CALGARY, ALBERTA–(Marketwired – Jan. 25, 2017) – Prairie Provident Resources Inc. (TSX:PPR) (“Prairie Provident” or the “Company”) is pleased to announce the results of its independent 2016 year-end reserves evaluation and provide an operational update. The Company’s 2016 exit production exceeded its previously disclosed guidance of 5,000 boe/d with average daily production of approximately 5,500 boe/d (56% liquids), maintained through to the first three weeks of January 2017 of which approximately 2,500 boe/d (32% liquids) was from the Wheatland area. Prairie Provident maintains a strong balance sheet amidst accomplishing its development plan. At December 31, 2016, the Company had borrowings, net of cash on hand, of $7.6 million under its $55 million credit facility.
2016 RESERVES HIGHLIGHTS
- Increased proved plus probable (“2P”) reserves by 4.1 mmboe to 16.4 mboe (68% oil and NGLs) for a 2P replacement ratio1,2 of 409%;
- Increased proved (“TP”) reserves by 39% to 11.8 mmboe (68% oil and NGLs) for a TP replacement ratio of 350%;
- Approximately 61% of TP reserves and 58% of 2P reserves are in the producing category;
- Estimated future development costs (“FDC”) of $65.2 million (TP) and $79.1 million (2P) (undiscounted);
- Pre-tax net present value of estimated future net revenue (discounted at 10%) attributable to proved developed producing reserves, TP reserves and 2P reserves are $118.0 million, $158.6 million and $224.1 million, respectively;
- Strong capital efficiencies across all reserves categories, with average 2016 finding and development (“F&D”) costs 1,3, including the year-over-year change in estimated FDC, of $12.35/boe (TP) and $9.06/boe (2P) respectively;
- Recycle ratio1,4 of 1.54 times for 2P reserves based on 2016 F&D costs (including change in FDC) and operating netbacks from Wheatland and Evi;
- During 2016, the Company drilled 14 gross (12.45 net) wells at Wheatland to bring the number of total wells drilled to 18 gross (16.4 net) with 100% rate of success. The Company added 2.1 mmboe of 2P reserves in 2016 at Wheatland; and
- The Company has continued to book reserves associated with the Evi waterflood, with 0.2 mmboe of 2P reserves added in 2016. Aggregate 2P reserves of 940 mboe have been added since inception of the project.
(1) See “Cautionary Statements – Disclosure of Oil and Gas Reserves Data and Operational Information”.
(2) The Company calculates “replacement ratio” by dividing the yearly change in reserves before production by the actual annual production for that year.
(3) The Company calculates “finding and development costs” by dividing the sum of all capital costs for that period (except for capitalized general and administrative expenses) and the change in FDC for that period by the change in reserves relating to discoveries, infill drilling, improved recovery, extensions and technical revisions for that same period.
(4) The Company calculates “recycle ratio” by dividing the operating netback per boe by the F&D costs for that period. See “Cautionary Statements – Disclosure of Oil and Gas Reserves Data and Operational Information”. The Company calculates “operating netbacks” using production revenues, excluding realized and unrealized gains and losses on commodity hedging, less royalties and operating expenses, calculated on a per boe basis. As 2016 2P reserves additions were assigned to Wheatland and Evi, we calculated the recycle ratio using the operating netbacks from those assets to provide a more meaningful performance measure for those specific assets.
RESERVES
Prairie Provident’s 2016 year-end reserves evaluation was conducted by Sproule Associates Limited (“Sproule”), the Company’s independent qualified reserves evaluator, with an effective date of December 31, 2016. Sproule evaluated 100% of the Company’s reserves. The following presentation summarizes certain information contained in Sproule’s independent reserves evaluation report as at December 31, 2016 (the “Sproule Report”), which was prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and the definitions, standards, and procedures contained in the Canadian Oil and Gas Evaluation Handbook (the “COGE Handbook”). The reserves evaluation is based on forecast prices and costs, and applies Sproule’s forecast escalated commodity price deck and foreign exchange rate and inflation rate assumptions at December 31, 2016, as outlined in the table below entitled “Price Forecast”. Estimated future net revenue is stated without any provisions for interest costs, other debt service charges or general and administrative expenses, and after the deduction of royalties, operating costs, estimated well abandonment and reclamation costs and estimated FDC.
Additional information regarding the Company’s reserves data and other oil and gas information will be included in the Company’s Annual Information Form (the “AIF”) for the year ended December 31, 2016, which will be filed under the Company’s profile at www.sedar.com on or before March 31, 2017.
See also the “Cautionary Statements” below for further explanations and discussions.
Summary of Corporate Reserves(1,2):
The following table is a summary of the Company’s estimated reserves as at December 31, 2016, based on the Sproule Report.
|
Light and Medium Oil |
Heavy Oil |
Conventional Natural Gas(3) (other than Solution Gas) |
Conventional Natural Gas (Solution Gas) |
Natural gas liquids |
Barrels of Oil Equivalent(4) |
|||
|
(mbbl) |
(mbbl) |
(mmcf) |
(mmcf) |
(mbbl) |
(mboe) |
|||
|
Proved |
||||||||
|
Producing |
4,463 |
77 |
4,337 |
9,703 |
304 |
7,184 |
||
|
Non-producing |
328 |
– |
3,225 |
1,182 |
49 |
1,111 |
||
|
Undeveloped |
2,705 |
– |
– |
4,148 |
84 |
3,480 |
||
|
Total proved |
7,496 |
77 |
7,561 |
15,033 |
436 |
11,775 |
||
|
Probable |
2,798 |
228 |
2,507 |
6,233 |
164 |
4,646 |
||
|
Total proved plus probable |
10,294 |
305 |
10,069 |
21,266 |
600 |
16,421 |
||
Notes:
|
(1) |
Reserves are presented on a “company gross” basis, which is defined as Prairie Provident’s working interest (operating and non-operating) share before deduction of royalties and without including any royalty interest of the Company. |
|
(2) |
Based on Sproule’s December 31, 2016 forecast prices and costs. The forecast of commodity prices used in the Sproule Report can be found at http://www.sproule.com/. See also “Price Forecast” below. |
|
(3) |
Including both non-associated gas and associated gas, but excluding solution gas. |
|
(4) |
Oil equivalent amounts have been calculated using a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil. See “Cautionary Statements – Barrels of oil equivalent” below. |
|
(5) |
Columns may not add due to rounding of individual items. |
Net Present Values of Future Net Revenue Before Income Taxes Discounted at (%/year) (1)(2)(3)(4)(5)
The following table is a summary of the estimated net present values of future net revenue (before income taxes) associated with Prairie Provident’s reserves as at December 31, 2016, based on the Sproule Report.
|
Reserve Category |
0% (M$) |
5% (M$) |
10% (M$) |
15% (M$) |
20% (M$) |
|
|
Proved |
||||||
|
Developed Producing |
161,121 |
136,470 |
118,037 |
104,138 |
93,413 |
|
|
Developed Non-Producing |
13,547 |
11,888 |
10,429 |
9,208 |
8,200 |
|
|
Undeveloped |
67,146 |
44,863 |
30,150 |
20,149 |
13,107 |
|
|
Total Proved |
241,814 |
193,222 |
158,616 |
133,495 |
114,720 |
|
|
Probable |
124,398 |
87,407 |
65,475 |
51,563 |
42,140 |
|
|
Total Proved Plus Probable |
366,212 |
280,628 |
224,091 |
185,058 |
156,860 |
|
Notes:
|
(1) |
Based on Sproule’s December 31, 2016 forecast prices and costs. The forecast of commodity prices used in the Sproule Report can be found at http://www.sproule.com/. |
|
(2) |
Estimated future net revenues are stated without any provision for interest costs, other debt service charges or general and administrative expenses, and after deduction of royalties, operating costs, estimated well abandonment and reclamation costs and estimated FDC. |
|
(3) |
Estimated future net revenue, whether discounted or not, does not represent fair market value. |
|
(4) |
Net present values of future net revenue after income taxes are estimated to approximate the before income tax values based on the estimated future revenues, available tax pools and future deductible expenses. |
|
(5) |
Columns may not add due to rounding of individual items. |
Price Forecast
The following table summarizes Sproule’s commodity price forecast and foreign exchange rate and inflation rate assumptions as at December 31, 2016, as applied in the Sproule Report.
|
Year |
$US/$Cdn Exchange Rate |
WTI @ Cushing |
Canadian Light Sweet 40º API |
Western Canada Select 20.5 API |
Edmonton Butane |
Natural gas AECO-C spot |
|
(US$/bbl) |
(C$/bbl) |
(C$/bbl) |
(C$/bbl) |
(C$/mmbtu) |
||
|
2017 |
0.780 |
55.00 |
65.58 |
53.12 |
47.60 |
3.44 |
|
2018 |
0.820 |
65.00 |
74.51 |
61.85 |
42.90 |
3.27 |
|
2019 |
0.850 |
70.00 |
78.24 |
64.94 |
46.90 |
3.22 |
|
2020 |
0.850 |
71.40 |
80.64 |
66.93 |
48.55 |
3.91 |
|
2021 |
0.850 |
72.83 |
82.25 |
68.27 |
49.52 |
4.00 |
Notes:
|
(1) |
Inflation is accounted for at 2.0% per year. |
Future Development Costs
The following table provides a summary of the estimated FDC required to bring Prairie Provident’s TP and 2P undeveloped reserves to production, which have been deducted in the estimation of future net revenue attributable to such reserves.
|
Total |
Total Proved |
|
|
Future Development Costs ($millions)(1) |
Proved |
plus Probable |
|
2017 |
28.1 |
34.7 |
|
2018 |
22.3 |
27.3 |
|
2019 |
14.8 |
16.9 |
|
2020 |
0 |
0.0 |
|
2021 |
0 |
0.0 |
|
Remainder |
0 |
0.2 |
|
Total FDC undiscounted |
65.2 |
79.1 |
|
Total FDC discounted at 10% |
58.7 |
71.1 |
Notes:
|
(1) |
FDC as per Sproule Report, based on Sproule’s December 31, 2016 forecast prices and costs. |
2016 OPERATIONAL UPDATE
Based on field estimates, Prairie Provident’s daily production averaged approximately 5,500 boe/d (56% liquids) through the end of December 2016 and during the first two weeks of January 2017, of which approximately 2,500 boe/d (32% liquids) was Wheatland production. Prairie Provident’s average daily production for the fiscal year 2016 was 3,680 boe/d (58% liquids). Average daily production for the fourth quarter of 2016 was 4,845 boe/d a 59% increase over the previous quarter and a 90% increase over the fourth quarter of 2015.
Prairie Provident continues to advance its drilling program to maximize economic returns from its large inventory of shallow Mannville oil locations. During the second half of 2016, Prairie Provident drilled 7 gross Ellerslie wells and 4 gross Lithic Glauc wells in the Wheatland area. The Company has brought 9 of the 11 wells on production, with the remaining two anticipated during the first quarter of 2017. As of the date of this press release, we have drilled two more wells in Wheatland.
Prairie Provident continues to improve its drilling cycle times and overall costs at Wheatland by pad drilling and utilizing a mono-bore drilling design, which has significantly reduced surface costs, lowered the environmental footprint and increased the anticipated return on capital. These design optimizations combined with lower service costs have reduced drilling times from an average of 13 days in 2015 down to 8.5 days in 2016, while all-in costs have been reduced significantly from 2015. Going forward, we will continue to drive drilling efficiency although recent rebound in industry drilling activities has created some cost pressures. We estimate that capital costs per well to be approximately $1.65 million for 2017, which continues to offer attractive economics.
At Princess, the Company is finalizing its 2017 development plan but currently anticipates drilling 2.1 net wells in 2017. At Evi, the Company has four two-well lateral water injectors that have been online for approximately 30 and 9 months, respectively. Initial results from the program correspond with an independent study conducted in 2015 on the feasibility of a full-field waterflood program. Sproule has assigned approximately 0.9 mmboe of 2P reserves to the waterflood program since inception of the project in 2014, including an additional 0.2 mmboe in 2016. Management believes that the waterflood program will help to stabilize production and enhance recoveries in the long-run. The Evi properties provide the Company with a stable cash flow base that complements its development programs at Wheatland and Princess.
Prairie Provident confirms its previously disclosed 2017 capital program which remains scalable to accommodate the changing price environment. With the objective to maintain a strong balance sheet, we carefully consider forward commodity prices, capital costs and operating costs and will adjust our capital program accordingly. Based on an expected average 2017 estimated WTI US$53.30, FX rate of $0.75 per US$1.00, a differential to WCS of $21.00 and AECO $3.00/Mcf, Prairie Provident expects its 2017 capital spending to range from $25 million to $35 million and is on track to meeting its average daily production target for 2017 of between 5,300 and 5,800 boe/d.
ABOUT PRAIRIE PROVIDENT:
Prairie Provident is a Calgary-based company engaged in the exploration and development of oil and natural gas properties in Alberta. The Company’s strategy is to grow organically in combination with accretive acquisitions of conventional oil prospects, which can be efficiently developed. Prairie Provident’s operations are primarily focused at Wheatland and Princess in Southern Alberta targeting the Ellerslie and Lithic Glauc formation, along with an early stage waterflood project at Evi in the Peace River Arch. The Company also holds a large acreage position of approximately 240,000 net acres in the Utica shale in Quebec’s Saint Lawrence lowlands. Prairie Provident protects its balance sheet through an active hedging program and manages risk by allocating capital to opportunities offering maximum shareholder returns.
Cautionary Statements
Unaudited financial information
Certain financial and operating information included in this press release for the quarter and year ended December 31, 2016, including finding and development costs, are based on estimated unaudited financial results for the quarter and year then ended, and are subject to the same limitations as discussed under “Forward-looking information and statements” set out below. These estimated amounts may change upon the completion of audited financial statements for the year ended December 31, 2016 and changes could be material.
Disclosure of Oil and Gas Reserves Data and Operational Information
Prairie Provident’s Statement of Reserves Data and Other Oil and Gas Information for the year ended December 31, 2016, providing additional information regarding our reserves data and oil and gas activities in accordance with NI 51-101, will be contained in our Annual Information Form for the year ended December 31, 2016, which will be filed under the Company’s profile on SEDAR at www.sedar.com on or before March 31, 2017. The reserves data estimates contained herein are estimates only and there is no guarantee that the estimated reserves will be recovered or that the related estimates of future net revenues will be realized. There can be no assurance that the forecast prices and cost assumptions applied by Sproule in evaluating the Company’s reserves will be attained, and variances between actual and forecast prices and costs could be material. Actual reserves may be greater than or less than the estimated volumes provided herein, and it should not be assumed that the estimates of future net revenues presented herein represent the fair market value of the reserves. Estimates in respect of 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. The Company’s belief that it will establish additional reserves over time with conversion of probable undeveloped reserves into proved reserves is a forward-looking statement and is based on certain assumptions and is subject to certain risks, as discussed below under the heading “Forward-looking information and statements”.
This news release discloses certain metrics commonly used in the oil and natural gas industry, namely “replacement ratio”, “finding and development costs”, “recycle ratio”, and “operating netbacks” that do not have standardized meanings or methods of calculation under applicable laws, International Financial Reporting Standards, the COGE Handbook or other applicable professional standards. Accordingly, such measures, as determined by the Company, may not be comparable to similarly defined or labelled measures presented by other companies, and therefore should not be used to make such comparisons. These metrics have been included herein to provide readers with additional information to evaluate the Company’s performance, but should not be relied upon for comparative purposes. Management uses oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare Prairie Provident’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.
“Replacement ratio” – The Company calculates “replacement ratio” by dividing the yearly change in reserves before production by the actual annual production for that year. Replacement ratio is used to measure the Company’s operational performance in terms of sustainability.
“Finding and development costs” – The Company calculates “finding and development costs” by dividing the sum of all capital costs for that period (except for capitalized general and administrative expenses) and the change in FDC for that period by the change in reserves relating to discoveries, infill drilling, improved recovery, extensions and technical revisions for that same period. Finding and development costs have been presented in this new release because they provide a useful measure of capital efficiency.
“Recycle ratio” – The Company calculates “recycle ratio” by dividing the operating netback per boe by the F&D costs for that period. Recycle ratio is used for comparing the cost of replacement reserves against the produced reserves and provides a useful measure for capital deployment.
“Operating netbacks” – The Company calculates “operating netbacks” using production revenues, excluding realized gains and losses on commodity hedging, less royalties and operating expenses, calculated on a per boe equivalent basis.
Forward-looking information and statements
This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. All statements other than statements of historical fact are forward-looking statements. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “may”, “will”, “project”, “should”, “believe”, “plan”, “intend”, “budget”, “potential”, “target” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: the recognition of significant additional reserves under the heading “Reserves”, the volumes and estimated value of Prairie Provident’s oil and gas reserves; the potential opportunity for expanded drilling; the volume and product mix of Prairie Provident’s oil and gas production; future oil and natural gas prices; future results from operations and operating metrics, potential for lower costs and efficiencies going forward, future development, exploration, acquisition and disposition activities (including drilling, completion and infrastructure plans and associated timing and costs), and related production expectations.
Forward-looking statements or information are based on a number of material factors, expectations or assumptions of Prairie Provident which have been used to develop such statements and information but which may prove to be incorrect. Although Prairie Provident believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Prairie Provident can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: that Prairie Provident will continue to conduct its operations in a manner consistent with past operations; results from drilling and development activities consistent with past operations; the quality of the reservoirs in which Prairie Provident operates and continued performance from existing wells; the continued and timely development of infrastructure in areas of new production; the accuracy of the estimates of Prairie Provident’s reserve volumes; certain commodity price and other cost assumptions; continued availability of debt and equity financing and cash flow to fund Prairie Provident’s current and future plans and expenditures; the impact of increasing competition; the general stability of the economic and political environment in which Prairie Provident operates; the general continuance of current industry conditions; the timely receipt of any required regulatory approvals; the ability of Prairie Provident to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which Prairie Provident has an interest in to operate the field in a safe, efficient and effective manner; the ability of Prairie Provident to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and cost of pipeline, storage and facility construction and expansion and the ability of Prairie Provident to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Prairie Provident operates; and the ability of Prairie Provident to successfully market its oil and natural gas products.
The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statement, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to defer materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of Prairie Provident’s products, the early stage of development of some of the evaluated areas and zones; the potential for variation in the quality of the lithic gluconate formation; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Prairie Provident or by third party operators of Prairie Provident’s properties, increased debt levels or debt service requirements; inaccurate estimation of Prairie Provident’s oil and gas reserve volumes; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time-to-time in Prairie Provident’s public disclosure documents, (including, without limitation, those risks identified in this news release and Prairie Provident’s Annual Information Form).
The forward-looking information and statements contained in this news release speak only as of the date of this news release, and Prairie Provident does not assume any obligation to publicly update or revise any of the included forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Barrels of oil equivalent
We have adopted the industry-standard conversion ratio of six Mcf to one bbl when converting natural gas quantities to “barrels of oil equivalent” (BOEs). BOEs may be misleading, though, particularly if used in isolation. A BOE conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Although the six-to-one conversion factor is an industry accepted norm, it is not reflective of price or market value differentials between product types. Based on current commodity prices, the value ratio between natural gas and oil is significantly different than the 6:1 ratio based on energy equivalency. Accordingly, a 6:1 conversion ratio may be misleading as an indication of value.