Raging River Exploration Inc. (“
Raging River” or
the “
Company”) (TSX:RRX) announces that the
Company’s board of directors has approved a 2018 capital budget of
$335 million.
The budgeted capital expenditures are expected
to increase annual average production in 2018 to 24,500 boe/d (92%
oil) with fourth quarter 2018 production estimated at 26,000 boe/d
representing a fourth quarter to fourth quarter production per
share growth of greater than 11%. The 2018 capital budget
approximates forecasted funds flow from operations of $328 million
at WTI of US$55/bbl. The commitment to the protection of the
balance sheet remains paramount with expected exit 2018 net debt of
approximately $301 million representing a 0.9 times net debt to
forecasted 2018 funds flow from operations.
The overarching goals of Raging River’s 2018
capital program are to continue to deliver strong production per
share growth from our Viking assets while utilizing an appropriate
amount of free cash flow to fund the ongoing delineation of our
early stage, emerging Duvernay light oil prospective lands.
DUVERNAY LIGHT OIL
DISCOVERY
As previously disclosed in the November 9, 2017
press release, Raging River successfully drilled and completed a
Duvernay light oil discovery well (4-11) in the Ferrybank area of
central Alberta. The 4-11 well was drilled and cased to a measured
depth of 4,573 m and included a 2,200 m lateral section in the
upper portion of the Duvernay formation. The 4-11 well was
completed with a slick water, plug and perforate completion design
which included 43 stages over the lateral section. Average
sand placement over the lateral length was approximately 2 tonnes
per meter.
Production testing operations commenced on
November 6, 2017. Although we anticipated that first oil
production would not be seen for several weeks, light oil (38o API)
production was established within the first 24 hours of flow
back. Testing operations were continued through to November
25th, at which point the decision was made to shut-in the well and
equip it with artificial lift and surface facilities to allow gas
conservation and continuous production operations. Over the
first 30 days of production, the well cumulatively produced 5,550
bbls of oil or an average of 185 bbls/d. The well continues
to flow and pump with recent rates over the last 7 days averaging
in excess of 225 bbls/d of light oil. As anticipated, the
well continues to produce at very low gas rates of 50-60 mcf/d
equating to our expected gas oil ratio of 250-300 scf/bbl.
As part of the slick water completion process,
Raging River pumped in excess of 240,000 barrels of water.
Throughout the testing phase and early production history of the
well, water cuts have steadily decreased from 90% to the current
water cut of 62%. To date, approximately 9% of the total load water
pumped into the formation has been recovered. The trend in
decreasing water cuts is very similar to the trends observed in
offsetting wells in the area, in which water cuts moderate over
time as more and more of the load fluid is recovered with expected
stabilization in the 10% to 25% range.
Raging River continues to expand its Duvernay
land base and has added 10 net sections over the last 30 days
increasing our land position to approximately 243,000 acres (380
net sections) in the oil prone portion of the Duvernay.
The results on the 4-11 well to date have
emboldened Raging River’s view on the Duvernay prospectivity in the
Ferrybank area. The initial success has confirmed our initial
geotechnical interpretation as well as exhibiting early stage
production results comparable to (or above) our nearest competitor
wells, 15 miles south of our discovery well. These
results confirm the presence of light oil and the thermal maturity
levels of the Duvernay which provide encouragement to initiate a
process of optimizing drilling and completion techniques to enhance
the economics of this early stage exploration project. Our future
plans will be to execute a methodical delineation plan to further
evaluate our extensive land base.
2017 BUDGET AND OPERATIONS
UPDATE
With the weather cooperating through November
and early December, the Raging River team has been able to execute
our capital program as planned. Both capital spending and
production are anticipated to achieve our November 9, 2017 guidance
levels of $365 million and 22,750 boe/d annual production
average. For the year 2017, Raging River is on track to drill
335 Viking horizontal wells and one Duvernay horizontal well.
Based on field estimated production numbers for
the first 10 days of December, our fourth quarter 2017 average
production guidance of 23,300 boe/d will be modestly
exceeded.
2018 GUIDANCE – VIKING GROWTH AND
DUVERNAY DELINEATION WITHIN CASH FLOW
Average daily production |
|
Crude oil and NGL’s (bbls/d) |
22,600 |
Natural gas (mcf/d) |
11,300 |
Barrels of oil equivalent (boe/d) |
24,500 |
Pricing |
|
Crude oil - WTI ($US/bbl) |
55.00 |
Exchange rate ($Cdn/$US) |
1.28 |
Natural gas - AECO ($/GJ) |
1.65 |
Cdn Light Sweet ($Cdn/bbl) |
66.67 |
|
|
Financial |
|
Operating cash flow ($000) |
353,400 |
G&A ($000) |
10,750 |
Financial charges ($000) |
12,150 |
Cash taxes ($000) |
- |
Hedging losses ($000) |
2,200 |
Funds flow from operations ($000) |
328,300 |
Per share – basic |
1.42 |
2018 exit net debt ($000) |
301,000 |
2018 exit net debt to funds flow from operations |
0.92:1 |
Netbacks ($/boe) |
|
Oil and gas sales |
57.14 |
Royalties |
5.30 |
Operating expense |
10.95 |
Transportation expense |
1.45 |
Operating netback |
39.44 |
G&A |
1.20 |
Financial charges |
1.35 |
Cash taxes |
- |
Hedging losses |
0.25 |
Funds flow netback |
36.64 |
Capital expenditures ($000) |
|
Viking drilling, completion & equipping |
254,000 |
Duvernay drilling, completion & equipping |
43,500 |
Land, seismic and maintenance |
21,000 |
Facilities, waterflood & gas conservation |
16,500 |
Total |
335,000 |
|
|
Approximately 75% or $250 million of the
approved $335 million 2018 capital budget will be directed towards
the development drilling of approximately 296 net Viking horizontal
wells. Given the continued strong performance of our extended
reach horizontal (“ERH”) wells, we anticipate 60% of the 2018 wells
will be drilled with an ERH well design.
At budgeted pricing assumptions, we forecast
that in 2018 our Viking asset base will generate 6-7% production
per share growth and funds flow from operations in excess of $320
million while only utilizing 85% of the funds flow from operations
generated. The free cash flow generated by the Viking allows us the
opportunity of funding our early stage Duvernay light oil
delineation program without impairing the balance sheet or having
to raise equity to finance this opportunity.
Our initial plan in the Duvernay contemplates
six evaluation wells in 2018. Three wells will be drilled in the
first quarter with completion activities on these wells not
anticipated until late in the second quarter. The three initial
tests will be delineation efforts with one well in the Ferrybank
area, one well in the Pigeon Lake area and one well in the Gilby
area.
Enhanced oil recovery is a long-term initiative
that Raging River continues to advance, and one that we believe
will provide significant value creation to our shareholders.
For 2018, we anticipate spending approximately $16 million on
further advancing our Viking waterflood and gas conservation
efforts.
Corporate social responsibility continues to be
priority for the Company. Approximately $7 million of capital
has been allocated to gas conservation and abandonments. The
gas conservation projects will allow a meaningful reduction in our
methane emissions while at the same time providing economic benefit
to our shareholders through increased sales of natural gas
associated with our oil production. Abandonment of wells and
facilities that are no longer required for the development of our
resources will continue to be a priority. Raging River
continues to abandon and reclaim approximately 10% of the wells and
facilities on our abandonment list annually, ensuring that our
license liability rating is always in the top decile in the
industry.
2018 AND BEYOND
Our long term business model is robust, defined
and generates meaningful free cash flow and earnings above growth
capital. The Company has been built to withstand the
volatility in commodity prices and provide meaningful per share
growth to our shareholders. The team at Raging River is proud
to have delivered superior results to our shareholders. Since
our inception in March 2012, we have delivered greater than 350%
profitable production per share growth. During the longest
commodity bear market in recent history which started in July 2014,
your team has delivered greater than 60% profitable production per
share growth. Per share growth has and will continue to be
accomplished through excellence in execution, selective accretive
acquisitions, maintenance of a pristine balance sheet and diligent
development of new plays and play extensions.
Additional corporate information can be found on
our website at www.rrexploration.com or on www.sedar.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
RAGING RIVER EXPLORATION INC.
Mr. Neil Roszell, P.
Eng.
CEO and Executive
Chairman
Tel: (403) 767-1250; Fax: (403)
387-2951
RAGING RIVER EXPLORATION INC.Mr. Bruce Beynon, P.
Geol.PresidentTel: (403) 767-1251; Fax: (403) 387-2951
RAGING RIVER EXPLORATION INC.Mr. Jerry Sapieha,
CAVice President, Finance and Chief Financial OfficerTel: (403)
767-1265; Fax: (403) 387-2951
FORWARD LOOKING STATEMENTS: This press release
contains forward-looking statements. More particularly, this press
release contains forward-looking statements concerning the expected
fourth quarter 2017 average production, expected 2017 average
production, anticipated capital budget for 2017, anticipated
capital budget for 2018 and details of the expenditures and
expected timing of such expenditures related to such budget, fourth
quarter over fourth quarter 2018 production per share growth,
average production guidance for 2018, average fourth quarter 2018
production guidance, anticipated 2018 exit net debt, expectations
of maintaining a strong balance sheet in 2018 that is expected to
result in exit net debt to funds flow of operations of 0.9 times,
guidance relating to 2018 including expectations as to production,
operating cash flow, general and administrative expenses, financial
charges, cash taxes, operating expenses, transportation expenses,
hedging losses, funds flow from operations, netbacks, net debt and
net debt to funds flow from operations, expectation that the Viking
asset base will generate per share growth while only utilizing 85%
of the funds flow from operations generated, expectations of
using a portion of free cash flow to fund ongoing delineation of
early stage emerging Duvernay light oil prospective land holdings,
expectation of funding early stage Duvernay light oil delineation
without impairing the balance sheet or having to raise equity,
expected future performance of Duvernay wells including with
respect to water cuts, expectations that 60% of 2018 wells will be
drilled with an ERH well design, expected benefits from
implementing enhanced oil recovery initiatives, expectations that
gas conservation projects will allow a meaningful reduction in our
methane emissions while providing economic benefits, intentions of
carrying out abandonment and reclamation of certain wells and
facilities, and expectation to continue to deliver production per
share growth and expected factors contributing to such growth. In
addition, the use of any of the words “guidance”, “initial,
“scheduled”, “can”, “will”, “prior to”, “estimate”, “anticipate”,
“believe”, “should”, “unaudited”, “forecast”, “future”, “continue”,
“may”, “expect”, and similar expressions are intended to identify
forward-looking statements. The forward-looking statements
contained herein are based on certain key expectations and
assumptions made by the Company, including but not limited to
expectations and assumptions concerning the success of optimization
and efficiency improvement projects, the availability of capital,
current legislation, pipeline capacity, receipt of required
regulatory approval, the success of future drilling and development
activities, the performance of existing wells, the performance of
new wells, Raging River’s growth strategy, general economic
conditions, availability of required equipment and services,
assumptions of future commodity prices and other assumptions
identified herein. Although the Company believes that the
expectations and assumptions on which the forward-looking
statements are based are reasonable, undue reliance should not be
placed on the forward-looking statements because the Company can
give no assurance that they will prove to be correct. Since
forward-looking statements address future events and conditions, by
their very nature they involve inherent risks and uncertainties.
Actual results could differ materially from those currently
anticipated due to a number of factors and risks. These include,
but are not limited to, risks associated with the oil and gas
industry in general (e.g., operational risks in development,
exploration and production; delays or changes in plans with respect
to exploration or development projects, capital expenditures,
acquisitions or other corporate transactions; the uncertainty of
reserve estimates; the uncertainty of estimates and projections
relating to production, costs and expenses, and health, safety and
environmental risks), commodity price and exchange rate
fluctuations, changes in legislation affecting the oil and gas
industry and uncertainties resulting from potential delays or
changes in plans with respect to exploration or development
projects or capital expenditures. To the extent any guidance or
forward looking statements herein constitute a financial outlook,
they are included herein to provide readers with an understanding
of management's plans and assumptions for budgeting purposes and
readers are cautioned that the information may not be appropriate
for other purposes. Additional information on these and other
factors that could affect Raging River’s operations and financial
results are included in the Company’s Annual Information Form and
other reports on file with Canadian securities regulatory
authorities, which may be accessed through the SEDAR website
(www.sedar.com).
The forward-looking statements contained in this
press release are made as of the date hereof and the Company
undertakes no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of
new information, future events or otherwise, unless so required by
applicable securities laws.
NON-IFRS MEASURES: This document contains the
terms "funds flow from operations", "net debt", "operating netback"
and "funds flow netback’, which do not have a standardized meaning
prescribed by International Financial Reporting Standards ("IFRS")
and therefore may not be comparable with the calculation of similar
measures by other companies. Management uses funds flow from
operations to analyze operating performance and leverage.
Management believes "net debt" is a useful supplemental measure of
the total amount of current and long-term debt of the Company.
Mark-to-market risk management contracts are excluded from the net
debt calculation. Management believes "operating netback" and
"funds flow netback" are useful supplemental measures of firstly,
the amount of revenues received after royalties and operating and
transportation costs and secondly, the amount of revenues received
after the royalties, operating, transportation costs, general and
administrative costs, financial charges, asset retirement
obligations and current taxes. Additional information relating to
these non-IFRS measures, including the reconciliation between funds
flow from operations and cash flow from operating activities, can
be found in the Company's most recent management's discussion and
analysis, which may be accessed through the SEDAR website
(www.sedar.com).
BARRELS OF OIL EQUIVALENT: The term "boe" or
barrels of oil equivalent may be misleading, particularly if used
in isolation. A boe conversion ratio of six thousand cubic feet of
natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based
on an energy equivalency conversion method primarily applicable at
the burner tip and does not represent a value equivalency at the
wellhead. Additionally, 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 ratio of 6:1 may be misleading as an
indication of value.
INITIAL RATES OF PRODUCTION: References in this
press release to performance and production rates associated with
the Company's Duvernay well are useful in confirming the presence
of hydrocarbons, however such rates are not determinative of: the
future production and decline rates of such well, the rates other
Duvernay wells to be drilled by the Company will commence
production and decline thereafter, the long term performance of
such well or future Duvernay wells, or the ultimate resources to be
recovered by such well or future Duvernay wells. While encouraging,
readers are cautioned not to place reliance on such rates in
calculating the aggregate production for the Company. The Company
cautions that such production rates should be considered to be
preliminary.