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| March 17, 2010 |
| Open Range Energy Corp. Announces 2009 Financial and Operating Results |
CALGARY, ALBERTA--(Marketwire - March 17, 2010) - Open Range Energy Corp. (TSX:ONR) ("Open Range" or the "Company") is pleased to announce the financial and operating results for the year ended December 31, 2009. The Company has filed a complete copy of its audited financial statements and related management's discussion and analysis for the year ended December 31, 2009 on www.sedar.com and on the Company's website at www.openrangeenergy.com.
FINANCIAL AND OPERATING HIGHLIGHTS
Three Three
months months Year Year
ended ended ended ended
December December December December
(thousands except per 31, 31, 31, 31,
share amounts) 2009 2008 2009 2008
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Petroleum and natural gas revenue(1) $ 9,254 $ 10,238 $ 28,203 $ 40,331
Funds from operations 6,243 6,351 15,341 23,949
Per basic share 0.14 0.23 0.50 0.93
Per diluted share 0.14 0.23 0.50 0.92
Net earnings (loss) (517) 1,067 (6,137) 2,798
Per basic and diluted share (0.01) 0.04 (0.20) 0.11
Net debt 37,571 27,625 37,571 27,625
Capital expenditures, net $ 65,950 $ 9,253 $ 85,778 $ 60,567
Weighted average shares outstanding
- basic 44,132 27,111 30,980 25,851
Weighted average shares outstanding
- diluted 44,132 27,111 30,980 26,002
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Production
Natural gas (mcf per day) 15,814 13,164 13,293 11,064
Oil and NGL (bbls per day) 282 257 241 226
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Total (@ 6:1) (boe per day) 2,918 2,451 2,457 2,070
Realized average sales prices
Natural gas ($ per mcf)(1) 5.29 7.35 4.88 8.23
Oil and NGL ($ per bbl) 60.09 56.40 51.41 84.39
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Combined average ($ per boe) 34.47 45.41 31.45 53.22
Royalties ($ per boe) (1.55) (8.05) (3.08) (10.71)
Operating costs ($ per boe) (5.26) (5.65) (5.58) (6.10)
Transportation costs ($ per boe) (0.75) (0.70) (0.96) (0.74)
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Operating netback ($ per boe) 26.91 31.01 21.83 35.67
G&A costs ($ per boe) (1.92) (1.04) (3.09) (2.60)
Net interest expense ($ per boe) (1.75) (0.64) (1.34) (0.43)
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Corporate netback ($ per boe) 23.24 29.33 17.40 32.64
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(1) Includes the realized gain or loss on commodity contracts.
CORPORATE HIGHLIGHTS
During the year ended December 31, 2009, Open Range:
- Produced an average of 2,457 boe per day (90 percent natural gas), a 19 percent increase from the 2008 average;
- Drilled its first horizontal Bluesky well (100 percent working interest) at its Ansell/Sundance property;
- Increased year-over-year total proved plus probable reserves by 6.8 million boe or 68 percent to 16.9 million boe;
- Achieved finding, development and acquisition costs, including the change in future development capital, of $16.61 per proved plus probable boe of reserves added;
- Realized funds from operations of $15.3 million ($0.50 per diluted share), reflecting reduced revenues driven by lower commodity prices, partially offset by increased production, the Company's low cost structure and natural gas price hedges;
- Realized strong benefits from its hedging program, increasing the realized average sales price of the Company's natural gas production by $0.57 per mcf and gaining $2.7 million in incremental cash flow;
- Maintained its record of low cash costs, with fourth quarter cash costs (operating, transportation, G&A and interest) of $9.68 per boe;
- Closed a purchase and sale agreement that substantially increased the Company's working interests at its core Ansell/Sundance Deep Basin property in west central Alberta, adding production of 1,150 boe per day and greatly augmenting the Company's multi-year drilling inventory;
- Completed a bought-deal financing totalling $65 million gross in common shares and flow-through common shares with a syndicate of underwriters;
- Increased the Company's bank lines to $75 million as a consequence of enlarging the asset base; and
- Increased undeveloped land by 28 percent year-over-year to 65,238 net acres.
MESSAGE TO SHAREHOLDERS
Open Range exited 2009 larger, stronger and with an active horizontal and vertical well drilling program underway in our core Ansell/Sundance property, recently enlarged by more than 50 percent through the $60 million working interest acquisition that closed in November. We have resumed accelerated organic growth from a larger base of production and reserves and now offer our shareholders visible growth to 10,000 boe per day and beyond.
Initial results from our first (100 percent working interest) Notikewin horizontal Deep Basin well at Ansell/Sundance are very encouraging. The well tested at rates up to 5.4 mmcf per day on cleanup, as detailed in our operational update released on February 18, 2010. It was tied-into an Open Range compression facility in late February and began producing at an initial rate of 2.1 mmcf per day plus natural gas liquids.
We have a further two (1.6 net) horizontal Deep Basin wells, one net vertical multi-zone well, one (0.375 net) horizontal Cardium oil well and one (0.2 net) horizontal Glauconitic natural gas well awaiting completion or tie-in operations. Open Range's management team is optimistic about strong near-term production growth. Open Range's production is currently 3,500 boe per day, including 18.9 mmcf per day of natural gas. First-half 2010 production is initially forecast at 3,600 boe per day, but may be revisited as the new wells are tied in.
2009 IN REVIEW
We approached 2009 the way we needed to given Open Range's size, commodity focus and cost of capital. We cut capital spending early, before the severity and length of the downturn were clear, and further trimmed our already low internal costs. We built up a very good hedge book, which added materially to our cash flow throughout 2009. Open Range's high-quality production and low cost structure continued to generate positive cash flow.
While adjusting to the short-term business cycle constraints, strategically we maintained our long-term plan of exploration-based growth in the Deep Basin. Important to this strategy was drilling our first horizontal Deep Basin well at Ansell/Sundance. It was clear that multi-stage fractured horizontal drilling was an important industry trend and might drive a step-change in the economics of Deep Basin development. We proceeded with this first well to prove up the technology and methodologies. We were of the view that gaining this experience and moving up the learning curve would position the Company to execute quickly when market conditions improve.
Since being placed on production in early August, the 100 percent working interest Bluesky well has averaged 1.8 mmcf per day plus NGL at low initial decline. This well plus some vertical tie-ins earlier in 2009 and the closing of the Company's working-interest acquisition in November grew the Company's 2009 daily average production to 2,457 boe per day, representing an increase of 19 percent year-over-year.
Ansell/Sundance Working-Interest Acquisition
The year's key event was increasing our overall position at Ansell/Sundance by more than 50 percent. We were pleased to be able to take advantage of this cyclical opportunity and close this strategic deal in a timely manner. It clearly sets Open Range up for rapid growth on a base of high-working-interest lands that we know well.
The immediate benefits of the deal, which was effective October 1, 2009, were adding:
- 1,150 boe per day in current production;
- $2.5 million in fourth-quarter 2009 cash flow, including standard closing adjustments;
- Over 5 million boe of proved plus probable reserves;
- 19 net sections of land, bringing our Ansell/Sundance lands to 50 net sections;
- 61 net drilling locations, bringing our inventory to a combined 196 gross vertical and horizontal locations;
- 12.1 mmcf per day of working-interest plant and compression capacity; and
- $60 million of tax pools.
The key acquisition metrics were $10.55 per proved plus probable boe of reserves added and $46,100 per daily flowing boe of production. We now have 85 percent average working interest at Ansell/Sundance.
Because it is a working interest acquisition, Open Range's cash costs per boe of production are further reduced and we are able to operate the larger base of production without additional staff. Operating costs at Ansell/Sundance immediately fell from approximately $5.50 per boe to $4.50 per boe. For the year as a whole the Company's cash costs also continued to trend lower, a strong advantage in a time of lower commodity prices. All-in cash costs - operating, transportation, G&A and interest - were averaging $1.92 per mcfe during the first nine months of 2009. Following the working interest acquisition our cash costs declined to $1.61 per mcfe in the fourth quarter. This performance ranks Open Range in the top decile of its peer group.
The deal was financed by issuing $65 million in common shares and flow-through common shares through a bought-deal financing. Along with our larger asset base our bank lines were increased to $75 million from $54 million and we exited the year with net debt of $37.5 million. Our year-end debt to annualized fourth-quarter cash flow ratio declined substantially as a result of the transaction and was 1.5:1 exiting 2009 versus 3:1 prior to the closing of the acquisition.
The Ansell/Sundance acquisition had important strategic rationales. First, Open Range gained control over the timing and focus of future development activities at Ansell/Sundance. Second, the Company moved up to a critical mass of production and cash flow, supporting a more aggressive development scenario and gaining greater leverage with each successful new well. Third, we created a clear pathway to achieving our long-term vision of exploration-based growth to 10,000 boe per day and beyond.
Reserves
Reserves growth in 2009 was substantial at 68 percent year-over-year, as evaluated by GLJ Petroleum Consultants Ltd., independent reservoir engineers. Proved plus probable reserves at December 31, 2009 totalled 16.9 million boe compared to slightly over 10 million boe at year-end 2008. Proved plus probable reserve additions replaced 2009 production by 8.6 times, providing a reserve-life-index at year-end of 13.6 years, further evidence of the long-life nature of our Deep Basin reservoirs. The 2009 year-end evaluation assigned a net present value (before tax, 10 percent discount) of $236 million to our proved plus probable reserves.
The large majority of reserve additions stemmed from the Ansell/Sundance acquisition. We also added reserves through the Bluesky horizontal well and booked reserves on a number of low-risk development drilling locations. There were also some upward technical revisions at Ansell/Sundance, representing the continued improvement in the recognized quality of our multi-zone Deep Basin play as well production histories are extended and production type curves become established.
FIRST-HALF 2010 CAPITAL PROGRAM
The first quarter of 2010 marked the Company's return to a more aggressive level of field activities. As of mid-March operations are ongoing under our $30 million first-half capital program.
The first of the three horizontal wells was a 100 percent working interest Notikewin that commenced drilling in early December and was fractured and tested by mid-February. The 4,100-metre well was drilled to a true vertical depth of approximately 2,600 metres, with a 1,250-metre horizontal leg.
As we announced in our operational update of February 18, this Notikewin well tested on cleanup at rates up to 5.4 mmcf per day over 60 hours. The well was tied into our 10-11 compressor in late February and began producing at an initial rate of 2.1 mmcf per day plus natural gas liquids. Recovery of fracturing fluids is continuing.
The second of the three horizontal wells, a Bluesky (60 percent working interest), began drilling in late December. It reached its total measured depth of 4,100 metres, including a 900-metre horizontal leg, and an update on the completion operations is expected before spring break-up. The third horizontal well (100 percent working interest), our second Notikewin, is currently awaiting multi-stage fracturing completion operations.
The first of our two planned 100 percent Open Range vertical wells is currently awaiting tie-in operations. The second vertical is expected to spud in June.
Royalty Incentives
The long measured depth of the Company's Ansell/Sundance horizontal wells provides strong exposure to the current provincial Natural Gas Deep Drilling Program, New Well Royalty Reduction Program and Drilling Royalty Credit Program. The three first-quarter horizontal wells drilled by the Company are expected to receive an average of $3.5 million in combined provincial royalty incentives per well. All the horizontal wells in our current drilling program will receive incentive royalty rates of no more than 5 percent on their first 0.5 bcf of production.
Control of Key Infrastructure
The second and third horizontal wells of the first-half 2010 program are located in the Ansell/Sundance core and will be tied into our expanded Ansell/Sundance gas plant (61 percent working interest). The expansion was completed in early March, increasing gross throughput capacity to 40 mmcf per day.
Control of key infrastructure is important in this active, competitive area, and our gas plant can be expanded further, accommodating future drilling. We are also expanding our gathering system and are making plans to convert the 10-11 compressor into a second gas plant. In the meantime production from the first Notikewin well is flowing from the 10-11 compressor to a third-party processing facility.
Emerging Cardium Opportunity
The Company is participating in an exciting opportunity outside Ansell/Sundance. The Cardium light oil play has captured much attention in recent months. Like our Deep Basin activities it involves the application of horizontal wells with multiple fractures to a known reservoir. The Cardium is a medium-depth sandstone discovered in the early 1950s and long considered in terminal decline. Now, its less permeable edge areas, which tended not to be conventionally developed, have yielded multiple high-rate wells. Successful horizontal Cardium wells have generated strong initial production rates of premium-priced, low-royalty, high-netback light oil and condensate.
Among Open Range's smaller land parcels in west central Alberta are some with Cardium potential. Through a recent land pooling arrangement with a private producer we assembled a three-section block at a 27.5 percent average working interest. The partner is operating a horizontal Cardium test (37.5 percent working interest), which was drilled to depth in late February and underwent completion operations in early March. Our share to drill and complete is approximately $1 million. We expect to have test results shortly, and follow-up locations are being evaluated. We're pleased at the opportunity to increase the liquids weighting in our production mix.
OUTLOOK
Industry activity in a range of exciting unconventional oil and natural gas plays across western Canada has accelerated in the past several months. This includes the Deep Basin, where operators are testing several new zones with horizontal drilling and multi-stage fractures while drilling multiple development wells as they gain confidence in the four to five main formations proven to date.
Open Range intends to continue a steady pace of activities while always maintaining the financial discipline to adjust to prevailing natural gas prices and the cost of capital. Second-half 2010 activity will continue to focus on lands near the expanded Ansell/Sundance gas plant to maximize capital and operating efficiencies and ensure speedy tie-ins.
Multi-Year High-Quality Drilling Inventory
Vertical and horizontal drilling results to date show Open Range extending its multi-year track record of success in the Deep Basin. The current inventory stands at approximately 150 gross multi-zone vertical locations and approximately 50 horizontal locations in three initial horizons at only one well per prospective section.
Vertical drilling remains important. Vertical wells delineate new areas as we move outward from the Ansell/Sundance core - finding the sweet spots for horizontal development - and exploit secondary zones not amenable to horizontal drilling. Vertical drilling at Ansell/Sundance has yielded as many as nine productive zones from a single wellbore. Ansell/Sundance is a true high-quality multi-zone area, with 17 producing geological reservoirs to date. We now have 46 gross wells on production from a combined 165 zones.
These strong positives mean that ultimately we might drill several vertical wells per section of land at Ansell/Sundance, as well as all the horizontal locations we can establish in our scalable inventory. This scalable horizontal inventory could be very material to a company of our size. Steady horizontal success would create a multi-year activity inventory with the potential to rapidly accelerate the Company's production. Important to note is that horizontal wells represent more than just acceleration of recoveries that would occur eventually with vertical wells. The horizontal wells have the ability to access incremental reserves.
Well Economics
Open Range continues to benefit from the advantages of the Ansell/Sundance play: true Deep Basin multi-zone characteristics, year-round access, no produced water, low costs, high working interest, control of operations and a scalable, highly material inventory with multiple well locations per land section
Strong initial production from the horizontal wells plus provincial drilling credits and royalty benefits support strong economics at current commodity prices. Our initial economics are encouraging from the limited dataset. The first Bluesky well looks as if it will be a long-life producer with at least 10-20 years of productive life.
Commodity Price Outlook and Hedging
Open Range's realized sales prices outperformed the AECO monthly index for 34 of the 38 months through February 2010. Hedging added almost $3.0 million to our cash flow in 2009 alone, while providing downside protection that safeguarded our capital program. To date we have hedged approximately 10 mmcf per day through year-end 2010 at an average floor price of approximately $4.55 per mcf. We intend to build out our hedge book well into 2011, emphasizing put options to protect on the downside without limiting upside exposure.
Open Range is positioned for a range of macro scenarios, and with its larger size is more able to take advantage of potential cyclical opportunities to grow or diversify. We will maintain the fiscal prudence that got us through 2009, carefully monitoring our balance sheet, debt levels and ratios.
Cash flow for the first half of 2010, based on average commodity prices of $4.50 per mcf at AECO and US$65.00 per bbl of WTI, is expected to be approximately $12 million. These figures show the benefits of Open Range's larger, more sustainable base. The current capital program is strongly underpinned by this larger base. We expect our cash costs to remain top-decile in our peer group throughout 2010.
Please note that the Annual General Meeting for Open Range is scheduled to take place on Thursday, May 13th at 10:00 a.m. MDT in the Strand-Tivoli Room of the Metropolitan Conference Centre, located at 333 - 4th Avenue S.W., Calgary, Alberta.
On behalf of the Board of Directors,
A. Scott Dawson,
President, Chief Executive Officer and Director
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".
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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