- Published: 09 February 2012
- Written by Editor
Spartan Oil Corp. Announces Year End 2011 Reserves, 2012 Capital Program and Provides Operational Update
Spartan Oil Corp. ("Spartan" or the "Company") (TSX:STO.TO - News), is pleased to provide the results of its 2011 year end reserve update, Spartan's 2012 capital program and an operational update.
2011 YEAR END RESERVE HIGHLIGHTS
The Company enjoyed a substantial increase in reserves, production and net asset value as a result of a successful drilling program in 2011. Highlights include:
-- Total Proved plus Probable ("P+P") reserves as at December 31, 2011 of
21.4 million boe ("Mmboe") (87% oil and liquids); this represents an
increase of over 18.4 Mmboe from June of 2011 when the Company commenced
operations;
-- Total Proved reserves as at December 31, 2011 of 14.8 Mmboe (87% oil and
liquids);
-- Net present value before tax 10% (PVBT10) of P+P reserves of $339
million;
-- Achieved finding and development costs (including revisions) of $16.72
on a P+P basis and $23.54 on a Proved basis (including undiscounted
future development capital);
-- Based upon an estimated fourth quarter 2011 average corporate netback of
$54.32 per boe, Spartan achieved a recycle ratio of 3.2 times (based on
P+P reserves);
-- Proved reserve life index of 26.6 years based on annualized fourth
quarter 2011 production; and
-- The Company's estimated net asset value per diluted share (calculated on
PVBT10 values) increased to $5.09 from $1.49 in June, 2011 (see below
for full calculation).
The independent assessment of the Company's reserves prepared by Sproule Associates Limited ("Sproule") dated December 31, 2011 is summarized as follows (using forecast prices and costs):
Summary of Oil and Gas Reserves (1), (2), (3), (4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural Gas Barrels of
(associated & Natural Gas Oil
Oil non-associated) Liquids Equivalent
Gross Gross Gross Gross
----------------------------------------------------------------------------
(mbbl) (mmcf) (mbbl) (mboe)
Proved
Developed Producing 1,354.3 3,958 343.0 2,357.0
Developed Non-
Producing 308.5 239 21.7 370.1
Undeveloped 10,069.6 7,625 741.1 12,081.5
----------------------------------------------------------------------------
Total Proved 11,732.3 11,822 1,105.9 14,808.6
Probable 5,343.5 4927 457.8 6,622.4
----------------------------------------------------------------------------
Total Proved plus
Probable 17,075.8 16,749 1,563.6 21,431.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Summary of Net Present Value of Future Net Revenue ($000s) (1), (2), (3),
(4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Before Income Taxes Discounted at (%/year)
----------------------------------------------------------------------------
@0.0% @5.0% @10.0%
Proved
Developed Producing 93,648 77,255 66,191
Developed Non-Producing 21,304 16,704 13,903
Undeveloped 415,720 247,346 153,473
----------------------------------------------------------------------------
Total Proved 530,673 341,305 233,567
Probable 435,593 195,812 104,970
----------------------------------------------------------------------------
Total Proved plus Probable 966,266 537,117 338,537
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The tables above are a summary of the oil, NGL and natural gas reserves
of the Company and the net present value of future net revenue
attributable to such reserves as evaluated in the Sproule Report based
on forecast price and cost assumptions. The tables summarize the data
contained in the Sproule Report and as a result may contain slightly
different numbers than such report due to rounding. Also due to
rounding, certain columns may not add exactly.
(2) Gross reserves means the total working interest (operating or non-
operating) share of remaining recoverable reserves owned by Spartan
before deductions of royalties payable to others and without including
any royalty interests owned by Spartan.
(3) Based on Sproule's December 31, 2011 escalated price forecast.
(4) The net present value of future net revenue attributable to the
Company's reserves is stated without provision for interest costs and
general and administrative costs, but after providing for estimated
royalties, production costs, development costs, other income, future
capital expenditures, and well abandonment costs for only those wells
assigned reserves by Sproule. It should not be assumed that the
undiscounted or discounted net present value of future net revenue
attributable to the Company's reserves estimated by Sproule represent
the fair market value of those reserves. Other assumptions and
qualifications relating to costs, prices for future production and other
matters are summarized herein. The recovery and reserve estimates of the
Company's oil, NGL and natural gas reserves provided herein are
estimates only and there is no guarantee that the estimated reserves
will be recovered. Actual reserves may be greater than or less than the
estimates provided herein.
The Company's Pembina Keystone area represents a significant portion of the overall reserves and net present value of the Company. In total, Sproule booked 21.3 Mmboe of reserves to the Company's Keystone properties, representing 98.4% of the Company's overall 2011 reserve bookings. On a net present value basis, the bookings attributable to the Company's Keystone properties accounts for 99.4% of the net present value before tax (PVBT10) of the Company's overall reserve base as reflected in the Sproule report.
Reserve assignments to the Keystone Cardium Unit No. 2 ("PKCU2") (STO WI 97.12%) were 17.3 Mmboe, representing approximately 81% of the overall corporate reserve base as at December 31, 2011. On a per well basis, Sproule assigned an average of 113 Mbbl of reserves (oil) to undrilled locations in PKCU2. On a net present value basis, the reserves assigned to PKCU2 represented 76% of the net present value before tax (PVBT10) of the Company's reserves.
Spartan's estimate of original oil in place ("OOIP") for the Company's Keystone properties is 459 million barrels ("Mmbbl"), of which 332 MMbbl is attributable to PKCU2. The recovery factor ("RF") to date in PKCU2 is approximately 6.1%. The reserves assigned by Sproule to PKCU2 as at December 31, 2011 represent an incremental RF of 4.3% (for a total estimated RF of 10.4% on primary production). Spartan estimates that an ultimate RF of 15% is attainable in PKCU2 on primary production.
NET ASSET VALUE
Spartan's estimate of its net asset value per share is $5.26 (basic) and $5.09 (diluted) as at December 31, 2011. A detailed calculation of net asset value is provided below:
NAV/Share(3) NAV/Share(3)
$ (basic) (diluted)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Working capital $27,000,000 $0.38 $0.36
BT PV10 reserves (P+P)(1) $338,537,000 $4.83 $4.49
Undeveloped land(2) $3,442,100 $0.05 $0.05
Option proceeds $15,172,500 $ - $0.20
----------------------------------------------------------------------------
Net Asset Value (Dec 31/11) $384,151,600 $5.26 $5.09
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) December 31, 2011 independent evaluation by Sproule.
(2) Internal evaluation of SE Sask undeveloped lands (net WI) at $100 per
acre.
(3) 70,158,529 common shares (basic); 75,408,529 common shares (diluted).
2011 FOURTH QUARTER OPERATIONAL HIGHLIGHTS
The Company has not released its 2011 audited financial results and accordingly the numbers included in the calculations below are currently estimates and unaudited.
-- The Company's fourth quarter 2011 average production exceeded Spartan's
year end exit guidance of 1,500 boe/d;
-- The Company's exit rate production was in excess of 1,600 boe/d (82% oil
and liquids);
-- Fourth quarter estimated cash flow was $7.9 million ($0.11 per basic
share);
-- Operating netback in the fourth quarter was $58.51 per boe and corporate
netback was $54.32 per boe; and
-- Estimated positive working capital as at December 31, 2011 was $27
million.
OPERATIONAL UPDATE
As demonstrated by Spartan's year end reserve report, the Company's Keystone properties in central Alberta offer investors exposure to a world class resource which is characterized by a significant inventory of low risk, repeatable drilling opportunities that offer a high degree of predictability and robust economics.
Since commencing operations on June 1, 2011, Spartan has drilled a total of 16 (13.0 net) horizontal wells and participated in an additional 4 (1.1 net) horizontal wells targeting Cardium oil at Spartan's Keystone properties. Spartan currently has a total of 18 (11.8 net) Cardium horizontal oil wells producing in the Keystone area and an additional 5 (2.9 net) Cardium horizontal wells awaiting completion and/or tie-in. We are very encouraged by the results we have seen to date at Keystone, having achieved a 100% success rate on our drilling program.
Initial rates continue to meet or exceed Spartan's type curves. In the December 31, 2011 reserve report, Sproule typically utilized two type curves in evaluating the Cardium light oil resource play on Spartan's Keystone properties. Spartan also utilizes a third internal type curve with respect to the PCKU2 property which represents a hybrid of the Sproule type curves. The IP(30) rate and EUR profile for these type wells is as follows:
Spartan Average IP30 of
Internal STO interest
Type 2 Type 3 (PKCU2) wells
----------------------------------------------------------------------------
IP30 (bbl/d) 105 157 120 177
EUR (2P reserves) (mbbls) 95 140 125 --
Spartan currently has a total of 15 wells that have at least 30 days of production. The average IP30 for these wells is 177 bbl/d (oil). Included in this number are 4 wells that the Company drilled in the interior of PKCU2. These latter 4 wells have achieved an average IP30 rate of 107 bbl/d, and a median IP30 rate of 116 bbl/d. This is in line with our expectations for the interior of the Unit, where Spartan expects to see modest initial production rates and lower declines than is typical in horizontal wells drilled into tighter reservoir on the exterior of the Unit. Based upon the technical work and drilling results we have observed to date, Spartan believes that our internal type well described in the above table is achievable and repeatable in the interior of PKCU2 over a representative sample size.
A comparison of the Sproule area type curves and the Spartan internal type curve for PKCU2, together with the economics associated with each is below.
Sproule Sproule STO Unit 2
Cardium Cardium Type Well
Type 2 Type 3 (PKCU2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
IP30 (bopd) (1) 105 157 120
EUR (Mmbbl) (1) 95 140 125
Capital ($MM) (1) 2.5 2.5 2.5
NPV BT10 ($MM) (1) $1.5 $3.4 $2.5
F&D ($/boe) $21.94 $14.53 $16.67
Operating netback ($/bbl) (2) $68.00 $68.00 $68.00
Recycle ratio 3.1x 4.7x 4.1x
Rate of return (BT%) 33% 90% 54%
Payout (yrs) 2.8 1.2 1.8
Breakeven price ($/bbl) (3) $62.50 $44.00 $50.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) IP30, EUR and capital all shown on a gross basis. NPV shown on a WI
basis (97.12% in PKCU2).
(2) Netback based on Sproule Jan 1, 2012 pricing.
(3) Breakeven price calculated using AECO $3.50 for natural gas.
In southeast Saskatchewan, the Company has remained active in both its core areas of Torquay and Ceylon. At Torquay, to date the Company drilled 3 (1.5 net) Midale wells. All of the wells have been successfully completed and are now on production.
At Ceylon, the Company drilled its first horizontal well (0.5 net) as a follow up to its recent Bakken discovery well. The well is currently being completed.
Spartan has approximately 54 net sections of undeveloped land in southeast Saskatchewan that is prospective for Bakken and/or Mississippian light oil targets. Approximately 60% of this acreage is on the southern trend between Viewfield and the U.S. border, where significant industry activity is currently taking place.
CREDIT FACILITY UPDATE
Based upon the 2011 year end reserve report, the Company's lender has provided an indicative term sheet providing for an increase in the Company's line of credit to $50 million, subject to final due diligence approval by the bank.
2012 CAPITAL BUDGET
The Company has set an initial capital budget of $80.2 million. This budget will be reviewed, and potentially revised, on a quarterly basis depending on results and commodity prices.
Building on the success Spartan has enjoyed through 2011, the focus of Spartan's 2012 capital program will remain on the Cardium with targeted deployment of capital in southeast Saskatchewan to advance its projects at Torquay and Ceylon. Spartan expects to drill up to 30 (28.2 net) Cardium horizontal wells during 2012. We are continuing to work to reduce costs, and the average drill and complete costs for Spartan's Cardium horizontal wells is expected to average $2.0 million for 2012.
In southeast Saskatchewan, Spartan expects to drill up to 4 (2.0 net) wells at our Torquay property. The Company's partner will fund 90% of the capital for 3 (1.5 net) of these wells, up to a maximum of $4.5 million, following which all costs will be split equally. At Ceylon, the Company expects to drill up to 3 (1.5 net) wells as a follow up to its recent Bakken light oil discovery.
Spartan expects its 2012 budget to yield average production of in the range of 2,000 to 2,200 boe/d (83% oil and liquids) and exit production of between 2,600 to 2,800 boe/d (84% oil and liquids). Cash flow is anticipated to be between $38.3 to $42.7 million. Key budget assumptions include:
Crude oil = WTI US $90.00 per barrel
Natural gas = Cdn. $2.75 per mcf
Exchange rate = US/Cdn. $0.99
Operating costs = $11.58 per boe
Royalties = $8.50 per boe
Operating netback = $52.64 per boe
Net G&A = $1.60 per boe
Corporate netback = $51.04
Spartan expects to finance its 2012 budget entirely from existing cash, internal cash flow and debt. Under the proposed budget, Spartan will exit 2012 with between $13.1 to $17.4 million of net debt (representing 0.31x to 0.45x estimated 2012 cash flow).
Spartan Oil Corp.
The Company is engaged in the business of acquiring crude oil and natural gas properties and exploring for, developing and producing oil and natural gas in western Canada. Spartan is uniquely positioned with a significant position in two of the leading oil resource plays in western Canada, being the Cardium light oil play at Pembina in central Alberta and the Bakken light oil resource play in southeast Saskatchewan.
READER ADVISORY
This press release contains certain forward-looking statements (forecasts) under applicable securities laws relating to future events or future performance. Forward-looking statements are necessarily based upon assumptions and judgements with respect to the future including, but not limited to, the outlook for commodity markets and capital markets, the performance of producing wells and reservoirs, well development and operating performance, general economic and business conditions, weather, the regulatory and legal environment and other risks associated with oil and gas operations. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "projects", "plans", "anticipates" and similar expressions. These statements represent management's expectations or beliefs concerning, among other things, future operating results and various components thereof affecting the economic performance of Spartan. Undue reliance should not be placed on these forward-looking statements which are based upon management's assumptions and are subject to known and unknown risks and uncertainties, including the business risks discussed above, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted.
In the interest of providing Spartan shareholders and potential investors with information regarding the Company, including management's assessment of Spartan's future plans and operation, certain statements throughout this press release constitute forward looking statements. All forward-looking statements are based on the Company's beliefs and assumptions based on information available at the time the assumption was made. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward looking statements. By its nature, such forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. Spartan believes the expectations reflected in those forward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward looking statements contained throughout this press release should not be unduly relied upon. These statements speak only as of the date specified in the statements.
The Company's actual results could differ materially from those anticipated in the forward looking statements contained throughout this press release.
Calculation of finding and development costs is based on estimates of capital spent in the field during the year ended December 31, 2011 and is unaudited and therefore subject to change.
Spartan's calculation of OOIP and RF are estimates only. Calculations of OOIP are inherently subjective and can be affected materially by normal assumptions relating to reservoir and fluid properties. Actual OOIP and RF may be greater or less than the estimates provided herein.
Except as required by law, Spartan does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise.
Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil is based on an energy conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead. All boe conversions in this press release are derived by converting natural gas to oil in the ratio of six thousand cubic feet of natural gas to one barrel of oil.
Contact:
Richard F. McHardy
Spartan Oil Corp.
President & CEO
(403) 457-4006
(403) 457-4028 (FAX)
Michelle A. Wiggins
Spartan Oil Corp.
Vice President Finance & CFO
(403) 457-4006
(403) 457-4028 (FAX)
1400, 606 - 4th Street SW
Spartan Oil Corp.
Calgary, Alberta
www.spartanoil.ca
