Production for 2018 averaged approximately 9,400 boe/d which is a 64% increase on a production per share basis when compared to 2017, with fourth quarter 2018 production estimated at 12,200 boe/d.
The Company drilled 36 horizontal (HZ) Cardium wells during 2018. Due to wide Edmonton par differentials in the fourth quarter, six of those wells were not completed (“DUCs”) and three additional wells that were completed in the fourth quarter of 2018 were not put on production until January 2019 when differentials improved significantly. In addition, seven wells that were shut in by Yangarra during 2018, due to excessively high third-party processing fees, will be placed on stream in January 2019 through Company owned infrastructure.
Yangarra has now drilled 60 HZ wells into the bioturbated section of the Cardium zone. Well results continue to improve as the Company refines the drilling and completions processes. Wells #41-50 recently achieved 30 days of initial production (“IP-30”) data and have the best results to date with average operating day IP-30s of 752 boe/d, which is 55% better than the average operating day IP-30 from wells #1-40.
Yangarra further accelerated its infrastructure build-out in the fourth quarter improving its operating cost advantage from prior years with most of Yangarra’s gas gathered and compressed through Company owned infrastructure rather than third party facilities. Additional trucks were added to the fluid hauling fleet, largely eliminating higher priced third-party trucking. The pressure pumping and crew truck division was expanded during the year, again reducing the use of higher priced third-party providers. As industry conditions deteriorated in the second half of 2018, Yangarra reduced drilling and completion costs by replacing those service providers with more cost-effective options.
Several key initiatives, including, adoption of new technology for operations, advances in communications, SCADA, and better software implementation for production accounting have resulted in Yangarra being able to manage much higher levels of production while maintaining static head count in the Calgary office. Yangarra’s strategy of geographic and geological concentration in the Central Alberta Cardium allows the Company to maintain a very low G&A burden while leading the industry in drilling and completion operations, all while maintaining best in class operating costs.
The Medicine Hat shallow gas field was shut-in during 2018 due to the poor economics of dry natural gas. The 53 wells in the field were abandoned and the surplus equipment repurposed into Central Alberta operations. The Company expects payout for the abandonment operations in less than two years with savings on property taxes, lease rentals and recovery of equipment.
The Company added 35 gross sections of Cardium land in Central Alberta during 2018, accelerating land purchases into the fourth quarter as historically wide Edmonton par differentials forced further capital reductions by industry. Yangarra now has 155 sections in the halo Cardium in Central Alberta. This land base provides more than 15 years of drilling inventory utilizing two rigs year-round. During 2018, Yangarra added five future locations for every location drilled during the year at reasonable land metrics which position’s the Company to maintain leading full-cycle rates of return.
Capital Budget & Guidance
The Company limited hedging for 2019 and adopted a strategy that will adjust the drilling program to match cashflow to capital spending, completions will be halted completely at WTI prices below USD$45/bbl and drilling will be stopped at WTI prices below USD$40/bbl. Yangarra does not have any take or pay obligations that force the Company to continue operations that are not economic.
The Company’s Board of Directors has approved an initial capital budget of $100 million for 2019, which includes the drilling of 24 wells. The budget is expected to increase the Company’s annual 2019 production to 13,000 – 14,000 boe/d with cash flow from operations estimated at $95 to $105 million.
The budget assumes an average price of CDN$65.00/bbl for Edmonton par and an average price of CDN$1.75/GJ for AECO natural gas.