CALGARY, ALBERTA–(Marketwired – Nov. 16, 2017) – Seven Generations Energy’s Board of Directors has approved 2018 capital investment of $1.675 to $1.775 billion, which will target an average production range of 200,000 to 210,000 boe/d in 2018 and build the longer-term capacity to produce 220,000 to 240,000 boe/d in 2019. At the midpoint of each year’s production forecast, this represents a compound annual growth rate of approximately 15 percent from forecasted 2017 average production. 7G expects its production to be comprised of 55 to 60 percent natural gas liquids by volume, which includes high-value condensate that currently generates about 55 percent of the company’s revenue.
“We have a two-year growth plan that is targeted to take 7G to cash flow self-sufficiency in 2019, and a three-year outlook beyond that of profitable growth that is designed to generate strong returns on capital employed. We have a deep inventory of high quality liquids-rich assets that generate excellent well economics and attractive netbacks that are aided by our access to premium markets for our condensate and natural gas. Further, our efficient capital allocation and leading development capabilities result in low break-even supply costs, high returns at US$50 WTI, and ensure profitable growth with a strong balance sheet. These differentiating characteristics position us very well to create additional long-term value for our shareholders by investing more than cash flow in 2018, before transitioning our company to a balanced budget in 2019,” said Marty Proctor, 7G’s President and Chief Executive Officer.
Seven Generations’ 2018 capital investment is expected to grow production next year by an estimated range of 14 to 20 percent and build the foundation for a growth range of 7 to 17 percent in 2019. The company plans to complete a major new natural gas processing plant, expand its water management facilities to decrease operating costs, continue to advance its innovative completions techniques and evaluate the company’s extensive resource base outside its core development area. Seven Generations is also today defining a new development area – Nest 3, which is generating economics that approach the economics of the company’s prolific Nest 2 lands.
Fully funded organic production growth of 100,000 boe/d over the next five years
Over the next five years, assuming benchmark prices of US$50 per barrel for WTI oil and US$3 per MMBtu for Henry Hub natural gas, 7G anticipates fully funded production growth of 100,000 boe/d. This long-term outlook sees production reaching 300,000 boe/d in 2022. With higher commodity prices and the company’s expected improvements in operating efficiencies, daily production rates could be substantially higher during the outlook period.
About $1.3 billion of 7G’s 2018 capital program targets development in the Nest, with most of the remaining capital allocated to facilities, water handling initiatives and delineation drilling. Approximately $175 million is allocated to complete the construction of a new liquids-rich natural gas processing plant and sales pipeline at Gold Creek, which is expected to start-up in the fourth quarter of 2018, as well as the construction of a NGL sales pipeline from 7G’s existing Cutbank facility.
2018 capital investments expected to drive production through 2019
7G plans to operate about nine rigs to drill 80 to 90 wells in 2018, which includes six to seven wells to evaluate undeveloped resources and two water disposal wells. Running two to three completions crews next year, 7G plans to complete 90 to 100 wells in 2018 including delineation and water disposal wells, and bring 80 to 90 wells on production. 7G’s 2018 plan has fewer wells scheduled to start up in the first quarter of 2018, resulting in flat production in the first half, followed by ramped up production during the last two quarters of the year. With a focus on future growth in 2019 and beyond, 7G intends to test the Lower Montney formation within its core Nest 2 area as well as test the productivity of the company’s Nest 1 lands. 7G is forecasting production of 220,000 to 240,000 boe/d in 2019, representing annual production growth of 12 percent at the midpoint relative to forecast average 2018 production.
New Nest 3 area defined, well economics approaching Nest 2 performance
Located just to the south of its Nest 2 on land acquired in 2016, 7G’s newly defined Nest 3 area covers about 30 sections and contains approximately 200 potential Montney drilling opportunities. These sections were previously considered to be part of 7G’s Rich Gas area, but recent results suggest better economics than those that are expected from wells in the Rich Gas area, justifying the definition of the Nest 3 area within this expanded Nest boundary. Initial Nest 3 results saw significant natural gas production, with liquids production similar to Nest 2 results. With four wells completed in Nest 3, single well economics for wells drilled in the Nest 3 area are estimated to be about 80 percent of average Nest 2 well economics, with about 100 barrels of liquids per MMcf of natural gas. With a lower liquids ratio and a shallower condensate decline rate for Nest 3 wells relative to Nest 2 wells, facility capital expenditures for Nest 3 wells are anticipated to be lower, bringing full-cycle economics closer in line with 7G’s existing Nest 2 economics.
Delineating the resource base for long-term profitable production growth
Beyond core development drilling and completions in the Nest 2 lands, 7G plans a series of investments to evaluate resources and grow production for the longer term. These 2018 investments include delineation of the Lower Montney formation – pervasive throughout nearly all of 7G’s lands – as well as further delineation of the Wapiti and Deep Southwest lands and additional development in the Nest 1 core area.
Continuing to optimize well design to improve resource recovery and maximize returns
7G continues to focus on testing alternative well designs in an ongoing effort to improve resource recovery and project economics. Given the company’s success to date with higher completions intensities and a change in completion fluid, plus encouraging preliminary results from cemented liners, 7G plans to further investigate the efficiency of designs in a designated pad by applying micro-seismic and fibre optic technology. This will enable real-time monitoring of fracture stimulations and subsequent production performance. The data obtained, coupled with learnings from well performance results, will help design 7G’s next generation of wells.
2018 investment in water handling to drive costs lower
In the second quarter of 2017, 7G faced considerable operating cost pressure, largely due to increased trucking of produced water to third-party disposal facilities. As part of its ongoing cost reduction plan, 7G drilled its first water disposal well in 2017 inside the Kakwa River Project lands. Two additional water disposal wells are planned in 2018. Seven Generations will also begin building a water pipeline network to connect these injection wells and enable the piping of produced water to development pads for use in hydraulic fracturing. This $75-million water infrastructure initiative in 2018 is designed to further reduce water sourcing, trucking and disposal costs.
2018 capital investment plan
|Nest development ($mm)||1,275 – 1,325|
|Delineation ($mm)||125 – 150|
|Water infrastructure ($mm)||75 – 80|
|Major gas processing facility ($mm)||145 – 155|
|NGL pipeline ($mm)||25 – 30|
|Other ($mm)||30 – 35|
|Capital Investment ($mm)||1,675 – 1,775|
|Production (boe/d)||200,000 – 210,000|
Trending to low end of 2017 production guidance
Due to continued restrictions, a fourth quarter unplanned outage and the potential for another unplanned outage at the Pembina Kakwa River natural gas processing plant, Seven Generations now expects 2017 annual production to be at the low end of the guidance range of 175,000 to 180,000 boe/d, subject to third-party plant reliability performance for the rest of the year. 7G is working alongside Pembina to fix the constraint and improve plant reliability. As a result of this 2017 reliability performance, 7G has embedded a more conservative outlook regarding third-party related infrastructure downtime in its 2018 production forecast.
“Including a planned outage for plant modifications and unplanned outages, the Kakwa River plant has run at 90 percent reliability on a year-to-date basis, which is below its contracted reliability rate. The plant has faced challenges due to the inlet gas composition being richer than the initial design expectations. Pembina is committed to working diligently with Seven Generations to improve the performance and reliability of the Kakwa River gas processing plant,” said Mick Dilger, Chief Executive Officer of Pembina Pipeline Corporation.
About 10,000 boe/d of production curtailed by current facilities constraints
Seven Generations currently has 11 new wells producing at restricted rates as a result of the Pembina plant processing limitations. The impact of third-party constraints and unplanned outages is estimated to be about 10,000 boe/d on fourth quarter production. This is production that will be deferred into 2018 and processing restrictions have no impact on well performance and reservoir deliverability.
7G has started building infrastructure inside the Kakwa field that will enable 7G to divert approximately 70 MMcf/d of natural gas, between the Pembina Kakwa River plant and 7G’s operated plants, to better manage operational interruptions and improve netbacks. The inter-connection, along with the completion of the facility at Gold Creek in 2018, is expected to improve Kakwa River Project production reliability and add optionality to processing and market deliveries.
7G to complete natural gas processing plant at Gold Creek
Construction of a new natural gas processing plant is underway at Gold Creek, which will enable continued organic growth while regaining a higher degree of operational control. This facility will be 7G’s third wholly-owned and operated natural gas plant and it is scheduled to start operations in the fourth quarter of 2018. Seven Generations plans to invest about $175 million in 2018 to complete the first phase of development, with a processing capacity of 250 MMcf/d. This investment will fund a number of basic infrastructure pre-builds that would enable the company to double the processing capacity of the facility in the future, and build two sales pipelines. With the first phase of this facility, 7G will have about 760 MMcf/d of its own processing capacity, complemented by up to 250 MMcf/d of third-party processing, for a total of about 1 billion cubic feet per day of available processing capacity. This processing capacity supports 7G’s profitable production growth plans for the next several years.
To support plans to fully utilize the new processing plant’s capacity, 7G will make additional investments in Super Pads, satellite pads and associated pipeline infrastructure. Seven Generations’ facilities budget includes about $225 million of capital related to these activities.
Jordan Johnsen to lead 7G operations and engineering in Grande Prairie
Seven Generations has promoted Jordan Johnsen to Vice President, Operations & Engineering. Based in Grande Prairie, Jordan has played a vital role in the development and growth of 7G over the past 10 years. As the lead engineer on 7G’s first Montney horizontal well, Jordan has helped lead the development of Kakwa River Project wells, Super Pads, production facility design and construction and natural gas processing. Working in 7G’s Grande Prairie operations headquarters, Jordan will lead implementation and execution of 7G’s capital investment at the field level. Jordan earned an engineering degree from the University of Calgary in 2006 and is a member of the Association of Professional Engineers and Geoscientists of Alberta (APEGA).
Seven Generations will host an investor day on Thursday, Nov. 16, 2017 at the Metropolitan Centre in Calgary. Investor day presentations will be webcast and posted on the company’s website: www.7genergy.com.
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Seven Generations Energy
Seven Generations is a low-supply-cost, high-growth Canadian energy developer generating long-life value from its liquids-rich Kakwa River Project, located about 100 kilometres south of its operations headquarters in Grande Prairie, Alberta. 7G’s corporate headquarters are in Calgary and its shares trade on the TSX under the symbol VII.
Further information on Seven Generations is available on the company’s website: www.7genergy.com.