Cona Resources Ltd. Announces 2017 Year-End Reserves Information

CALGARY, Feb. 21, 2018 /CNW/ – Cona Resources Ltd. (“Cona” or the “Company”) (TSX: CONA) announces its 2017 year-end reserves information.

Cona’s year-end 2017 reserves are indicative of the Company’s unique low decline, high quality oil-weighted asset base. With over 90% of the Company’s production under natural water drive, waterflood, polymer flood or steam assisted gravity drainage (“SAGD”), we have been able to grow our reserves base while spending only 64% of our 2017 funds from operations during a period of supressed commodity prices.  We have delivered increases in all three reserve categories (proved developed producing (“PDP”), total proved (“1P”) and proved plus probable (“2P”)), at low single digit finding and development costs. Cona’s reserves are also uniquely positioned having a long reserve life index (“RLI”) on a 2P basis of over 21 years, with 64% of those reserves in the lower risk 1P reserves category.

2017 RESERVE HIGHLIGHTS

• Before deducting annual production, PDP reserves increased by 7.1 million boe or 14%, 1P reserves increased by 13.6 million boe or 18% and 2P reserves increased by 8.0 million boe or 6%. After deducting annual production, PDP reserves increased by 0.8 million boe or 2%, 1P reserves increased by 7.3 million boe or 10% and 2P reserves increased by 1.7 million boe or 1%.
• Positive heavy oil technical revisions of 7.1 million bbl on 1P reserves and 2.5 million bbl on 2P reserves, largely attributed to the Cactus Lake property, are further recognition of Cona’s successful polymer flood.
• Finding, development and acquisition (“FD&A”) costs were favourable for an oil weighted asset base at $3.54 per boe for 2P reserves, $7.01 per boe for 1P reserves and $6.58 per boe for PDP reserves, including future development capital (“FDC”).
• Finding and development (“F&D”) costs were similarly strong at $3.72 per boe for 2P reserves, $7.11 per boe for 1P reserves and $6.82 per boe for PDP reserves, including FDC.
• The strong 2017 FD&A costs resulted in exceptional recycle ratios of over three times for PDP and 1P reserves and over six times for 2P reserves based on a 2017 operating netback of $21.85 per boe.
• At year-end 2017, PDP reserves accounted for 40% of 2P reserves and 1P reserves accounted for 64% of 2P reserves.
• Cona’s RLI at December 31, 2017 is 21.2 years based on 2P reserves and 13.5 years based on 1P reserves.
• Before-tax net present value for 1P and 2P reserves at December 31, 2017, based on forecast prices and discounted at 10%, is $1.1 billion and $1.6 billion, respectively.

RESERVES

Independent Reserves Evaluation

Cona’s reserves were independently evaluated by Ryder Scott Company-Canada (“Ryder Scott”) as at December 31, 2017 in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) (the “Reserves Evaluation”).  The Reserves Evaluation was based on forecast pricing and foreign exchange rates as outlined in the table titled “Forecast Prices in 2017 Reserves Evaluation”.

Reserves included herein are stated on a company gross basis (working interest before deduction of royalties without the inclusion of any royalty interest) unless otherwise noted. In addition to the information disclosed in this news release, more detailed information will be included in Cona’s Annual Information Form (“AIF”) for the year ended December 31, 2017, which will be available on Cona’s website at www.conaresources.com and on SEDAR at www.sedar.com on or before March 30, 2018.

Summary of Reserves as at December 31, 2017⁽¹⁾⁽²⁾

Reserves Reconciliation⁽¹⁾⁽²⁾

Summary of Net Present Values⁽¹⁾⁽²⁾

Future Development Capital

The table below outlines Ryder Scott’s estimate of FDC, which does not include abandonment liabilities, required to bring 1P and 2P reserves on production. Changes in forecast FDC occur annually for a number of reasons including development activities, changes in capital cost estimates and changes in service costs. Actual capital expenditures may differ from FDC.

Finding, Development and Acquisition Costs

Reserve Life Index^(1,2)

Forecast Prices in 2017 Reserves Evaluation

The following table summarizes the first ten years of the forecast prices used by Ryder Scott in preparing Cona’s estimated reserve volumes and net present values of future net revenues in the Reserves Evaluation.

Wells Drilled

The following table summarizes Cona’s 2017 drilling program:

Operations and Corporate Update

Production for the year ended December 31, 2017 averaged 17,206 boe/d. Fourth quarter production of 16,739 boe/d was impacted by severe winds and unusually wet weather in southwest Saskatchewan. Volumes recovered to an average of 17,060 boe/d for the month of December. Capital expenditures for 2017 totalled $57.9 million, which included the drilling of 70 (67.0 net) wells. 2017 development was focused primarily in the Cactus Lake and Winter areas.

On January 16, 2018, Cona announced an asset disposition program. The response has been positive and to date we have closed two transactions. The first transaction was the previously announced sale of a minor property for proceeds of approximately $7.5 million. The second transaction was an asset exchange with a working interest partner. The asset exchange increased our working interest in the Cona operated Winter property to 100% from an average of 71% (based on December 31, 2017 2P reserves), in exchange for our interest in a non-operated asset. While neutral to current production, the consolidation of our interest across the Winter field provides additional drilling locations, gives Cona more control over the development program and increases production optimization opportunities.

Advisories

Unaudited Financial Information

Certain financial and operating information included in this news release for the quarter and year ended December 31, 2017, such as FD&A costs, F&D costs, recycle ratios, capital expenditures and operating netback are based on unaudited financial results for the year ended December 31, 2017.  These estimated amounts may change upon the completion of the audited financial statements for the year ended December 31, 2017 and those changes may be material.

BOE Conversion and Other Advisories

In this news release, natural gas has been converted to boe based on a conversion rate of six thousand cubic feet of natural gas to one barrel (6 mcf : 1 bbl), which represents an energy equivalency conversion method applicable at the burner tip and does not represent a value equivalency at the wellhead. While it is useful for comparative measures, it may not accurately reflect individual product values and may be misleading if used in isolation.

The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.

Information Regarding Disclosure on Oil and Gas Reserves and Operational Information

This press release contains F&D costs, FD&A costs, recycle ratios and reserve life indexes, which are all metrics commonly used in the oil and natural gas industry.  These terms do not have a standardized meaning and may not be comparable to similar measures presented by other companies, and therefore should not be used to make such comparisons.

F&D costs are calculated as the sum of exploration and development capital plus the change in future development costs for the period divided by the change in total reserves plus production for the period. The aggregate of the exploration and development costs incurred in the most recent financial year and the change during the year in estimated future development costs generally will not reflect total F&D costs related to reserves additions for the year.

FD&A costs are calculated as the sum of development capital plus acquisition capital plus the change in future development costs for the period divided by the change in total reserves plus production for the period. The aggregate of the exploration, development and acquisition costs incurred in the most recent financial year and the change during the year in estimated future development costs generally will not reflect total FD&A costs related to reserves additions for the year.

F&D recycle ratio is calculated as operating netback per boe divided by finding and development costs per boe.

FD&A recycle ratio is calculated as operating netback per boe divided by finding, development and acquisition costs per boe.

Operating netback is calculated as oil and natural gas sales (excluding realized gains and losses on financial derivative contracts) minus blending expenses, royalties, operating expenses and transportation expenses.

Reserve life index is calculated as reserves divided by annualized fourth quarter production.

The Company uses these oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare the Company’s operations over time. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this press release, should not be relied upon for investment or other purposes.

Cona’s oil and natural gas reserves statement for the year ended December 31, 2017, which will include complete disclosure of its oil and natural gas reserves in accordance with NI 51-101, will be contained within Cona’s AIF which will be available on or before March 30, 2018 on Cona’s website at www.conaresources.com and on SEDAR at www.sedar.com .

Unless otherwise indicated, all currency is in Canadian dollars.

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