CALGARY, ALBERTA--(Marketwire - June 1, 2011) -
Open Range Energy Corp. ("
Open Range" or the "Company") (
News -
Market indicators) is pleased to release its financial and operating results for the three months ended March 31, 2011 along with a discussion of activities undertaken to date in 2011 and an outlook for the remainder of the year. First quarter 2011 results include doubling of consolidated funds from operations per share over the first quarter of 2010. Guidance for 2011 remains unchanged at $70 million in consolidated funds from operations and exit production of 6,200 boe per day.
The Company has filed a complete copy of its interim consolidated financial statements and related management's discussion and analysis for the three months ended March 31, 2011 on
www.sedar.com and on the Company's website at
www.openrangeenergy.com.
First Quarter 2011 Financial and Operating Highlights
CONSOLIDATED HIGHLIGHTS
Three months Three months
ended ended
(in thousands except per share amounts) March 31, 2011(1) March 31, 2010(1)
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Revenue(2) $ 19,515 $ 11,504
Funds from operations(3) 15,053 7,280
Per basic share 0.24 0.12
Per diluted share 0.24 0.12
Net earnings 5,479 2,606
Per basic and diluted share 0.09 0.04
Net debt 50,760 58,306
Capital expenditures, net $ 34,041 $ 27,402
Weighted average shares outstanding
Per basic share 61,814 60,934
Per diluted share 63,256 60,937
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EXPLORATION & PRODUCTION HIGHLIGHTS
Three months Three months
ended ended
March 31, March 31,
2011(1) 2010(1)
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Production
Natural gas (mcf per day) 20,455 19,695
Oil and NGL (bbls per day) 283 316
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Total (@ 6:1) (boe per day) 3,693 3,598
Realized average sales prices
Natural gas ($ per mcf)(2) 4.19 5.36
Oil and NGL ($ per bbl) 75.43 70.70
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Combined average ($ per boe) 29.26 35.52
Royalties ($ per boe) (2.98) (3.94)
Operating costs ($ per boe) (3.69) (5.72)
Transportation costs ($ per boe) (0.78) (0.82)
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Operating netback ($ per boe) 21.81 25.04
G&A costs ($ per boe) (2.36) (2.33)
Net interest expense ($ per boe) (1.98) (1.41)
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Corporate netback ($ per boe) 17.47 21.30
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POSEIDON CONCEPTS HIGHLIGHTS
Three months Three months
ended ended
March 31, March 31,
(in thousands except percentages) 2011(1) 2010(1)
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Fracturing fluid handling tank
rental revenue $ 10,018 -
Operating costs (391) -
G&A costs (725) -
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Operating earnings (EBITDA) $ 8,902 -
Operating margin 89% -
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(1) Open Range's IFRS transition date was January 1, 2010; therefore,
information above including comparative information is presented in
accordance with IFRS.
(2) Includes the realized gain or loss on commodity contracts.
(3) Funds from operations is calculated using cash flow from operations
before the change in non-cash working capital and decommissioning
expenditures and excludes interest and finance expenses as presented
under the Corporation's IFRS-based interim consolidated statement of
cash flows for the three months ended March 31, 2011.
In the three months ended March 31, 2011, Open Range:
-- Generated consolidated funds from operations of $15.1 million, an
increase of 107 percent from $7.3 million in the first quarter of 2010
and a Company record;
-- Generated consolidated funds from operations of $0.24 per basic and
diluted share, an increase of 100 percent over the first quarter of
2010;
-- Had EBITDA of $8.9 million from its Poseidon Concepts fracturing fluid
handling business unit (included in consolidated funds from operations),
achieving an operating margin of 89 percent;
-- Had average production of 3,693 boe per day, which was net of
approximately 300 boe per day of fourth quarter 2010 non-core
dispositions, and exited the quarter with production of approximately
4,400 boe per day;
-- Made consolidated capital expenditures of approximately $34.0 million to
fund the drilling and completion of four (3.6 net) Wilrich horizontal
wells at its Ansell/Sundance Deep Basin property, plus one (0.2 net)
Glauconitic well at Ferrier in west central Alberta, and the expansion
of the Poseidon Concepts tank fleet to approximately 80 systems by
quarter-end;
-- Continued on its track of increasing operating efficiencies, with
operating costs including transportation averaging $4.47 per boe ($0.75
per mcfe) of production in the first quarter of 2011, compared to $6.54
per boe ($1.09 per mcfe) in the first quarter of 2010, an improvement of
over 30 percent;
-- Incurred all-in cash costs (operating, transportation, G&A, interest) of
$8.81 per boe of production, a reduction of 14 percent from the first
quarter of 2010;
-- Exited the quarter with net debt of $50.8 million, essentially unchanged
from year-end 2010; and
-- Received commitments to increase its borrowing capacity to $90 million
with an expanded banking syndicate.
Subsequent to the three months ended March 31, 2011, Open Range:
-- Issued 2011 guidance with key targets including:
-- Average production of 4,500 boe per day;
-- Exit production of 6,200 boe per day:
-- Capital expenditures of $100 million;
-- Consolidated funds from operations of $70 million ($1.03 per basic
share);
-- Net debt of approximately $60 million at year-end; and
-- A year-end net debt to annualized fourth quarter funds from
operations ratio of 0.6:1, compared to 1.3:1 at year-end 2010.
Message to Shareholders
Two events of strategic importance over the past year have changed the game for Open Range. One of these was the 100 percent success rate achieved over multiple wells in our Wilrich horizontal program at Ansell/Sundance, which in only seven months has delivered combined net production of over 1,800 boe per day - more than one-third of our current volumes. The other was the success of our Poseidon Concepts fracturing fluid handling system, which progressed from its first revenue-generating job last June to having 100 tank systems available across North America with current forecast 2011 EBITDA of $45 million.
Together with Open Range's existing strengths, these two developments make Open Range a unique growth story in the Canadian energy sector. The game has changed: we're in a much stronger position and on an accelerating growth track, with our medium-term target of 10,000 boe per day by year-end 2012 more visible than ever. Current production is approximately 4,400 boe per day. Our next target, as announced in our 2011 capital program and guidance press release on May 18, is to exit this year at 6,200 boe per day.
Wilrich Horizontal Program
We are highly encouraged by the initial performance of our five Wilrich Deep Basin horizontal wells brought on-stream since October. The results shift the nature of our activities from testing the Wilrich's horizontal potential to full commercialization with a declining risk profile.
Since bringing our first Wilrich horizontal well on-stream in mid-October, combined volumes from the Wilrich have grown to more than 1,800 boe per day net. Our initial Wilrich horizontal well, the 14-27, has delivered more than 0.5 bcf plus NGL.
Several things stand out about the results of our Wilrich program to date:
-- Repeatability;
-- Strong initial well performance, with three of five wells above the
Wilrich horizontal type curve for the region;
-- Narrow range of initial productivity from well to well;
-- Low initial decline; and
-- Rapid cost recovery, with the 14-27 well generating revenue of over $1.5
million in five months on-stream at natural gas prices below $4 per mcf.
The Wilrich Formation at Ansell/Sundance is a genuine resource play, highly reapeatable and justifying an accelerated development program to exploit our current well inventory of 35 net horizontal locations spaced at no more than two wells per section. Our ability to scale up Wilrich activity supports continued growth in Company production. In addition, the technical refinements developed in the Wilrich create the springboard to test further horizons at Ansell/Sundance, beginning with the Notikewin and Cardium.
Another key component of our success is the ability to control and further decrease our operating costs per unit of production and, as we tailor our per-well drilling and completions costs. Open Range's operating costs are top-decile - and down by over 30 percent from our first-quarter 2010 performance. Open Range is now well within the most efficient decile of companies in the Canadian E&P sector. The recently announced $6.5 million expansion of our Company-operated Ansell/Sundance gas plant to 60 mmcf per day capacity will contribute to ongoing efficient operations and, potentially, further cost improvement as throughput continues to increase.
On the capital cost side, the Wilrich program has helped us to further refine the drilling process and test numerous improvements to the completions process, including tailored frac designs and substantiating that the packer approach is right for this reservoir's characteristics. Our goals are to increase per-well initial productivity and reduce well-to-well variation, maximize overall well performance, minimize capital costs per daily boe of added production and reduce per-well costs outright. This continuing process is showing success, and we will apply this knowledge in testing new horizontal opportunities at Ansell/Sundance.
Poseidon Concepts
The producing sector's adoption of the Open Range-developed Poseidon Concepts fracturing fluid handling system has been significant. This is a testament to producers' openness to new ideas, their continual drive for better, faster and cheaper tools and techniques to drill and complete wells and maximize per-well economics. From our side, thanks are due to the team that conceived, tested, developed and is now marketing the Poseidon system all over North America. In short, it's a product that works reliably and fulfills a strong need, its innate advantages saving the customer time and money. As recently announced, our patent application was accepted in Canada, which also significantly advances our U.S. patent application.
For Open Range as a company, Poseidon is delivering a growing high-margin revenue stream, providing a significant proportion of our overall funds from operations and strong support to our capital budget. For 2011 we are forecasting Poseidon EBITDA of $45 million, with revenues underpinned by $33 million to date in minimum commitment contracts through year-end, and a total of $45 million through June 2012.
We are working hard to keep up with the accelerating pace of growth, expanding the Poseidon team and continuing to exploit first-mover advantages as we manufacture tanks and market in new regions across the U.S. We are focusing primarily on emerging shale and tight sands play areas - crude oil as well as liquids-rich gas-oriented. These plays require the larger fracturing fluid capacities that the Poseidon tanks handle, and are likely to see years of drilling and completions activity. To date we have become active in the North Dakota and Montana Bakken plays, the Niobrara play in Wyoming and Colorado, and the Marcellus in the northeast U.S., and we continue to prospect further greenfield opportunities.
The 41,000-barrel-capacity Atlantis model has been particularly well received in the U.S. It's suited to the largest fracturing jobs and can also be used as a centralized stored water source on multi-well projects, while using satellite Poseidon or Triton tanks at the wellsite. Even with Poseidon's strong growth to date, we still have only a single-digit percentage share of North America's enormous fracturing fluid handling market.
Financial Strength and 2011 Capital Budget
Open Range's growing production, declining costs and the success of Poseidon have lifted the Company to a higher level of financial strength. Funds from operations more than doubled in the first quarter to a new Company record. Even more important to our shareholders, following our strategic working interest acquisition at Ansell/Sundance in late 2009, we are back on a path of per-share growth. Funds from operations doubled on a per-share basis over the first quarter of 2010.
Along with our strong reserve additions at year-end 2010 and the quality of our Deep Basin asset at Ansell/Sundance, our growing cash flow enables an anticipated increase in our borrowing capacity to $90 million with an expanded banking syndicate. Net debt of $50.8 million at the end of the first quarter was barely changed year-over-year. This provides ample unutilized debt capacity, and we will remain conservative in our borrowing in order to continue strengthening the balance sheet.
Open Range's 2011 capital budget is $100 million. It will be funded by funds from operations estimated at $70 million, including strong support from Poseidon EBITDA, plus proceeds from the $20 million equity issuance in the first quarter, and modest borrowing. The Company's much greater financial resources not only add flexibility, they increase our confidence in our growth track towards 10,000 boe per day by year-end 2012.
Outlook
Open Range is pursuing an accelerated program enabled by the strength of our cash flow and underpinned by the repeatable horizontal drilling success at Ansell/Sundance, plus our low cost structure and control of facilities, which enables tie-ins of new production in as little as one to three days of final well completion. The primary focus remains driving volume growth from the Wilrich. Wilrich horizontal wells are highly economic at current gas prices, generating returns of approximately 70 percent even without further improvements to capital or operating efficiencies. This year we plan at least another five net Wilrich horizontal wells at Ansell/Sundance.
In addition we will begin to test our opportunity base of additional horizontal locations in other zones, beginning this year with three gross (2.6 net) horizontal wells in the Notikewin and Cardium. The initial goal is to demonstrate enhanced per-well economics and substantiate inventories in each horizon. As momentum builds we intend to test other horizons, potentially including the Falher and Cadomin, the original reservoir that anchored the Ansell/Sundance multi-zone vertical play. At Ansell/Sundance Open Range has an asset of significant value offering many years of inventory at accelerated drilling rates. We continue to see potential for up to 100 bcf of original-gas-in-place per section of land within the extensive overlapping horizontal targets.
Lastly, we have budgeted to drill one horizontal well targeting Montney light oil on our 100 percent working interest lands at Waskahigan. The exact timing depends on facility issues in the region, as well as progress on other opportunities we are pursuing. We are working on facility options and observing industry activity immediately offsetting our acreage in both the Monteney and Duvernay shale horizons. If we elect to defer drilling at Waskahigan, we will likely drill an additional Wilrich well at Ansell/Sundance before year-end.
OPEN RANGE ENERGY CORP. IS A PUBLICLY TRADED CANADIAN ENERGY COMPANY WITH FOCUSED OPERATIONS IN THE DEEP BASIN REGION OF ALBERTA AND AN EXPANDING NORTH AMERICAN WELL COMPLETIONS EQUIPMENT AND SERVICE BUSINESS.
OPEN RANGE HAS APPROXIMATELY 68.3 MILLION COMMON SHARES ISSUED AND OUTSTANDING, WHICH TRADE ON THE TSX UNDER THE SYMBOL "ONR".
Reader Advisory
This news release contains certain forward-looking statements, which include assumptions with respect to (i) results from drilling and completion operations; (ii) production; (iii) future capital expenditures and operating activities and how they will be financed; (iv) funds from operations; (v) cash flow from operations and EBITDA; (vi) demand for Poseidon Concepts' tank systems; and (vii) general oil and gas industry activity. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. 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, dependence on manufacturers of the Poseidon Concepts tank systems; operating risk liability; demand for Poseidon Concepts' tank systems; levels of competition in the fracturing fluid storage industry; the ability of Poseidon Concepts to attract and retain clientele; the ability of Poseidon Concepts to fund its ongoing capital requirements; Poseidon Concepts' limited operating history; 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. Additional information on the foregoing risks and other factors that could affect Open Range's operations and financial results are included in the Company's annual information form and other reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (
www.sedar.com). 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.
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 
