Delphi Energy Corp.
TSX: DEE
December 15, 2010
Delphi Energy Plans Continued Light Oil And NGL Focus In 2011
CALGARY, ALBERTA – Delphi Energy Corp. (“Delphi” or “the Company”) is pleased to provide the following update to its ongoing business.
OPERATIONS UPDATE
Delphi’s second half 2010 capital program continues to deliver strong production performance leading to a first half 2011 capital program which remains focussed on light oil in the Cardium formation at Bigstone and Doe Creek formation at Hythe as well as liquids-rich, natural gas development of the Nikanassin and Upper Cretaceous sands at Wapiti/Gold Creek.
Highlights include:
· At Bigstone, our two most recent Cardium light oil wells (1.1 net) completed early in the fourth quarter are exceeding expectations with thirty day average production rates of 354 boe/d and 460 boe/d;
· At Hythe, Delphi has completed and brought on-line an eighth Doe Creek light oil well (1.0 net) with a seven day average production rate of 253 boe/d;
· The Company has started its winter capital program and currently has three rigs operating in the field drilling two light oil wells (0.6 net) and one liquids-rich natural gas well (0.8 net). Two additional rigs are anticipated to begin drilling operations prior to year end; and
· The first half 2011 capital program includes the drilling of fifteen wells (11.2 net) consisting of six horizontal, light oil wells (4.1 net) and nine vertical, liquids-rich natural gas wells (7.1 net) at the Company’s core operating areas of Wapiti/Gold Creek, Bigstone and Hythe.
Wapiti/Gold Creek
Gething/Nikanassin Liquids-Rich Natural Gas Program
During the second half of 2010, four wells (3.3 net) were drilled, completed and tested in the Wapiti/Gold Creek area. Two wells (1.8 net) were brought on-line during November, one well (1.0 net) was brought on-line in December and one well (0.5 net) will be brought on-line in January 2011. The seven day average production rate of the wells brought on-line was 1,725 mcf per day per well with an average natural gas liquids content of 80 barrels per million cubic feet.
The Company has initiated drilling one vertical Nikanassin well (0.8 net) and will be moving a rig in the next several days to drill a vertical Gething well (0.5 net). An additional six vertical wells (4.8 net) targeting the liquids-rich Nikanassin and uphole Cretaceous intervals are planned for the winter program. The majority of the wells drilled in this program will be offsets to the successful 2010 program.
Bigstone
Cardium Light Oil Program
At the end of October, the Company commenced production from two horizontal Cardium light oil wells that had thirty day average production rates of 354 boe/d and 460 boe/d, respectively, exceeding the field average of 311 boe/d from the five Cardium wells currently on-line.
The Company is continuing to follow up on its successful Cardium light oil program with one horizontal well (0.1 net) awaiting completion, two horizontal wells (0.6 net) drilling and plans to drill an additional three horizontal wells (1.2 net) during the winter program.
A ninth horizontal Doe Creek light oil well (0.4 net) has been drilled and cased and is currently awaiting a multi stage fracture stimulation with first production anticipated in January, 2011 The Company plans on drilling three additional horizontal Doe Creek light oil wells (2.4 net) during the winter program.
Hythe
Doe Creek Light Oil Program
At Hythe, the Company recently started production from an eighth horizontal Doe Creek light oil well (1.0 net) with a seven day average production rate of 253 boe/d.
A ninth horizontal Doe Creek light oil well (0.4 net) has been drilled and cased and is currently awaiting a multi stage fracture stimulation with first production anticipated in January, 2011 The Company plans on drilling three additional horizontal Doe Creek light oil wells (2.4 net) during the winter program.
Nikanassin Natural Gas Program
Also at Hythe, the Company will be moving in a drilling rig, prior to the end of 2010, to drill a vertical well to confirm productivity and the resource nature of the Nikanassin on the western portion of the Hythe lands.
2010 Production
Production for 2010 is expected to average 8,000 to 8,100 boe/d which is within the Company’s previous guidance of 7,900 to 8,200 boe/d. Current production is approximately 8,600 boe/d (23 percent light oil and NGL), with three wells remaining to be brought on-line from the 2010 program due to wet fall weather and service availability adversely affecting timing and average production volumes for the fourth quarter.
LAND ACQUISITIONS
In 2010, the Company has been active at Crown and private land sales, acquiring mineral rights on 100,800 net acres of undeveloped land in the deep basin of North West Alberta, primarily focused in its core areas of Bigstone, Hythe, Wapiti/Gold Creek and a new exploration area at Sturgeon Lake.
At Bigstone, Delphi has been successful in acquiring mineral rights on 15,200 net acres. The mineral rights are for a combination of shallow Cretaceous rights that the Company has been developing on offsetting lands and the deeper Montney and Duvernay shale that have been a focus of offset operator’s recent activities.
At Hythe, Delphi acquired mineral rights on 14,100 net acres, predominantly in the Cretaceous interval which includes the Dunvegan, Paddy, Falher, Bluesky, Gething and Nikanassin formations.
At Wapiti/Gold Creek, Delphi acquired mineral rights on 14,700 net acres targeting the liquids-rich Cretaceous interval which includes the Dunvegan, Falher, Bluesky, Gething and Nikanassin formations.
In the Sturgeon Lake area, Delphi added to its growth potential with the acquisition of Duvernay shale rights. The Company participated in two Crown land sales during 2010 and acquired various mineral rights, including the Duvernay shale, on 52,200 net acres of land.
Delphi’s inventory of undeveloped land has increased to approximately 239,000 net acres, up 39 percent from December 31, 2009. As of November 30, 2010, the Company had invested $7.3 million on land in 2010, primarily at Crown land sales.
CREDIT FACILITIES
Delphi’s lenders have completed their semi-annual review of the Company’s credit facilities and agreed to an increase in the Company’s facilities of $5.0 million to a total of $140.0 million, comprised of a $135.0 million revolving credit facility and a $5.0 million operating credit facility. All other terms of the credit facilities remain unchanged from the previous arrangement.
The Company’s growth in production and proved reserves as a result of a successful drilling program in 2010 focused on crude oil and liquids-rich natural gas opportunities and the continued reduction in operating costs more than offset the effect of the lender’s outlook for reduced natural gas prices.
Net debt at December 31, 2010 is expected to be approximately $110.0 to $112.0 million with a debt to cash flow ratio of 1.9. The increased credit facility further strengthens the Company’s financial position and its ability to pursue its 2010/2011 winter capital program, of which approximately $5.0 million is expected to be incurred in December, 2010.
OUTLOOK
Delphi is forecasting continued growth in 2011 as a result of a sustained focus on light oil and natural gas liquids growth, successful cost reduction efforts and continued risk management initiatives.
The Company’s cost structure continues to be an area of focus and opportunity in contributing to strong financial performance. In 2011, operating costs are forecast to average approximately $7.30 per boe, a 30 percent reduction from the peak of $10.37 per boe in 2008. Total costs including operating, transportation, general administrative and interest costs are forecast to average approximately $13.37 per boe in 2011, a 25 percent reduction from 2008 levels.
Delphi continues to manage its cash flow volatility through an active risk management program with the objective of having 40 to 50 percent of its natural gas sales volume hedged at prices that meet or exceed Delphi’s budget prices. Delphi’s risk management program has been very successful over the past five years generating approximately $60.5 million of realized hedging gains. Currently, Delphi has 15.7 mmcf/d, or approximately 40 percent of 2011 natural gas sales volumes, hedged at an average floor price of $5.14 per mcf.
Since 2004, Delphi has consistently met its objective of maintaining a minimum cash flow netback of $20.00 per boe with field operating netbacks in excess of $23.00 per boe, resulting in strong recycle ratios when coupled with capital efficient reserve additions. In 2009, the Company achieved record low finding and development costs of $9.21 per boe, resulting in a recycle ratio of 2.6.
To offset a declining cash contribution from the Company’s risk management program, Delphi has focused on increasing its liquids sales volume and reducing cash costs to maintain a cash netback of approximately $20.00 per boe.
The Company’s efforts to increase its light oil and NGL production mix since 2008 combined with successful cost reduction initiatives is having a positive affect on maintaining robust netbacks. The Company’s planned 2011 capital program of $70.0 to $80.0 million will focus on its growing inventory of light oil and liquids-rich natural gas projects. The capital program is expected to be funded from cash flow and the expanded credit facility. Natural gas production is expected to remain relatively flat from 2010 levels with the 2011 growth coming primarily from light oil and NGL production. Light oil and NGL production is forecast to grow 50 percent to average between 2,300 to 2,500 bbls/d or 27 percent of total forecast corporate production. Total production for 2011 is forecast to grow approximately 12 percent, averaging 8,800 to 9,200 boe/d.
Delphi selected its $37.0 to $40.0 million first half 2011 capital program from an identified inventory in excess of $250.0 million. The planned winter drilling program contemplates the drilling of fifteen wells (11.2 net) consisting of six horizontal light oil wells (4.1 net) and nine vertical, liquids-rich natural gas wells (7.1 net).
The Company’s 2011 cash flow forecast of $63.0 million to $67.0 million is based on an average AECO price of $4.00 per mcf and a WTI price of U.S. $85.00 per barrel. As in prior years, the Company’s risk management program provides stability to the Company’s cash flow, ensuring a defined level of capital spending. For 2011, the Company has approximately 40 percent of its natural gas production hedged at an average floor price of $5.14 per mcf.
The Company looks forward to providing further updates as the winter drilling program progresses.
Delphi Energy is a Calgary-based company that explores, develops and produces oil and natural gas in Western Canada. The Company is managed by a proven technical team. Delphi trades on the Toronto Stock Exchange under the symbol DEE.
FOR FURTHER INFORMATION PLEASE CONTACT:
DELPHI ENERGY CORP.
300, 500 – 4 Avenue S.W.
Calgary, Alberta
T2P 2V6
Telephone: (403) 265-6171
Facsimile: (403) 265-6207
Email: info@delphienergy.ca
Website: http://www.delphienergy.ca/
DAVID J. REID
President & CEO
BRIAN P. KOHLHAMMER
V.P. Finance & CFO
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