- Published: 14 August 2012
- Written by Editor
Spartan Oil Corp. Announces Record Production and Cash Flow in the Second Quarter of 2012
Spartan Oil Corp. ("Spartan" or the "Company") (TSX:STO), is pleased to report its financial and operating results for the three and six months ended June 30, 2012. Selected financial and operational information is outlined below and should be read in conjunction with Spartan's interim financial statements and the related management discussion and analysis which are available for review at www.sedar.com or on the Company's website at www.spartanoil.ca.
ACHIEVEMENTS AND HIGHLIGHTS
The second quarter of 2012 represented an important milestone for Spartan in that it marked the Company's first full year of operations. During that year, Spartan has grown from a company with a small production base characterized by high operating costs into a high growth company with some of the lowest operating costs in its peer group.
All of this growth has been achieved through the drill bit. From June, 2011 to June, 2012, the Company has drilled 34 (30.6 net) horizontal wells and participated in an additional 4 (1.0 net) horizontal wells targeting Cardium light oil at Spartan's Keystone property with a 100% success rate. During this period, Spartan has increased production by 358% and production per share has increased by 177%.
Highlights for the second quarter include:
-- Drilled 11 (10.7 net) wells in Spartan's Keystone core area, with a 100%
success rate. All of these wells are expected to come on production in
the third quarter of 2012.
-- Achieved record quarterly cash flow from operations of $12.1 million, an
increase of 17% from $10.3 million in the first quarter of 2012 and an
increase of 48% from $8.2 million in the fourth quarter of 2011.
-- Increased production by 45% to 2,750 boe per day (83% oil and liquids)
from an average of 1,903 boe per day in the first quarter of 2012.
-- Achieved net earnings of $4.6 million; Spartan's fourth consecutive
quarter of positive earnings.
-- Reduced operating costs (including transportation) by 15% to $8.32 per
boe in the second quarter 2012, as compared to $9.83 per boe in the
first quarter of 2012.
FINANCIAL AND OPERATING SUMMARY:
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Three Months Three Months Six Months
Ended Ended Ended
March 31, 2012 June 30, 2012 June 30, 2012
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Financial
Total revenue $ 13,151,031 $ 17,377,709 $ 30,528,740
Net earnings $ 4,764,722 $ 4,600,855 $ 9,365,577
per share - basic $ 0.06 $ 0.06 $ 0.12
per share - diluted $ 0.06 $ 0.05 $ 0.11
Cash flow from operations (1) $ 10,326,237 $ 12,147,162 $ 22,473,399
per share - basic $ 0.14 $ 0.15 $ 0.29
per share - diluted $ 0.13 $ 0.14 $ 0.27
Capital expenditures $ 30,765,466 $ 21,956,270 $ 52,721,736
Working capital surplus $ 60,602,672 $ 50,818,931 $ 50,818,931
Bank loan $ nil $ nil $ nil
Bank facility $ 50,000,000 $ 50,000,000 $ 50,000,000
Weighted average shares
outstanding
Basic 73,605,193 83,227,129 78,416,161
Diluted 79,415,975 88,918,392 83,976,088
Operating (2)
Oil equivalent (6:1)
Barrels of oil equivalent
(000's) 173.3 250.3 423.5
Barrels of oil equivalent per
day 1,903 2,750 2,327
Average selling price ($CDN
per boe) $ 75.03 $ 68.60 $ 71.23
Interest income ($CDN per
boe) $ 0.87 $ 0.83 $ 0.85
Royalties $ 6.02 $ 6.58 $ 6.35
Transportation costs (per
boe) $ 0.23 $ 0.18 $ 0.20
Operating costs (per boe) $ 9.60 $ 8.14 $ 8.74
Operating netback $ 60.05 $ 54.53 $ 56.79
G&A (cash - per boe) $ 0.43 $ 1.99 $ 1.35
Interest expense ($ - per
boe) $ 0.04 $ 0.24 $ 0.16
Corporate netback $ 59.58 $ 52.30 $ 55.28
Oil production
Barrels (000's) 134.7 195.8 330.5
Barrels per day 1,480 2,151 1,816
Average selling price ($CDN
per barrel) $ 87.88 $ 81.09 $ 83.86
Gas production
Thousand cubic feet (000's) 175.4 262.5 437.9
Thousand cubic feet per day
(mcf/d) 1,927 2,885 2,406
Average selling price ($CDN
per mcf) $ 2.48 $ 2.17 $ 2.29
NGL production
Barrels (000's) 9.3 10.8 20.1
Barrels per day 102 118 110
Average selling price ($CDN
per barrel) $ 77.90 $ 67.45 $ 72.30
(1) Cash flow from operations is a non-GAAP measurement. See MD&A.
(2) All barrels of oil equivalent conversions use 6 mcf to 1 barrel of oil.
Crude oil pricing has experienced significant volatility in the first half of 2012. From a high of US$106 per barrel in March, WTI prices retreated to as low as US$82 per barrel in June. On a quarterly basis, WTI pricing averaged US$93.51 in the second quarter, a decrease of approximately 9% as compared to the first quarter. Edmonton Par pricing has not experienced as much volatility, as the decrease in crude pricing from March to June was largely offset by narrowing differentials on Canadian light oil. On a quarterly basis, Edmonton Par pricing decreased from an average of $92.57 in the first quarter to an average of $84.20 in the second quarter. For the six months ended June 30, 2012, Edmonton Par crude prices have averaged $88.39 per barrel.
Net capital expenditures (excluding non cash items and capitalized G&A) during the second quarter of 2012 were $21.1 million. Of this amount, the Company spent $17.5 million on drilling and completions, $3.0 million on equipping, tie-ins, pipelines and facilities and $0.5 million on land and seismic.
OPERATIONS UPDATE:
Keystone Cardium
Despite wet weather and extended road bans, the Company was able to drill continuously throughout breakup at its Keystone property. Spartan drilled or participated in 11 (10.7) net wells in Pembina during the second quarter of 2012. In addition, the Company drilled 3 (1.5 net) wells in southeast Saskatchewan. From June, 2011 to June, 2012, Spartan has drilled a total of 34 (30.6 net) horizontal wells and participated in an additional 4 (1.0 net) horizontal wells targeting Cardium light oil at Spartan's Keystone property with a 100% success rate.
Wet weather and a minor landowner dispute impacted the timing of bringing new wells on production during the second quarter. A total of 6 (5.9 net) wells were brought on production in the second quarter, leaving 12 (11.7 net) drilled wells in inventory at the end of the second quarter. In spite of these delays, the Company was able to increase production during the second quarter by 45% to 2,750 boe/d (83% oil and liquids), as compared to the first quarter of 2012 when production averaged 1,903 boe/d.
Spartan is encouraged by the drilling results in Keystone and initial rates continue to meet or exceed Spartan's internal type curve. With a full year of operations completed, management's confidence in the Keystone asset continues to grow. The Company now has a total of 29 horizontal wells at Keystone that have at least 30 days of production. The average IP30 oil rate for these wells is 172 bbl/d. Included in this number are 14 wells that the Company drilled in the interior of Unit 2. The Unit 2 wells have achieved an average IP30 oil rate of 128 bbl/d. A summary of results for the Cardium horizontal wells that Spartan has drilled or has otherwise participated in at Keystone is as follows:
Days on Spartan Internal Average Rate of Number of
Production Unrisked Type Curve STO Interest Wells Wells
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(bbl/d) (bbl/d)
1 - 30 120 172 29
31 - 60 99 144 29
61 - 90 84 127 29
91 - 120 72 111 27
121 - 150 64 97 23
151 - 180 57 87 18
Southeast Saskatchewan (Conventional and Bakken)
Spartan drilled 3 (1.5 net) wells in southeast Saskatchewan during the second quarter. Two (1.0 net) of these wells were at the Company's Torquay property and were funded 90% by Spartan's partner. Spartan has identified numerous prospective oil targets in both of the wells and is expecting to complete the wells during the third quarter.
At Ceylon, Spartan drilled one (0.5 net) exploratory vertical well targeting Bakken light oil. To date in 2012, Spartan has drilled two (1.0 net) exploratory vertical wells at Ceylon and one (0.5 net) horizontal well. Both vertical wells encountered Bakken reservoir, but were determined to be uneconomic. One was abandoned and the other is awaiting completion of an uphole zone. Each of the wells was drilled into separate geological features as identified on the Company's proprietary 3D seismic survey than the existing Bakken discovery well (the "11-31 well"). Spartan has one (0.5 net) remaining exploratory vertical well planned at Ceylon that will also target a separate geological feature than the 11-31 well. The horizontal well was drilled into the same geological feature as the 11-31 well, however, Spartan experienced drilling difficulties in the lateral portion of the horizontal well which resulted in the well being cut short. The lateral was drilled primarily out of zone and down dip of the 11-31 well. Spartan has identified a number of additional development locations at Ceylon in the same geological feature as the 11-31 well.
Overall, the drilling results for Ceylon are on par with Spartan's expectations for the exploration prospect. Further drilling is required to properly delineate the resource potential on Spartan's lands. The Company's approach to exploration in southeast Saskatchewan is to target prospects that have large resource potential and which require minimal expenditures of capital to pursue. Spartan is budgeting to spend approximately $5.0 million in southeast Saskatchewan during 2012. This includes expenditures on land and seismic, Bakken exploration drilling prospects at Spartan's Ceylon property and conventional targets on other Company lands in southeast Saskatchewan and represents approximately 4% of Spartan's overall 2012 capital budget.
Despite recent drilling results at Ceylon, Spartan is still encouraged by the resource potential that the area offers. The Company successfully added to its undeveloped land holdings in the greater Ceylon area during the second quarter of 2012. In total, the Company has a total of 30,607 (23,679 net) acres of undeveloped land in the greater Ceylon area that are prospective for multi-zone targets including Red River, Birdbear, Bakken and Midale. Spartan expects to drill at least one well on these new lands prior to the end of this year.
OUTLOOK - POSITIONED FOR CONTINUED GROWTH
In just 13 months, management has positioned Spartan as a high growth, low cost producer with significant low risk Cardium oil development upside at the Company's Keystone property and exploration prospects in southeast Saskatchewan.
With the achievement of record production and cash flow in the second quarter, the stage is set for continued growth through the remainder of 2012 and beyond. Through the first six months of 2012, the Company has outperformed its budget assumptions for production, cash flow, realized pricing, operating costs and netbacks. Management is committed to delivering top quartile performance and creating value for shareholders by growing reserves, cash flow and production on a per share basis.
Although production delays experienced in the second quarter are expected to impact average production levels in the third quarter, the Company remains well positioned to meet or exceed its stated 2012 average production rate of 2,600 - 2,800 boe/d (83% oil and liquids) and exit production rate of 4,300 - 4,500 boe/d (84% oil and liquids). Spartan expects to be caught up on completion and tie-in operations by the end of the third quarter.
The Company now has two rigs drilling continuously in Keystone and we expect to drill an additional 31 (30.1 net) Cardium horizontal wells from July through to the end of 2012. In total, Spartan is budgeting to drill 49 (46.6 net) Cardium horizontal wells during 2012. The Company has an inventory of 287 (234 net) potential Cardium locations at its Keystone property, assuming development at six wells per section.
Current production is approximately 2,400 boe/d (83 % oil and liquids) based on field estimates.
Spartan continues to enjoy one of the strongest balance sheets in the junior oil and gas peer group. As at June 30, 2012, the Company had positive working capital of $50.8 million and no debt. This financial flexibility has positioned Spartan to thrive at a time when many other companies are reducing their 2012 capital programs due to decreasing cash flows and stressed balance sheets. Spartan is actively looking for additional drilling and acquisition opportunities that will enable Spartan to use its balance sheet to the advantage of its shareholders.
Spartan is pleased to announce that Thomas Boreen has joined the Company as Chief Geologist. Mr. Boreen is an accomplished geologist who has his Ph.D. in carbonate sedimentology from Queen's University. He has extensive experience in many areas of Alberta and Saskatchewan and has worked previously with Home Oil, Anderson Exploration, Shell Canada, Apache Canada Ltd. and Suncor. Mr. Boreen was instrumental in the high-impact discovery of the Ladyfern Slave Point gas field in northeastern British Columbia when he was member of Shell Canada exploration team.
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.
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.
Contacts:
Spartan Oil Corp.
Richard F. McHardy
President & CEO
(403) 457-4006
(403) 457-4028 (FAX)
Spartan Oil Corp.
Michelle Wiggins
Vice President Finance & CFO
(403) 457-4006
(403) 457-4028 (FAX)
Spartan Oil Corp.
1400, 606 - 4th Street SW
Calgary, Alberta
(403) 457-4006
(403) 457-4028 (FAX)
