common shares (diluted) when there is net income in the period to calculate net income (loss) per share diluted. The Company uses the weighted average common shares (diluted) to calculate the funds from operations diluted.
(3) Total capital expenditures, excluding acquisitions and excluding non-cash transactions. Refer to commentary in the Management’s Discussion and Analysis under “Capital Expenditures and Acquisitions” for further information.
(4) Net debt, which is calculated as current liabilities (excluding derivative financial instruments) and bank debt less current assets (excluding derivative financial instruments), is not a recognized measure under IFRS. Please refer to the commentary under “Non-GAAP Measurements” for further discussion.
(5) For a description of the boe conversion ratio, refer to the commentary in the Management’s Discussion and Analysis under “Other Measurements”.
(6) Commencing in March 2016, the Company began injecting the majority of its natural gas production into the Alberta Bakken Property pursuant to the EOR scheme.
(7) Combined average realized prices includes all oil, gas and NGL sales revenue, excluding other income.
(8) Operating netback, which is calculated by deducting royalties, operating expenses and transportation expenses from oil and gas revenue and adjusting for any realized hedging on financial instruments, is not a recognized measure under IFRS. Please refer to the commentary under “Non-GAAP Measurements” for further discussion.
Message to Shareholders
Since ramping up gas injection enhanced oil recovery (“EOR”), Granite has realized dramatic efficiency gains. Since 2014, through the extended period of low commodity prices, Granite has reduced its annual capital spending by 75% and has decreased the total annual lateral length drilled by over 65% as the Company transitioned to secondary recovery. Over this time, oil production has effectively decreased by only 20%, which includes production lost to the conversion of formerly producing wells to gas injectors.
With 25% insider ownership, management is highly aligned with its shareholders in the ultimate goal of achieving the optimal development formula for the pool, to maximize oil recovery and long-term value for shareholders. Granite’s large, delineated pool is one of the highest netback oil assets in Alberta and remains in the early stages of its life cycle, with the majority of its oil recovery ahead.
To refine its development program, Granite has infill drilled at progressively closer offset spacing, moving from 400 meters in 2015 to 200 meters in 2016, with increasingly positive gains in capital efficiency and reserves. This down-spacing exercise was an important step in the early development of the pool to avoid overcapitalization and determine the optimal development formula for maximizing long-term oil recovery and value. In 2017, the Company tested further down-spacing, with infill drilling on 100 and 133 meter intervals (see May 9, 2017 press release). These wells initially tested at rates comparable to wells drilled on 200 meter spacing, and while economic, have proved to be less productive over time. Through this necessary and extensive testing, Granite has determined the optimal down-spacing going forward is 200 meters.
To date, the Company has fully developed only 3.5 (15%) of its 23.5 approved sections under its EOR scheme to reach this optimized development formula. This area represents the first of four EOR development pods the Company has identified within its existing EOR scheme. Within the 33 sections of its larger delineated pool, Granite has a remaining inventory of 80 potential well locations at 200 m offset spacing.
Updated 2017 Outlook
Granite’s team is moving to its next area of targeted development where it has been pressuring up some of its top-tier acreage. To date, the Company has drilled eight of its ten originally budgeted development wells and is planning to drill a ninth development well on 200 meter spacing late in Q4 in the second development pod. The decision to delay the ninth well and defer the tenth development well until 2018 has been made to provide additional time to achieve what management has learned to be optimal reservoir pressure in the EOR scheme. The Company is confident this well will return to Granite’s top-tier type curve.
As a result of lower productivity of wells testing tighter offset spacing, 100 bbls/d of production lost to accelerated injection conversions, as well as mechanical issues experienced on one development testing a new completion technology, the Company’s annual 2017 production is expected to be below targeted volumes, totaling approximately 2750 boe/d, with fourth quarter oil production averaging approximately 2350 bbls/d.
The Company has a letter of intent to sell a 60% working interest in non-core, non-Bakken assets, with average production of 60 boe/d, for cash proceeds of $2.0 million dollars. The Company’s 2017 capital expenditures (net of expected dispositions) is anticipated to be $16.3 million, a 25% reduction from 2016. Granite has met its flow through commitments, having drilled an exploration well in the fourth quarter which the Company intends to abandon.
Management expects to achieve similar capital efficiency improvements in 2018, with a capital program totaling approximately $12 million, representing a 26% drop year over year, with 85% of the budget targeted towards drilling and completions. Having significantly expanded its EOR facilities and infrastructure in 2017, the Company has minimal requirements for facilities, injector conversions and land in 2018. With all 2018 wells planned on 200 m spacing in its next EOR pod, which has some of the best permeability in the pool, Granite expects new well performance to be comparable to 2016 type curves. At $55 WTI, with oil production of approximately 2600 – 2700 bbl/d the Company expects annual 2018 cash flow of approximately $27 million. Based on the Company’s current dividend distribution of $0.035 per share per month (approximately $14.6 MM of annualized dividends), the Company will have an estimated all-in payout ratio of approximately 99%. The Company will continue to prioritize its strong balance sheet, with leverage estimated to be 1.4x debt to 2018 Cash Flow.
Granite’s dividend is reviewed regularly with the Board of Directors and is an important component of its overall strategy. Granite’s current dividend policy distributes $0.035 per share per month paid to shareholders (totaling approximately $14.6 million annually). The Company is committed to protecting its financial flexibility while positioning the Company to continue to develop its 100% owned and operated Bakken pool in a prudent and efficient manner, which will allow the payout of a sustainable dividend. This large, delineated oil pool is early in its development life cycle and is a natural fit for a corporate dividend model. Pace of development and capital spending is based on maximizing oil recovery and long-term value to shareholders. Granite has continued to add proved producing barrels at top-tier metrics and continues to drop capital expenditures year over year as it develops the formula for developing its large oil resource.
2018 Hedging Contracts
The Company currently has 1100 bbl/d hedged for Q1 2018 at an average price of $52.33 USD, 800 bbl/d hedged for Q2 2018 at an average price of $51.38 USD, and 800 bbl/d hedged for Q3 and Q4 2018 at an average price of $52.90 USD. Granite will continue to add additional hedges for 2018 and beyond as per the Company’s hedging strategy.
For further information, please contact Michael Kabanuk, President & CEO by telephone at (587)349-9123 or Tyler Klatt, V.P. Exploration by telephone at (587) 349-9125.
Forward-Looking Statements. Certain statements contained in this news release may constitute forward-looking statements or information (collectively, “forward-looking statements” or “statements”). These statements relate to future events or Granite’s future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, this news release contains forward-looking statements, pertaining to the following: oil and natural gas production levels, forecasted capital expenditures and plans, drilling and development plans, a proposed sale by Granite of certain non-core assets, future dividends, Granite’s financial strength, projections of market prices and costs, supply and demand for oil and natural gas, the success of Granite’s enhanced oil recovery scheme, expectations regarding Granite’s credit facility, treatment under governmental regulatory and taxation regimes and expectations regarding Granite’s ability to raise capital and to continually add to reserves through acquisitions and development.
With respect to forward-looking statements contained in this news release, Granite has made assumptions regarding, among other things: prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; the legislative and regulatory environments of the jurisdictions where Granite carries on business or has operations; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to market oil and natural gas successfully and Granite’s ability to obtain financing on satisfactory terms.
Granite believes the expectations reflected in such forward-looking statements and the assumptions upon which such forward-looking statements are based, to be reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon by investors. These statements speak only as of the date of this news release and are expressly qualified, in their entirety, by this cautionary statement. Granite’s actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; general economic conditions, stock market volatility and ability to access sufficient capital from internal and external sources; uncertainties associated with estimating oil in place; uncertainties associated with Granite’s ability to obtain financing on satisfactory terms; geological, technical, drilling and processing problems; uncertainties associated with the completion of the sale by Granite of certain non-assets; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel. Readers are cautioned that the foregoing list of factors is not exhaustive. Management has included the above summary of assumptions and risks related to forward-looking information provided in this news release in order to provide security holders with a more complete perspective on Granite’s future operations and such information may not be appropriate for other purposes. Additional information on these and other factors that could affect Granite’s operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
The forward-looking statements represent Granite’s views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. Granite has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking statements will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.
This news release contains future-oriented financial information and financial outlook information (collectively, “FOFI”) about Granite’s prospective results of operations, funds from operations, netbacks, net debt, operating costs and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this news release was made as of the date of this news release and was provided for the purpose of providing further information about Granite’s anticipated future business operations. Granite disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this news release should not be used for purposes other than for which it is disclosed herein.
BOE Presentation. References herein to “boe” mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.