CALGARY, Alberta, Nov. 01, 2018 (GLOBE NEWSWIRE) — Delphi Energy Corp. (“Delphi” or the “Company”) is pleased to announce it is expanding its 2018 drilling program by approximately $15 million at the Company’s West Bigstone Montney property.
The expanded capital program follows up on successful delineation drilling conducted in 2017 and the first half of 2018 which confirmed the liquids-rich, high productivity nature of the western portion of the greater Bigstone Montney area, as demonstrated by five recent horizontal wells in the development area.
|Liquids (%)||Field Condensate
(1) Assuming estimated gas plant natural gas liquid recoveries of 7.1 bbl/mmcf for Delphi Negus
(2) Assuming estimated gas plant natural gas liquid recoveries of 43.8 bbl/mmcf for SemCAMS K3
(3) Final 24 hour rate on 2.5 day flow test
(4) Final 24 hour rate on 2.2 day flow test
Delineation success at West Bigstone combined with the anticipated benefits of a multi-well pad development are the fundamental drivers behind Delphi’s decision to accelerate spending. While pad development extends the cycle time from spud to first production, the modest impact of the delay is significantly outweighed by the estimated well cost savings and productivity gains expected.
Drilling operations on the first four-well pad in West Bigstone have commenced and completions are expected to begin in the first quarter of 2019. The results of the 2018 delineation drilling program at West Bigstone highlight the value of Delphi’s commitment to applying industry leading technology to the Company’s world class Montney asset and demonstrates the Company’s ability to diligently execute such operations.
To bridge the initial lag between investment and cash flow inherent in the shift to pad drilling operations, Delphi has entered into an agreement with Luminus Management, LLC (“Luminus”) for a $15 million financing transaction through the issuance of $15 million principal amount of 10 percent senior secured notes. Delphi is pleased to have the continued support of Luminus to facilitate the development of its Bigstone Montney assets.
Delphi’s guidance for production in 2018 remains unchanged as the volumes associated with the capital acceleration plan will not be realized until 2019. Therefore, net debt to adjusted funds flow is projected to increase during the drilling and completion of the four-well pad at West Bigstone but by the second quarter of 2019, as production volumes from the pad materialize, leverage metrics are expected to be reduced below current levels.
THE FINANCING TRANSACTION
The Company has agreed to issue an additional $15 million principal amount of its currently outstanding senior secured notes priced at 100 percent of par value (plus accrued and unpaid interest). The additional notes are being offered as further notes to Delphi’s existing $90 million aggregate principal amount of 10 percent senior secured notes due 2021 which trade on the TSX exchange. The additional notes shall be fungible with the existing notes for trading purposes.
The offering is expected to close on November 9, 2018, subject to necessary regulatory approvals. The additional notes issued to Luminus will be subject to a statutory hold period of four months plus one day from the date of closing, in accordance with applicable securities legislation.
CREDIT FACILITY UPDATE
The Company is also pleased to announce that it has completed the mid-year review and confirmed the borrowing base of its $105 million senior secured credit facility with its syndicate of lenders, led by Alberta Treasury Branches and including The Bank of Nova Scotia and Bank of Montreal. The facility is available on a revolving basis until May 28, 2019 at which time it may be extended at the lenders’ option.
MARKETING AND HEDGING UPDATE
Delphi has a total of 57 mmcf/d of firm and priority interruptible service on the Alliance pipeline system and 24 mmcf/d of firm service on the NGTL pipeline system. All of Delphi’s natural gas hedges are focused on its more robust Chicago delivery point. Delphi continues to generate marketing income from the excess service it holds on Alliance through a combination of temporary assignment to other shippers at a premium over cost or through the purchase of natural gas in Alberta or British Columbia for sale in Chicago.
The Company has continued its active forward-looking hedging strategy, locking in strong natural gas and WTI pricing into 2019 and 2020.
|Commodity Hedges||Q4 2018||2019||2020|
|Natural gas (mmcf/d)||17.4||15.0||3.7|
|Average hedge price (C$/mcf)(2)||$3.64||$3.47||$3.45|
|% of natural gas production hedged(3)||46||39||10|
|Crude oil (bbl/d)||2,100||2,950||500|
|Average hedge price (C$/bbl)||$72.41||$85.73||$90.05|
|% of condensate and NGL production hedged(3)||60||84||14|
|Average hedge price (C$/bbl)||–||$42.82||$41.40|
|% of propane production hedged(3)||–||62||15|
(1) Assumes an FX of 1.327 CAD per USD for the fourth quarter of 2018 and 1.28 CAD per USD for 2019 and 2020.
(2) Includes the impact of NYMEX HH natural gas – Chicago basis hedges.
(3) Based on 38 mmcf/d of natural gas production, 3,500 bbl/d of condensate and NGL production and 650 bbl/d of propane production.
The Company has finished drilling and completing four (2.6 net) of the five planned wells of its previously communicated second half drilling program with three of the four wells now on production. The fourth well at 100/15-10-60-24W5 (“100/15-10”) is scheduled to commence production in late November, after being drilled to a total depth of 6,147 metres, with a horizontal lateral in the Montney of 2,963 metres and completed with a 65 stage frac completion.
With the expanded capital program and an attractive service cost pricing environment, the completion of the fifth well at 15-31-59-23W5 will be moved into the fourth quarter of 2018. This well is expected to be on production in early 2019. The expanded capital program in 2018 will also fund the drilling of an additional delineation well approximately one mile further west of the section 10 wells and commencement of drilling operations on the four-well pad mentioned above, offsetting the 100/15-10 and 16-10-60-24W5 (“16-10”) wells. The 16-10 well has cumulative production after five months of 76,000 bbls of field condensate and 0.6 bcf of natural gas. The first well of the pad at 102/15-10-60-24W5 is currently drilling in the horizontal section.
Delphi will continue to focus on the liquids-rich development of its Montney assets at Bigstone. Based on the recent results, Delphi projects that over a three-year period (2019 to 2021) in a scenario where capital spending equates to funds from operations, production would increase by approximately 30 percent and reduce net debt to trailing adjusted funds from operations to below 2.0 times. In this scenario, Delphi would expect to outspend adjusted funds from operations through 2019 and to underspend adjusted funds from operations in 2020 and 2021.
Higher commodity prices would allow Delphi to accelerate the capital program while still reducing net debt to adjusted funds from operations. This three-year outlook contemplates the drilling of 37 wells. With a significant inventory of drilling locations on 128 undeveloped sections of land, Delphi has the potential to considerably increase production and adjusted funds flow from the Bigstone property.
Delphi will be reporting operating and financial results for the third quarter after the close of market on Tuesday, November 13th.
About Delphi Energy Corp.
Delphi Energy Corp. is an industry-leading producer of liquids-rich natural gas. The Company has achieved top decile results through the development of our high quality Montney property, uniquely positioned in the Deep Basin of Bigstone, in northwest Alberta. Delphi continues to outperform key industry players by improving operational efficiencies and growing our dominant Bigstone land position in this world-class play. Delphi is headquartered in Calgary, Alberta and trades on the Toronto Stock Exchange under the symbol DEE.