Crew Energy Inc. Announces Acquisition of Strategic Montney
Acreage, Sale of Alberta Natural Gas and Associated Liquids Assets
and Expanded 2014 Montney Focused Capital Program
CALGARY, ALBERTA--(Marketwired - Apr 9, 2014) - Crew Energy Inc.
("Crew" or the "Company") (TSX:CR) of Calgary, Alberta is pleased
to announce the successful completion of an acquisition of certain
strategic Montney liquids rich natural gas properties in northeast
British Columbia for approximately $105 million. The acquired
assets include 75 net sections of land that are either contiguous
with existing Crew land or increase Crew's working interest in
joint interest lands. An updated map of the Company's Montney
acreage is posted on the Company's website at
www.crewenergy.com.
In a separate transaction, Crew has entered into an agreement to
sell certain petroleum and natural gas assets (75% natural gas)
focused primarily in the Deep Basin of Alberta in exchange for
approximately $222 million in cash before closing adjustments plus
approximately 400 bbls per day of heavy oil production. Upon
completion of the disposition, Crew plans to expand its previously
announced 2014 exploration and development capital program by $39
million to $285 million to accelerate the Company's Montney
development.
Northeast British
Columbia Acquisition
In two transactions completed in late March 2014 Crew purchased
approximately 75 sections of highly prospective Montney rights in
the Septimus and Groundbirch areas of operation in northeast
British Columbia for approximately $105 million. Pursuant to these
transactions, the Company acquired:
- Current production of 1,400 boe per day (98% natural gas) based
on field estimates;
- Total proved reserves of 4.7 million boe (94% natural gas)
(1);
- Total proved plus probable reserves of 8.5 million boe (93%
natural gas) (1);
- Significant resource to be evaluated in the near term; and
- 48,100 net acres (75 net sections) of highly prospective
Montney lands.
(1) Reflects Company internally estimated "gross" reserves,
prepared by a qualified reserves evaluator effective December 31,
2013 in accordance with the definitions and provisions contained in
the COGE Handbook.
The majority of the existing reserve estimates and production
are from the Halfway and Belloy formations with only four Montney
locations included in the reserve assessment. Crew also acquired
underutilized strategic infrastructure consisting of 130 kilometers
of pipelines and over 6,200 hp of field compression. All of the
acquired lands are in what Crew has identified as the "wet" gas
hydrocarbon window. Crew now owns 544 (452 net) Montney sections in
northeast British Columbia of which an estimated 138 net sections
are located in the Montney "oil" window, 238 net sections are
located in the Montney "wet" gas window and 76 net sections are
located in the Montney "dry" gas window.
The strategic importance of aggregating this large contiguous
block of land is expected to result in optimal operating
efficiencies through:
- Consolidating working interest in 54 sections to 100% which
were previously 50%;
- Ability to drill longer horizontal wells at preferred
orientations;
- Economies of scale from optimized pad drilling;
- Control of timing and pace of development; and
- Additional infrastructure access and ownership.
Alberta Gas
Disposition
Crew has entered into an agreement to dispose of certain
petroleum and natural gas assets focused in the Deep Basin area of
Alberta. Total consideration to be received for the disposition
consists of $222 million in cash, before customary closing
adjustments, plus approximately 400 bbls per day of heavy oil
production which is located in Crew's Lloydminster operating area.
The disposition is scheduled to close on or about May 30, 2014 with
an effective date of April 1, 2014, subject to satisfaction of
customary industry closing conditions.
The assets to be sold consist of:
- Current production of 7,000 boe per day (75% natural gas) based
on field estimates;
- Total proved reserves of 34.1 million boe (71% natural gas)
(1);
- Total proved plus probable reserves of 60.4 million boe (71%
natural gas) (1); and
- 254,000 net acres of land.
(1) Reflects "gross" reserves assigned by the Company's
independent reserves evaluator, Sproule Associates Limited,
effective December 31, 2013 in accordance with the definitions and
provisions contained in the COGE Handbook.
The heavy oil assets to be acquired by Crew as consideration
consist of:
- Expected production at closing of 400 boe per day (99% oil)
based on field estimates;
- Total proved reserves of 0.6 million boe (99% oil) (1);
- Total proved plus probable reserves of 0.8 million boe (99%
oil) (1); and
- 2,750 net acres of land.
(1) Reflects "gross" reserves assigned by the purchasers
independent reserves evaluator, Sproule Associates Limited,
extracted from their report effective December 31, 2013 prepared in
accordance with the definitions and provisions contained in the
COGE Handbook.
Inclusive of all of these transactions, Crew expects to have the
following pro-forma operational and financial attributes:
Post-Transactions Corporate Summary |
Pro-forma (1) |
Production metrics (boe per day): |
|
|
At
closing (2) |
23,800 |
|
Forecasted average 2014 |
25,500 - 26,500 |
|
Forecasted exit 2014 |
26,000 - 27,000 |
|
Forecasted exit 2015 (4) |
38,000 - 40,000 |
Financial metrics |
|
|
Estimated 2014 funds from operations ($ mm) |
200 |
|
Estimated net debt at closing ($ mm) |
280 |
Reserves and Land |
|
|
Estimated proved reserves (mmboe) (3) |
87.2 |
|
Estimated proved plus probable reserves (mmboe) (3) |
146.2 |
|
Montney lands (sections) |
544 (452 net) |
|
Total
Company acreage (net) |
831,000 |
|
|
- Pro-forma assuming transactions completed on dates
specified.
- Based on field estimates.
- Based upon the reserve report prepared by the Company's
independent reserves evaluator, Sproule Associates Limited,
effective December 31, 2013 in respect of the Company's oil and gas
interests owned as at such date, and after removing the reserves
assigned to the Company's Alberta Gas assets which are subject to
the disposition, and adding the internally estimated reserves
attributed to the Company's northeast British Columbia acquisitions
completed in late March, 2014. Reflects "gross" reserves as such
term is defined in the COGE Handbook.
- Reflects target production based on internal long range
planning which are subject to change as more definitive capital
plans and budgets are prepared in respect of 2015.
Strategic
Rationale
Regarding the acquired Montney lands, Crew's CEO, Dale Shwed was
quoted as saying; "The acquired assets fit like integral pieces of
a puzzle and are contiguous to, or have joint interest, with Crew's
existing land base. Operationally, the acquired assets are a great
strategic fit that provide the economies of scale and logistics
that are complementary to Crew's existing operations and future
development plans." The acquisition of the joint interest lands
(approximately 54 gross sections) will allow Crew to control the
timing and pace of development of a significant land block at
Groundbirch which is supported by underutilized pipeline
infrastructure and field compression. With 75 net sections acquired
and a development strategy that includes 8 to 12 wells per section,
this acquisition adds over 600 net drilling locations to our
Montney inventory which now stands at over 2,100 estimated
locations. More importantly, with Montney type curve wells in the
Septimus area recently exhibiting a net present value of $8.2
million per well, the successful development of only 1.5 net
sections of the acquired lands (based on 12.8 development wells)
would payout this entire acquisition.
The disposition of the Alberta gas assets will provide the
Company with a non-dilutive clear line of sight to funding the
acceleration of our five year Montney growth plan. We will be able
to focus our resources in a play which, in 2013, achieved a recycle
ratio of 3.1x versus our corporate average of 2.3x. With the
disposition of a significant portion (31%) of our proved plus
probable reserves, including future development costs of $394
million, the Company is well positioned to replace these reserves
with the continued development of the Montney where, prior to these
British Columbia acquisitions, only 0.5 TCFE (12.2%) has been
booked out of a previously announced best estimate contingent
resource of 4.1 TCFE. Production rates and expected ultimate
recoveries ("EURs") have continued to improve with the latest
subset of wells producing at 6 to 8 mmcf per day with associated
liquids of 30 bbls per mmcf (60% condensate). EURs have steadily
improved since 2011 (2.8 bcf/well) to 2012 (3.2 bcf/well) to 2013
(4.3 bcf/well) and are expected to continue to improve over time as
Crew continues to better understand the Montney reservoir and how
to apply new technologies related to drilling and completion
practices.
Operations
Update
Crew drilled 21 (19.0 net) wells in the first quarter. The
Company drilled five (5.0 net) Montney wet gas wells, nine (7.6
net) heavy oil wells at Lloydminster, six (6.0 net) oil wells at
Princess and one (0.4 net) oil well at Pine Creek. Crew currently
has two rigs operating in northeast British Columbia drilling a two
well pad at Groundbirch and a six well pad at Septimus. Crew's
results at Septimus continued to be strong with two wells coming on
production at the end of the quarter at 6 to 8 mmcf per day. Crew
re-tested the fourth quarter 2013, 1-24 oil well at Tower for 11
days with an average flow rate of 720 boe per day (540 bbl per day
of oil) validating light oil production 11 kilometers northwest of
the Company's existing Montney oil production. This well is
expected to be tied-in during the third quarter. Current production
based on field estimates is 30,400 boe per day which is inclusive
of the 1,400 boe per day acquisition which closed in late March.
Production in the first quarter is expected to average
approximately 28,000 boe per day as the majority of first quarter
drilled wells came on production late in March. Extreme weather
conditions experienced in western Canada in the first quarter
caused operational delays and outages and there were an abnormally
high number of wells which were required to be shut-in due to
offsetting drilling operations in the Company's Lloydminster
operations. In addition, the compressor at Crew's Sierra property
in northeastern British Columbia (approximately 350 boe per day)
experienced a fire late in 2013 and the Company elected to accept
an insurance settlement rather than replacing the equipment and
restoring production levels.
After spring break-up subsides, Crew's plans include the
following:
- Complete two Groundbirch wells;
- Complete a six well pad at Septimus;
- Spud a five well pad at Septimus;
- Spud a six well pad at Tower;
- Resume drilling operations at Lloydminster and Princess;
and
- Begin construction of the Tower oil facility and the new
Septimus gas facility.
Expanded Capital
Program
After the closing of the Alberta Gas disposition, Crew plans to
expand its exploration and development capital program by $39
million to $285 million. The expanded program will be entirely
focused on Montney development with the drilling well count
increasing by 50% to 30 wells from the previously budgeted 20 wells
to supply production volumes to the new 60 mmcf per day plant at
Septimus expected to be onstream early in the third quarter of
2015. Capital expenditures for Lloydminster (25 wells and $36
million capital) and Princess (16 wells and $39 million capital)
remain as previously forecasted.
Advisors
Cormark Securities Inc. has acted as financial advisor to Crew
on the transactions, TD Securities Inc. acted as strategic advisor
on the transactions and Macquarie Capital Markets Canada Ltd. and
GMP Securities LP have acted as strategic advisors to Crew with
respect to the Montney acquistions.
Cautionary
Statements
Forward-Looking Information and Statements
This news release contains certain forward-looking
information and statements within the meaning of applicable
securities laws. The use of any of the words "expect",
"anticipate", "continue", "estimate", "may", "will", "project",
"should", "believe", "plans", "intends" "forecast" and similar
expressions are intended to identify forward-looking information or
statements. In particular, but without limiting the foregoing, this
news release contains forward-looking information and statements
pertaining to the following: various matters related to the
proposed transactions disclosed herein including completion of the
proposed Alberta Gas asset disposition (and related heavy oil
acquisition) and acquisition and the timing thereof, satisfaction
of closing conditions thereto, the amount of and use of proceeds,
the effect of the transaction on continuing operations and the
benefits anticipated to be derived therefrom, post-transaction
strategy, plans, opportunities and operations; Crew's plans to
expand its 2014 capital program and budget on a post-transaction
basis; the anticipated potential of Crew's asset base; the volume
and product mix of Crew's oil and gas production; production
estimates including 2014 forecast average and exit productions and
2015 estimated exit target; estimated 2014 funds from operations;
projected debt levels including forecast 2014 net debt on a
post-transaction basis; future oil and natural
gas prices and Crew's commodity risk management programs; future
liquidity and financial capacity; future results from operations
and operating metrics; anticipated reductions in operating costs;
future costs, expenses and royalty rates; future interest costs;
the exchange rate between the $US and $Cdn; future development,
exploration, acquisition and development activities and related
capital expenditures and the timing thereof; the number of wells to
be drilled, completed and tied-in and the timing thereof; the
amount and timing of capital projects; the total future capital
associated with development of reserves and resources; and methods
of funding our capital program, including possible non-core asset
divestitures and asset swaps.
Forward-looking statements or information are based on a
number of material factors, expectations or assumptions of Crew
which have been used to develop such statements and information but
which may prove to be incorrect. Although Crew believes that the
expectations reflected in such forward-looking statements or
information are reasonable, undue reliance should not be placed on
forward-looking statements because Crew can give no assurance that
such expectations will prove to be correct. In addition to other
factors and assumptions which may be identified herein, assumptions
have been made regarding, among other things: that all conditions
to closing of the Gas disposition are satisfied or waived; the
impact of increasing competition; the general stability of the
economic and political environment in which Crew operates; the
timely receipt of any required regulatory approvals; the ability of
Crew to obtain qualified staff, equipment and services in a timely
and cost efficient manner; drilling results; the ability of the
operator of the projects in which Crew has an interest in to
operate the field in a safe, efficient and effective manner; the
ability of Crew to obtain financing on acceptable terms; field
production rates and decline rates; the ability to replace and
expand oil and natural gas reserves through acquisition,
development and exploration; the timing and cost of pipeline,
storage and facility construction and expansion and the ability of
Crew to secure adequate product transportation; future commodity
prices; currency, exchange and interest rates; regulatory framework
regarding royalties, taxes and environmental matters in the
jurisdictions in which Crew operates; the ability of Crew to
successfully market its oil and natural gas products. There are a
number of assumptions associated with the potential of resource
volumes including the quality of the Montney reservoir, future
drilling programs and the funding thereof, continued performance
from existing wells and performance of new wells, the growth of
infrastructure, well density per section, and recovery factors and
discovery and development necessarily involves known and unknown
risks and uncertainties, including those identified in this press
release. Included herein is an estimate of Crew's year end net debt
based on assumptions as to cash flow, capital spending in 2014 and
the other assumptions utilized in arriving at Crew's 2014 capital
budget on a post-transaction basis. To the extent such estimate
constitutes a financial outlook, it is included herein to provide
readers with an understanding of estimated capital expenditures and
the effect thereof on debt levels and readers are cautioned that
the information may not be appropriate for other purposes.
The forward-looking information and statements included in
this news release are not guarantees of future performance and
should not be unduly relied upon. Such information and statements,
including the assumptions made in respect thereof, involve known
and unknown risks, uncertainties and other factors that may cause
actual results or events to defer materially from those anticipated
in such forward-looking information or statements including,
without limitation: changes in commodity prices; the potential for
variation in the quality of the Montney formation; changes in the
demand for or supply of Crew's products; unanticipated operating
results or production declines; changes in tax or environmental
laws, royalty rates or other regulatory matters; changes in
development plans of Crew or by third party operators of Crew's
properties, increased debt levels or debt service requirements;
inaccurate estimation of Crew's oil and gas reserve and resource
volumes; limited, unfavourable or a lack of access to capital
markets; increased costs; a lack of adequate insurance coverage;
the impact of competitors; and certain other risks detailed from
time-to-time in Crew's public disclosure documents (including,
without limitation, those risks identified in this news release and
Crew's Annual Information Form).
The forward-looking information and statements contained in
this news release speak only as of the date of this news release,
and Crew does not assume any obligation to publicly update or
revise any of the included forward-looking statements or
information, whether as a result of new information, future events
or otherwise, except as may be required by applicable securities
laws.
Reserves
The recovery and reserves estimates contained herein are
estimates only and there is no guarantee that the estimated
reserves will be recovered. In relation to the disclosure of
estimates for individual properties, such estimates may not reflect
the same confidence level as estimates of reserves and
future net revenue for all properties, due to the effects of
aggregation.
Resource Estimates
This news release contains references to estimates of oil
and gas classified as Contingent Resources in the Montney region in
northeastern British Columbia which are not, and should not be
confused with, oil and gas reserves. Such estimates are based upon
independent resource evaluations effective as at April 30, 2013 and
May 31, 2013, respectively, prepared in accordance with the
Canadian Oil and Gas Evaluation Handbook. Such estimates are
subject to a number of cautionary statements, assumptions, risks,
positive and negative factors relevant to the estimates and
contingencies, the details of which were set forth in Crew's
previously disseminated press release dated July 9, 2013.
Accordingly, readers are referred to and encouraged to review the
sections entitled "Montney Resource Evaluation", "Definitions of
Oil and Gas Resources and Reserves" and "Information Regarding
Disclosure on Oil and Gas Reserves, Resources and Operational
Information" in the July 9, 2013 press release for applicable
definitions, cautionary language, explanations and discussion of
resources estimated herein, all of which is incorporated herein by
reference.
Test Results and Initial Production Rates
A pressure transient analysis or well-test interpretation
has not been carried out and thus certain of the test results
provided herein should be considered to be preliminary until such
analysis or interpretation has been completed. Test results and
initial production rates disclosed herein may not necessarily be
indicative of long term performance or of ultimate
recovery.
BOE Equivalent
Barrel of oil equivalents or BOEs may be misleading,
particularly if used in isolation. A BOE conversion ratio of 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. Given that the value ratio based
on the current price of crude oil as compared to natural gas is
significantly different than the energy equivalency of 6:1,
utilizing a 6:1 conversion basis may be misleading as an indication
of value.
Crew is an oil and gas exploration and production company whose
shares are traded on The Toronto Stock Exchange under the trading
symbol "CR".
Crew Energy Inc.Dale ShwedPresident and C.E.O.(403)
231-8850dale.shwed@crewenergy.comCrew Energy Inc.John LeachSenior
Vice President and C.F.O.(403)
231-8859john.leach@crewenergy.comCrew Energy Inc.Rob MorganSenior
Vice President and C.O.O.(403)
513-9628rob.morgan@crewenergy.comwww.crewenergy.com
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