Completion operations on the Company’s first three Montney wells (3.0 net) in the 2020 drilling program have concluded, with all of the wells expected to be placed on production by months end. These 3 wells are drilled in liquid-rich West Bigstone, in close proximity to existing pipelines, minimizing the tie-in costs.
The first two wells of the 2020 drilling program were the 13-12-60-24W5 (“13-12”) & 14-12-60-24W5 (“14-12”) Montney wells. These wells were drilled from a two well pad with a surface location of 14-36-59-24W5 (“14-36”) situated between Delphi’s two existing producers at 16-10-60-24W5 and 16-12-60-24W5.
Both wells were drilled to a total depth of approximately 6,000 metres with an extended reach horizontal lateral in the Montney of approximately 3,000 metres and were completed with a 65-stage openhole frac design comprised of a 50-stage ball drop and 15-stage plug and perforation system. Approximately 5,200 tonnes of proppant and 30,000 cubic metres of water were pumped in each of these wells. Both wells were flowed on clean-up for approximately three days. During the flowback, the 13-12 and 14-12 recovered approximately 12 and 10 percent of the initial load frac water, respectively.
Over the last 24 hours prior to running production tubing,
- the 13-12 well flowed on clean-up at an average rate of 3.9 million cubic feet of natural gas per day (“mmcf/d”) of raw gas and 1,205 barrels per day (“bbls/d”) of 47 degree API field condensate (357 bbls/mmcf of sales gas). Total sales production rate for 13-12 over this 24 hour period was approximately 1,907 barrels of oil equivalent per day (“boe/d”) (70 percent liquids), including an estimated plant natural gas liquids (“NGL”) yield of 41 bbls/mmcf of sales gas;
- the 14-12 well flowed on clean-up at an average rate of 3.9 mmcf/d of raw gas and 1,204 bbls/d of 47 degree API field condensate (359 bbls/mmcf of sales gas). Total sales production rate for 14-12 over this 24 hour period was approximately 1,901 boe/d (70% liquids), including an estimated plant NGL yield of 41 bbls/mmcf of sales gas.
The third Montney well of the 2020 drilling program was the 03-30-59-23W5 (“03-30”), drilled west of the existing 03/16-31-59-23W5 well. The 03-30 well was drilled to a total depth of 6,040 metres with an extended-reach horizontal lateral in the Montney of 2,824 metres and was completed with a 60-stage openhole frac design comprised of a 40-stage ball drop and 20-stage plug and perforation system. Approximately 6,000 tonnes of proppant and 30,000 cubic metres of water were pumped in this well. The maximum pump rate on this well was 16 m3/min compared to a historical corporate average of 12 m3/min. The well was flowed on clean-up for approximately 100 hours, recovering approximately 15 percent of the initial load frac water. Over the last 24 hours prior to running production tubing, the well flowed on clean-up at an average rate of 2.9 mmcf/d of raw gas and 1,640 bbls/d of 45 degree API field condensate (650 bbls/mmcf of sales gas). Total sales production rate over this 24 hour period was approximately 2,165 boe/d (81% liquids), including an estimated plant NGL yield of 41 bbls/mmcf of sales gas.
Capital Costs Significantly Reduced
The average timing from spud to total depth and spud to rig release was 12.8 days and 17.2 days, respectively, for the three Montney wells mentioned above with average drilling cost of $3.4 million per well. Significant changes to the Company’s drilling practice (as further detailed in Delphi’s press release dated March 11, 2020) resulted in average drill time reductions of 14 days per well as well as estimated cost savings of $1.2 million per well when compared to Delphi’s 2019 drilling program results.
The completion operations conducted on the three wells also realized significant cost savings due to better planning of sand and water management logistics, improved wellsite layout and supervision, a revised procurement process and improved execution. This resulted in more efficient pumping times with less down time. Although actual costs from the three wells are not yet finalized, current field estimates would indicate completion costs are within a range of $4.0 to $4.5 million. This results in estimated savings of $1.3 million per well when compared to Delphi’s 2019 completion program results.
Historical Drilling and Completions Performance Overview
|2015 & Prior||24||42||35||29||2,007||$5,361||$4,710||$10,071|
Delphi remains strongly encouraged by these recent capital cost reductions and strong flowback results and sees further optimization opportunities going forward. Drilling cost of $3 million or slightly lower per well could be realized by drilling multi-well pads (3 to 4 wells per pad) and using cemented liners. Completions costs may be further reduced from current targets by Delphi: by realizing multi-well pad efficiencies, self-sourcing proppant, utilizing a bi-fuel spread, and, through considering further infrastructure investment such as source water handling.
Delphi’s realized prices for condensate and NGL in 2020 are well protected by WTI crude oil swap contracts for an average volume of 1,021 barrels per day (“bbl/d”) at an average price of $82.23 per barrel (“bbl”) and Conway propane swap contracts for an average volume of 100 bbl/d at an average price of $43.23 per bbl. In addition, the Company has purchased a put option for an average of 686 bbl/d in 2020 at Cdn$78.00 per bbl and has sold a put option for an average of 686 bbl/d in 2020 at Cdn$58.00 per bbl.
The Company’s realized price for natural gas in 2020 is protected by NYMEX HH natural gas swap contracts for an average volume of 5,600 million British thermal units per day (“mmbtu/d”) at an average price of $3.54 per million British thermal units (“mmbtu”) and Chicago – NYMEX natural gas basis swap contracts for an average volume of 1,021 mmbtu/d at an average basis discount of $0.18 per mmbtu, resulting in an average swap price of $3.36 per mmbtu in Chicago.
Hedging contracts in place for 2020 protect the realized price for approximately 40 percent of Chicago natural gas sales and approximately 65 percent of field condensate and NGL sales combined, based on production in the fourth quarter of 2019.
Delphi’s commodity risk management contracts were valued at $6.3 million as at December 31, 2019. Based on the current volatility and significant drop in WTI prices, Delphi’s risk management contract value has more than tripled since December 31, 2019.
First quarter capital spending is now forecast to be approximately $27 million, or $6 million lower than budgeted as a result of improved drilling and completion costs on the three 100 percent working interest wells drilled in the first quarter as part of the Recapitalization Transaction (“Transaction”) commitments. Approximately $25 million of the $27 million program was funded from the $31 million of gross proceeds released to the Company as part of the Transaction, resulting in nearly all of the funds flow generated in the first quarter being used to reduce bank indebtedness.
The continued success of Delphi’s new well results, now achievable at 25 to 30 percent lower costs, further highlights the underlying potential value of the 147 gross sections of Montney acreage held by the Company within the Bigstone area.
The Company will take the next several months through spring breakup to assess the second half 2020 capital spending levels within the context of volatile and uncertain commodity prices. As part of the Transaction, Delphi has $15.5 million of remaining proceeds available to be drawn, under certain conditions. Given current commodity prices, the Company would likely defer further drilling plans until commodity prices exhibit signs of improvement.
Delphi also continues to pursue initiatives to enhance the underlying value of the assets for the benefit of all of its stakeholders. The current environment presents its own unprecedented challenges, however the continued high level of engagement in pursuit of value enhancing initiatives gives credibility to the attractiveness of the Company’s Bigstone Montney asset base.
The Company reports that Mr. Darwin Little, interim Chief Financial Officer, has fulfilled his contract period and has chosen to pursue other opportunities. The board of directors of Delphi thanks Mr. Little for his contribution to the Company and wishes him the best in his new endeavours. The Company has begun an executive search and expects a replacement to be identified in a timely manner.
The Company has also made significant positive changes to its corporate structure and culture over the past six months, beginning with a reconstituted Board of Directors, followed by several changes to the leadership team and operations personnel. A 25 percent reduction in the Calgary office staff level has resulted in a material 33 percent reduction in salary costs. These positive changes have yielded immediate and material changes to our operating results.
Delphi also announces that it intends to rely on exemptive relief recently granted by Canadian securities regulatory authorities that allows it to delay the filing of its annual information form required by section 6.2 of National Instrument 51-102 and its statement of reserves data and other information required by section 2.1 of National Instrument 51-101 (collectively, the “2019 AIF”) by March 30, 2020. In response to the coronavirus disease 2019 (COVID-19) pandemic, securities regulatory authorities in Canada have granted a blanket exemption allowing issuers an additional 45 days to complete their regulatory filings. Delphi estimates that its 2019 AIF will be available for filing on or before April 25, 2020. Until such time as the 2019 AIF is filed, Delphi’s management and other insiders are subject to a trading blackout that reflects the principles contained in section 9 of National Policy 11-207 – Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions. There have been no material business developments since the date of Delphi’s audited consolidated financial statements for the years ended December 31, 2019 and 2018 that were filed on March 12, 2020, a copy of which is available on SEDAR at www.sedar.com.
On behalf of the Board of Directors, the Company would like to take this opportunity to thank all Delphi’s Calgary Office staff, field personnel, service company employees, and other business relationships for their efforts in maintaining a high level of engagement and commitment to progressing Delphi’s business interests during such a difficult time. Our priorities remain that each and every one of you stay safe and healthy.
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.