TSX Venture Exchange: PRY
CALGARY,
Sept. 10, 2013 /CNW/ - Pinecrest
Energy Inc. ("Pinecrest" or the "Company") announces that its Board
of Directors has approved revisions to the Company's 2013 capital
budget.
STRATEGIC RATIONALE
In its first three years, Pinecrest has
successfully built an attractive high netback reserve, production
and cash flow base and a large operated drilling inventory focused
on the Slave Point light oil resource in the Greater Red Earth area
of Alberta.
The focus for 2013 has been on improving capital
efficiencies and implementing the Company's first seven operated
waterflood programs. Success has been achieved on both
initiatives. Online well costs have been reduced by over
$1 million per well and four of the
seven scheduled waterfloods have been commissioned with three more
scheduled for implementation early in October. To date,
waterflood results have been encouraging with production rates on
the first two schemes increasing by three times over the primary
production rate.
During this period, Pinecrest's share price has
underperformed the peer group on all metrics. As a result,
Pinecrest's Board and management believe the true value of the
Company is not being recognized. The Board and management
believe that in order to succeed in the current business
environment, changes to the Company's business plan are necessary
to create a long term, sustainable low decline asset base.
NEW BUSINESS MODEL
Pinecrest has assembled a focused high netback
light oil reserve and opportunity base characterized by a best
estimate of over 580 million of DOIIP(1) with a very low
recovery factor to date of approximately four percent. This
asset base has significant upside potential through the
implementation of waterfloods complemented with low risk infill
drilling. Maintaining a high growth rate on this asset
however, has proven to be very difficult due to weather related
seasonal access.
Given the early and consistent response to water
injection at the Company's initial waterflood programs and in
response to the current business environment, the Board and
management of Pinecrest have determined that moving towards a more
sustainable business model of modest growth is the best strategy
for creating shareholder value with the objective of producing a
stable, low decline production base with a long reserve life.
This change to our business model is established on the following
goals and principles:
- convert its large oil in place resource to reserves on the most
cost efficient basis;
- concentrate on water-flood implementation (as capital costs
associated with waterflooding are a fraction of those associated
with primary production and drilling);
- target low risk drilling locations that accelerate the
implementation of future waterflood schemes;
- continually focus on improving drilling and completion capital
efficiencies; and
- prudently manage the balance sheet by slowing the pace of
capital spending to correspond with cash flow.
The new business model will leverage off of the
expenditures of previous years to cost effectively add incremental
reserves and production. Drilling will be targeted at growing
the Company's inventory of waterflood candidates furthering the
implementation of additional waterflood schemes. This
strategy is designed to allow the Company to continue to transition
from a high decline production base to a more stable, lower decline
asset base.
This reduction in corporate decline rates
combined with improving capital efficiencies and a focus on
operating cost reductions is designed to allow the Company to grow
production while spending significantly less capital in the
upcoming years. With the anticipated response of the
remaining five operated 2013 waterflood programs, the Company
expects to generate cash in excess of capital requirements in the
2014 calendar year.
The resulting new budget for the 2013 calendar
year is: $80MM of total capital, 14-15 wells drilled,
implementation of six waterflood programs and a 3,100-3,400 boe per
day exit production rate. This range incorporates the loss of
330 bbls per day of production resulting from converting oil wells
to water injection and is dependent on the timing of waterflood
response. Year-end net debt is projected to be between
$120 million and $125 million.
Notes about DOIIP
Disclosure
Sproule & Associates Ltd. ("Sproule")
conducted an assessment effective as of January 31, 2012 (the "Assessment") of
Pinecrest's Contingent Slave Point Oil Resources which included a
best estimate of of Discovered Oil Initially-in-Place as presented
above. Sproule assigned the Company a contingent resource Best
Estimate of 67.5 million barrels ("mmbbls") using, a 13% recovery
factor and based on a drilling density of 4 wells per section. The
Assessment was prepared in accordance with definitions, standards
and procedures contained in the Canadian Oil and Gas Evaluation
Handbook and National Instrument 51-101. Pursuant to the
Assessment, as at January 31, 2012,
9.1 mmbbl of oil was classified as cumulative production and proved
plus probable reserves. The remaining DOIIP, other than cumulative
production, reserves and contingent resources, approximately 503.3
mmbbls, have been categorized as unrecoverable. The following
provides additional information about the resource estimates
presented herein:
(1) |
"Discovered Oil Initially In Place" or "DOIIP"
means that quantity of petroleum that is estimated, as of a given
date, to be contained in known accumulations prior to
production. The recoverable portion of discovered petroleum
initially in place includes production, reserves and contingent
resources. There is no certainty that it will be commercially
viable to produce any portion of these resources.
"Contingent Oil Resources" are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from
known accumulations using established technology or technology
under development, but which are not currently considered to be
commercially recoverable due to one or more contingencies.
Contingencies may include factors such as distance from existing
production, economic, legal, environmental, political, and
regulatory matters or a lack of markets. It is also appropriate to
classify as contingent resources the estimated discovered
recoverable quantities associated with a project in the early
evaluation stage.
"Best Estimate" is considered to be the best estimate of the
quantity that will actually be recovered. It is equally likely that
the actual remaining quantities recovered will be greater or less
than the best estimate. If probabilistic methods are used, there
should be at least a 50 percent probability (P50) that the
quantities actually recovered will equal or exceed the best
estimate.
"Cumulative Production" is the cumulative quantity of
petroleum that has been recovered at a given date.
"Unrecoverable" is that portion of DOIIP which is estimated,
as of a given date, not to be recoverable by future development
projects. A portion of these quantities may become recoverable in
the future as commercial circumstances change or technological
developments occur; the remaining portion may never be recovered
due to the physical/chemical constraints represented by subsurface
interaction of fluids and reservoir rocks. |
Advisory
The information in this press release
contains certain forward-looking statements. These statements
relate to future events or our future performance. All statements
other than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always,
identified by the use of words such as "seek", "anticipate",
"plan", "continue", "estimate", "expect", "may", "will", "project",
"predict", "potential", "designed to", "targeting", "intend",
"could", "might", "should", "believe", "would" and similar
expressions. In particular, forward looking statements in this
press release includes, but is not limited to: Pinecrest's revised
capital program for 2013 and its business objectives, , the effects
of implementing waterfloods, the generation of free cash flow in
2014 from waterflooded wells; the continued success of improving
capital efficiencies, the Company's ability to reduce corporate
decline rates, the number of wells that are suitable for
waterflooding, the quantity of reserves, and projections of market
prices and costs. These statements involve substantial known and
unknown risks and uncertainties, certain of which are beyond
Pinecrest's control, including: the impact of general economic
conditions; industry conditions; regulatory approvals and permits;
changes in laws and regulations including the adoption of new
environmental laws and regulations and changes in how they are
interpreted and enforced; fluctuations in commodity prices and
foreign exchange and interest rates; stock market volatility and
market valuations; volatility in market prices for oil and natural
gas; liabilities inherent in oil and natural gas operations;
uncertainties associated with estimating oil and natural gas
reserves; competition for, among other things, capital,
acquisitions, of reserves, undeveloped lands and skilled personnel;
incorrect assessments of the value of acquisitions; changes in
income tax laws or changes in tax laws and incentive programs
relating to the oil and gas industry; geological, technical,
drilling and processing problems and other difficulties in
producing petroleum reserves. Pinecrest's actual results,
performance or achievement could differ materially from those
expressed in, or implied by, such 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 that Pinecrest will
derive from them. Except as required by law, Pinecrest undertakes
no obligation to publicly update or revise any forward-looking
statements.
Statements relating to "reserves" or
"resources" are deemed to be forward-looking statements, as they
involve the implied assessment, based on certain estimates and
assumptions, that the resources or reserves described can be
profitably produced in the future.
Barrels of Oil Equivalent ("boe") may be
misleading, particularly if used in isolation. A boe conversion
ratio of 6MCF:1bbl is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. Given that the value
ratio based on the current price of crude oil as compared to
natural gas is significantly different from the energy equivalency
of 6:1,utilizing a conversion on a 6:1 basis may be misleading as
an indication of value.
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this news release.
SOURCE Pinecrest Energy Inc.