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| May 12, 2010 |
| Open Range Energy Corp. Announces First Quarter Results and Provides Operational Outlook for the Balance of 2010 |
CALGARY, ALBERTA--(Marketwire - May 12, 2010) - Open Range Energy Corp. ("Open Range" or the "Company") (TSX:ONR) is pleased to report its financial and operating results for the three months ended March 31, 2010. The Company has filed a complete copy of its interim financial statements and related management's discussion and analysis for the three months ended March 31, 2010 on www.sedar.com and on the Company's website at www.openrangeenergy.com. Drillbit-driven production additions increased corporate volumes by nearly one-third to over 4,000 boe per day exiting the first quarter, as a result of Open Range's horizontal and vertical drilling program at its Ansell/Sundance multi-zone Deep Basin core property. Quarterly funds flow was up over the fourth quarter of 2009 and more than double the first quarter 2009 level.
FINANCIAL AND OPERATING HIGHLIGHTS
Three months Three months
ended March 31, ended March 31,
(thousands except per share amounts) 2010 2009
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Petroleum and natural gas revenue(1) $ 11,504 $ 7,321
Funds from operations 6,898 3,326
Per basic and diluted share 0.11 0.13
Net earnings (loss) 818 (1,304)
Per basic and diluted share 0.01 (0.05)
Net debt 58,306 37,373
Capital expenditures, net $ 27,478 $ 13,076
Weighted average diluted shares outstanding 60,937 26,576
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Production
Natural gas (mcf per day) 19,695 12,642
Oil and NGL (bbls per day) 316 249
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Total (@ 6:1) (boe per day) 3,598 2,356
Realized average sales prices
Natural gas ($ per mcf)(1) 5.36 5.60
Oil and NGL ($ per bbl) 70.70 42.57
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Combined average ($ per boe) 35.52 34.53
Royalties ($ per boe) (3.94) (7.23)
Operating costs ($ per boe) (5.72) (6.22)
Transportation costs ($ per boe) (0.82) (0.93)
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Operating netback ($ per boe) 25.04 20.15
G&A costs ($ per boe) (2.33) (3.47)
Net interest expense ($ per boe) (1.41) (0.99)
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Corporate netback ($ per boe) 21.30 15.69
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(1) Includes the realized gain or loss on commodity contracts.
CORPORATE HIGHLIGHTS
During the three months ended March 31, 2010, Open Range:
-- Had average production of 3,598 boe per day, a new quarterly record and
on-track to achieving the Company's guidance for first-half 2010 average
volumes;
-- Grew production through the drillbit by nearly 1,000 boe per day from
the 2009 year-end exit rate, reaching a new production milestone of
4,000 boe per day in mid-March;
-- Drilled six gross (4.2 net) wells, including four gross horizontal Deep
Basin wells, one six-zone vertical well at Ansell/Sundance and one
Cardium horizontal oil well in west central Alberta, successfully
executing the Q1 portion of its $30 million first-half 2010 capital
program;
-- Doubled capacity and improved efficiencies at the Company-operated, 61
percent working interest Ansell/Sundance gas plant to 40 mmcf per day;
-- Generated funds from operations of $6.9 million ($0.11 per basic share),
an increase of 10 percent over Q4 2009 cash flow and more than double Q1
2009 cash flow thanks to steady growth in production volumes; and
-- Continued as a low-cost producer, with all-in cash costs (operating,
transportation, G&A and interest) of $10.28 per boe of production,
including a 25 percent decrease in G&A per boe of production from 2009
levels.
Subsequent to the end of the quarter, Open Range:
-- Tested and tied in the second Notikewin horizontal well;
-- Tested and brought on-production the Company's first horizontal Cardium
oil well, at Pembina in west central Alberta; and
-- Received Board of Directors approval to increase 2010 capital
expenditures to $45 million, facilitating an initial $15 million second-
half 2010 capital program that will include Open Range's first Wilrich
horizontal well at Ansell/Sundance, as well as two additional Cardium
horizontal oil wells and other wells to be announced.
MESSAGE TO SHAREHOLDERS
The first quarter of 2010 showed the benefits of achieving critical mass in production, cash flow and high working interest with the Company's $60 million Ansell/Sundance acquisition in November 2009. Our most aggressive and diversified horizontal drilling program to date, along with successful vertical drilling, drove production up by nearly 1,000 boe per day during the quarter, surpassing the milestone of 4,000 boe per day including 22 mmcf per day net of liquids-rich natural gas at our core Ansell/Sundance property.
The six gross (4.2 net) wells drilled during the quarter included strong successes in our Notikewin horizontal program, with both wells testing at over 5 mmcf per day and now on-production. The first quarter program also saw one of our best vertical wells drilled to date, our first Cardium oil well at Pembina and a Glauconitic horizontal well in the Hoadley area. We also acquired some strategic new lands to the west of the Ansell/Sundance core. Open Range continued as a low-cost producer, maintaining low operating costs and reducing G&A costs per boe by nearly 25 percent from the 2009 average, as well as incurring relatively low royalties of 11 percent of revenue.
Capital spending of $27.5 million represented the large majority of our first-half 2010 capital program. Quarterly cash flow of $6.9 million was up by 10 percent over the fourth quarter of 2009 thanks to the strong production additions, and was more than double first-quarter 2009 cash flow thanks to the November acquisition plus organic growth.
The only negative dimension was the continued weakness in natural gas prices. Our operating netbacks were still over $25.00 per boe for the quarter, however, thanks to the high quality of our liquids-rich production and the Company's low operating costs. Open Range's production is well hedged against lower prices and we have already begun to realize gains on our commodities contracts in the second quarter.
FIRST QUARTER OPERATIONS
Notikewin Horizontal Development
Open Range achieved strong success in its initial horizontal development of the Notikewin zone at Ansell/Sundance. Well performance improved markedly from the first to the second Notikewin well.
Our first Notikewin well came on-stream in mid-February at slightly over 2 mmcf per day and as of early May was producing at 1.5 mmcf per day at wellhead pressure of 450 psi, with 113 mmcf of cumulative production. The well is currently declining at a lower rate than initially, showing early signs of the harmonic production curve characteristic of tight gas horizontal wells.
Our second Notikewin well came on-stream in early April at 2.5 mmcf per day and after one month was producing 2.4 mmcf per day with 900 psi wellhead pressure, very low initial decline and excellent overall well performance.
These are highly encouraging results. The Notikewin at Ansell/Sundance appears to be a true resource-type play and these wells are economic at today's commodity prices. Notikewin wells currently cost approximately $5.5 million to drill and complete, potentially offset by $4.0 million in earned royalty credits. We have 26.5 (23.0 net) sections of land prospective in the Notikewin based on substantial well control, and have identified 20 potential horizontal locations at one well per section.
The Company will continue to refine its well completions methodology in order to optimize costs and productivity in the next round of Notikewin wells. Competitors have experienced similarly strong results in the Notikewin immediately offsetting Open Range's land base and a clear technical progression can be observed as additional wells are drilled and completed in the area. We are confident in our goal to continue generating escalating well results, including higher initial productivity and lower costs to drill, complete and tie-in, in order to maximize economic returns from additional Notikewin wells.
Bluesky Horizontal Development
Our first Bluesky horizontal well continues to produce 1.4 mmcf per day. As of early May the well had generated a cumulative 0.5 bcf of natural gas plus NGL since coming on-stream in August 2009. Over the first nine months the well has shown lower than expected production decline and, with current wellhead pressure of 475 psi, appears to be in a stabilized flow regime.
As previously reported, our second Bluesky horizontal well, drilled in the first quarter, proved difficult to fracture. We are evaluating enhanced completion options and remain confident that the Bluesky is a viable horizontal target at Ansell/Sundance.
Multi-Zone Vertical Drilling
Ansell/Sundance in the first quarter extended its track record of productive, economic multi-zone vertical wells. The 100 percent working-interest vertical well drilled in the southern Ansell/Sundance lands tested at up to 12.0 mmcf per day from six zones and was brought on-stream in late March at 5.5 mmcf per day. The well is currently delivering 2.5 mmcf per day plus NGL at wellhead pressure of 810 psi. After nearly five years and dozens of successful exploration and development wells at Ansell/Sundance, this is one of our best vertical well results so far. The Company has identified multiple offset locations and recently increased our land position in the immediate area to five 100-percent working interest sections.
The 100 percent working interest multi-zone well drilled in the first quarter demonstrates the continued merits of vertical Deep Basin drilling as a stand-alone program at Ansell/Sundance. Open Range currently has more than 150 vertical locations at Ansell/Sundance at spacing of four to six wells per prospective section. Vertical drilling also adds well control and helps to identify optimum areas for horizontal development, reducing technical risks, and accesses numerous productive zones not suitable to horizontal development. There are now 45 gross vertical multi-zone wells on-production at Ansell/Sundance, some of which continue to produce at more than 1 mmcf per day, plus liquids, after as much as two years on production.
Wilrich Horizontal Program
One indicator of the Ansell/Sundance asset's true quality is its ability to yield large resource-type play opportunities in multiple zones. Vertical drilling has proved up 17 productive horizons, of which at least four appear suitable to horizontal multi-stage fracture development. This enables the Company to tailor development for capital efficiencies and economic returns under prevailing commodity prices.
The Wilrich is the third horizon we are pursuing as a horizontal development candidate at Ansell/Sundance. Lying at approximately 2,750 metres vertical depth, the Wilrich is a laterally continuous marine sand present on 18.5 gross (15.3 net) sections of Ansell/Sundance lands and on-production from more than 15 vertical wells. We have mapped a large Wilrich area and have identified 15 initial horizontal locations at one well per section. Several competitor Wilrich horizontal wells on offsetting lands to the north have recently tested at better than 5 mmcf per day.
The combination of shallower depth, strong analog results and royalty credits makes the Wilrich a compelling economic case. To complement our Notikewin and Bluesky horizontal and ongoing vertical drilling success, we plan to test the Wilrich horizontal potential at Ansell/Sundance in the second half of 2010.
FINANCIAL RESULTS
First quarter financial results were strong, reflecting the Company's larger size, production additions during the quarter and our continued success at holding down cash costs. Funds from operations of $6.9 million ($0.11 per diluted share) was up by 10 percent over the fourth quarter and more than double first-quarter funds from operations in 2009, driven by the Company's larger production base and average realized sales prices of $5.36 per mcf and $70.70 per boe of liquids.
Open Range's all-in cash costs averaged $10.28 per boe in the first quarter. G&A declined to $2.33 per boe, down by 25 percent from the 2009 average. Operating costs of $5.72 per boe were up slightly over Q4 2009, reflecting downtime to expand the Company-operated Ansell/Sundance gas plant (61 percent working interest). Its new capacity is 40 mmcf per day and, since its re-start in March, has already increased operating efficiencies at Ansell/Sundance. The Company remains in the most efficient decile of natural gas-weighted producers in cash costs and continues to benefit in the resulting support for netbacks.
The liquids content of our production is having a material positive impact. NGL production of 316 bbls per day represented 9 percent of first quarter volumes but generated $2 million or 17 percent of overall revenue. The expanded Ansell/Sundance plant now enables Open Range to produce a stabilized condensate stream with separate NGL bullets, creating premium pricing opportunities.
SECOND QUARTER OUTLOOK
With spring breakup underway there will be relatively little field activity during the rest of the second quarter. In early April our first Cardium horizontal oil well (0.375 net) was tied in; it is currently producing approximately 80 bbls per day gross of premium-priced light oil.
Capital spending during the second quarter will be approximately $3.5 million, meeting our first-half 2010 planned spend of about $30 million. Cash flow for the quarter is expected to be approximately $6-7 million, with lower natural gas prices offsetting higher average production. Net debt is forecast at approximately $54-55 million exiting the second quarter.
Open Range's current production is approximately 4,000 boe per day. We intend to spud the year's second planned vertical well at Ansell/Sundance, the last well of our first-half program, before the end of the second quarter. We anticipate that the Glauconitic horizontal well (20 percent working interest) in the Hoadley area, which tested in mid-March at up to 3.7 mmcf per day plus natural gas liquids of 40-50 bbls per mmcf (150-160 boe per day net), will be on-stream in the third quarter.
SECOND HALF 2010 OVERVIEW
We are pleased to announce that Open Range's Board of Directors has approved a $15 million second-half 2010 capital budget. This will bring the annual capital investment program to approximately $45 million. Open Range's average production for 2010 is forecast at 3,700 boe per day, increasing from the first-half estimate of 3,600 boe per day. The second-half program will be funded largely out of anticipated funds flow of approximately $6-7 million per quarter. The program will include:
-- Drilling our first Wilrich horizontal well (66 percent working interest)
at Ansell/Sundance, as discussed above, to spud in the third quarter;
-- Completing and tying in the second Ansell/Sundance vertical well (66
percent working interest) of the first-half program;
-- Drilling two gross (approximately 0.3 net) Cardium horizontal oil wells
at Pembina; and
-- Drilling one other vertical or horizontal Deep Basin well, to be
announced.
On behalf of the Board of Directors,
A. Scott Dawson
OPEN RANGE ENERGY CORP. IS A PUBLICLY TRADED CANADIAN ENERGY COMPANY WITH FOCUSED OPERATIONS IN THE DEEP BASIN REGION OF ALBERTA.
OPEN RANGE HAS APPROXIMATELY 60.9 MILLION COMMON SHARES ISSUED AND OUTSTANDING, WHICH TRADE ON THE TSX UNDER THE SYMBOL "ONR".
For further information, please refer to the Company's website at www.openrangeenergy.com.
Reader Advisory
This news release contains certain forward-looking statements, which include assumptions with respect to (i) production; (ii) future capital expenditures; (iii) funds from operations; (iv) cash flow; and (v) debt levels. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. All such forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Open Range's control. Such risks and uncertainties include, without limitation, risks associated with oil and natural gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Open Range's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits, including the amount of proceeds, Open Range will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to Open Range or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Open Range does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Disclosure provided herein in respect of barrel(s) of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
THE TORONTO STOCK EXCHANGE HAS NEITHER APPROVED NOR DISAPPROVED OF THE INFORMATION CONTAINED HEREIN. | |
| CONTACT INFORMATION:
Open Range Energy Corp.
A. Scott Dawson, P.Eng.
President and Chief Executive Officer
403-205-3704
or
Open Range Energy Corp.
Lyle D. Michaluk, CA
Vice President, Finance and Chief Financial Officer
403-262-9280
www.openrangeenergy.com
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| INDUSTRY: Energy and Utilities - Oil and Gas | |
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