CALGARY, ALBERTA–(Marketwired – March 21, 2016) – GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO)(OTCQX:GXOCF) is pleased to release its financial results for the year ended December 31, 2015, and to provide an overview of the operational highlights of the 2015 financial year. Granite has filed its audited financial statements for the year ended December 31, 2015 and related Management Discussion & Analysis with the applicable Canadian securities regulatory authorities. Granite’s annual financial materials may be viewed in their entirety on www.sedar.com and on the Company’s website at www.graniteoil.ca.
Fourth Quarter 2015 Highlights
- Improved the balance sheet, exiting 2015 with $39.6 million of net debt, a $1.8 million reduction relative to third quarter results.
- Drilled two horizontal production wells and averaged 3,334 bbl/d of oil production and 3,476 boe/d. Natural gas volumes decreased relative to the Third Quarter of 2015 as the Company continues to increase injection of its produced gas.
- Drilled a vertical test well on the western portion of the Bakken pool, Granite’s final commitment well.
- Granite’s operating netback for the fourth quarter was $22.25 per boe prior to hedge gains, with funds flow of $13.3 million, including hedge gains.
- Achieved operating costs of $5.91 per boe.
- Capital expenditures totaled $8.6 million including $1.7 million for equipment related to the expansion of the EOR scheme.
Message to Shareholders
Granite Oil Corp. began operations as a dividend-paying company in May 2015 as part of a transaction where DeeThree Exploration Ltd. was split into Granite Oil Corp. and Boulder Energy Ltd. Granite’s key asset is a 100%-owned-and-operated Alberta Bakken oil pool in southern Alberta.
Granite’s primary operational focus during 2015 was to reduce well declines and improve the long-term performance and recovery of its Bakken oil pool through the expansion of the gas flood enhanced oil recovery (“EOR“) program. The Company significantly expanded the EOR program in 2015, increasing the number of gas injector wells from three to seven, and increasing injection compression capacity and injection rates by 200% and 250% year-over-year, respectively. As a result, the Company significantly improved pressure support within the Bakken oil pool, resulting in reduced production declines and material improvements in overall pool performance.
Granite elected to drill and complete only four horizontal production wells in the second half of 2015 ― down from the six originally planned ― and decreased capital costs by 29 percent through the year to $2.0 million per well. These savings were achieved through a combination of decreased service costs and substantial drilling and completion design modifications. Through the second half of 2015, average rig time was reduced by four days (25%) per well relative to the first half of 2015, ensuring continued capital savings independent of future service costs.
Granite also made significant improvements to its operating cost structure in 2015. By year-end, operating costs averaged $6.00 per boe, a 20 percent reduction from originally budgeted costs of $7.50 per boe.
As a result of these substantial cost savings and the improved efficiencies achieved through the EOR scheme, Granite was able to increase its dividend by 17 percent to $0.42 per share annually, and exited the year with net debt of $39.6 million, a 12 percent reduction relative to second quarter 2015.
The Company’s strong operational results carried through to its 2015 reserves evaluation, conducted by Granite’s independent reserve auditor, Sproule Associates Ltd. The total proved plus probable (2P) reserves of Granite’s assets increased by 4.4% year-over-year to 17.7 MMboe (83% oil), while proved developed producing (PDP) oil reserves increased 7.4 percent to 5.05 million bbls. Additionally, with lower capital costs per well, 2015 finding and development costs, including the change in future development capital, totalled $6.13 per boe (Proven + Probable).
Outlook for 2016
In response to lower oil prices during the fourth quarter of 2015, Granite capitalized on low equipment costs and accelerated its plans to further ramp-up gas injection in the EOR program through the purchase of approximately 2,000 HP of additional gas injection compression and related equipment. This equipment will be installed in the first quarter of 2016 and on-stream in April 2016. With this expansion, Granite will increase gas injection volumes to match or exceed production volumes, achieving a 100 percent voidage replacement ratio ― an important milestone in the ongoing development of the EOR program. As well, the expanded facilities have the capacity to maintain 100% voidage replacement at higher levels of oil production from the pool. With the success of the program to-date, Granite expects this expansion to have material impacts on pool performance and long-term decline rates, and offer greater opportunities for capital-efficient drilling.
Granite’s 2016 budget includes two sustainable budget scenarios based on a US$37.00/bbl WTI case and a US$32.50/bbl WTI case. Under the $37.00 case, Granite anticipates production of 3,250 bbl per day of oil, while funding both total capital expenditures of $14.2 million (including $11.4 million for six horizontal wells) and dividends of $12.8 million with anticipated funds flow of $27.1 million. Under the US$32.50/bbl WTI case, the Company expects oil production to average 3,000 bbl per day of oil, with funds flow of $23.0 million funding both capital expenditures of $10.2 million (including $7.6 million for four horizontal wells), and the annual dividend of $12.8 million.
Under either scenario, the Company retains its balance sheet flexibility, with less than $40 million of net debt forecast at the end of 2016. Granite has the ability to react quickly to improved commodity prices and increase its capital program accordingly.
Granite is off to a very strong start in 2016. Our goal remains to be an efficient oil producer with a strong balance sheet that is sustainable for the long term. We will continue to carefully manage costs and make choices that generate long-term value from our assets while maintaining our low level of debt.