Arcan Resources Ltd.
TSX VENTURE : ARN

Arcan Resources Ltd.

September 23, 2013 19:35 ET

Arcan Announces Its Light Oil Divestiture Package

CALGARY, ALBERTA--(Marketwired - Sept. 23, 2013) - Arcan Resources Ltd. (TSX VENTURE:ARN) ("Arcan" or the "Company") has engaged RBC Capital Markets ("RBC") and Scotia Waterous Inc. ("Scotia") as its financial advisors to examine the sale of certain light oil, early-stage properties in the Swan Hills region of Alberta.

"Over the past four years we have focused on efficiently developing these light oil reservoirs and we are now looking to capture a return that will help strengthen our balance sheet," said Doug Penner, President of Arcan. "The assets total approximately one third of Arcan's production and reserves and a sale would provide financial flexibility, allowing Arcan to drive cash flow into the further development of our inventory of long-life, light oil properties. We believe the divestiture of these assets and further investment in our remaining core assets will be accretive to shareholder value."

The Company has engaged RBC, as its lead advisor, to solicit interest in Deer Mountain Unit No. 2 and its adjacent non-unit leases, Deer Mountain West and Virginia Hills (the "Offered Properties"). In June 2013, the Offered Properties produced approximately 1,482 barrels of oil equivalent ("BOE") per day. This production was 97 percent light oil or 1,431 barrels of oil and liquids ("bbls") per day of 37° to 40° sweet API oil plus approximately 307 thousand cubic feet ("MCF") per day of natural gas from the established Beaverhill Lake Swan Hills production platform.

Arcan has invested in core infrastructure in Deer Mountain Unit No. 2 and on some of its adjacent non-unit leases to implement fully enhanced waterflood recovery and stabilize production, while Deer Mountain West and Virginia Hills are offered as development stage properties. These properties produce light oil from the Swan Hills region capturing strong prices and attractive netbacks. The Company believes that the Offered Properties are long-life production assets where a defined well inventory has been de-risked by recent industry activity and Arcan drilling. Arcan believes that the Offered Properties hold significant potential for production growth, with additional water flood and infill development drilling locations.

The Offered Properties

  1. Deer Mountain Unit No. 2 and its Adjacent Non-Unit Leases
  • 1,119 BOE per day, low decline light oil production
  • Operated position of 8,960 gross (7,573 net) acres
  • Arcan 80.8742 percent unit and 80.0 percent non-unit working interest
  • Waterflood at Deer Mountain Unit No. 2 has been implemented across entire unit
  • Arcan estimates 66 million bbls of discovered oil initially in place ("DOIIP")
  • Total proved plus probable reserves of 9,040 thousand BOE
  • 3D seismic across asset
  • Additional potential infill drilling locations
  • Newly constructed oil battery supporting 8,000 bbls per day
  • High grade road system for year-round well access
  1. Deer Mountain West
  • 201 BOE per day net production from two wells
    • 00/14-28 - peak initial 30 day gross production of 281 bbls per day; cumulative oil production to date of 20 thousand bbls in three months
    • 00/06-28 - peak initial 30 day gross production of 282 bbls per day; cumulative oil production to date of 56 thousand bbls in eight months
  • Operated position of 2,880 gross (1,440 net) acres
  • Arcan 50.0 percent working interest
  • Arcan estimates 27 million bbls of DOIIP
  • Total proved plus probable reserves of 1,017 thousand BOE
  • Potential to drill up to 14 additional infill horizontal drilling locations
  • Established infrastructure capacity capable to support growth
  • Believed to be a strong waterflood candidate for enhanced oil recovery
  1. Virginia Hills
  • 162 bbls per day from one well which has been on production since March, 2012
  • Arcan 100 percent working interest
  • Arcan estimates 2.5 million bbls DOIIP
  • Total proved plus probable reserves of 537 thousand BOE
  • Additional location licensed on the existing lease
Value Summary Table
Asset Working Interest Production(3) Financial(4) Reserves NPV(1) (5)
Oil/NGL Gas Total Operating Netbacks
(2)
Operating Costs Netback(2) Proved Proved & Probable
(bbls/d) (Mcf/d) (BOE/d) (MM$) ($/BOE) ($/BOE) (MM$) (MM$)
Deer Mountain Unit No.2 and Deer Mountain non-unit wells 1,074 270 1,119 15.4 19.07 39.64 120.8 145.9
Deer Mountain West 195 37 201 4.4 7.19 73.23 14.9 23.0
Virginia Hills 162 - 162 4.1 10.57 46.08 6.3 9.8
Total 1,431 307 1,482 23.9 16.32 44.47 142.0 178.8

Notes:

(1) See "Legal Advisories" below for more information with respect to NPV.

(2) See "Legal Advisories" below for the method of calculation of this non-GAAP measurement.

(3) Working interest production numbers are for June, 2013.

(4) Financial numbers represent annualized values as of the year-to-date June 30, 2013.

(5) Reserves information from the GLJ Report effective July 1, 2013.

OIL AND GAS RESERVES

Arcan's Statement of Reserves Data and Other Oil and Gas Information, Report on Reserves Data by Independent Qualified Reserves Evaluator and Report of Management and Directors on Oil and Gas Disclosure were prepared in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook effective July 1, 2013 and is dated September 20, 2013.

Summary of Oil and Gas Reserves - Forecast Prices and Costs

The table below provides a summary of the oil, NGLs and natural gas reserves attributable to the Offered Properties, as evaluated by Arcan's independent qualified reserves evaluator, GLJ Petroleum Consultants ("GLJ"), and contained in their report dated September 20, 2013, effective July 1, 2013 (the "GLJ Report") based on forecast price and cost assumptions. The tables summarize the data contained in the GLJ Report and, as a result, may contain slightly different numbers than those contained in the original report due to rounding. Also due to rounding, certain columns may not add exactly. Readers should review the definitions and information contained in "Presentation of Arcan's Oil and Gas Reserves" and "Abbreviations" in Arcan's Annual Information Form, dated April 11, 2013, in conjunction with the following table and notes. All of the Offered Properties' reserves are located on-shore in Canada.

  1. Deer Mountain Unit No. 2 and its Adjacent Non-Unit Leases
Light & Medium Oil Natural Gas Liquids Natural Gas(1) Total
Reserves Category Gross (2)
(Mbbls)
Net (3)
(Mbbls)
Gross (2)
(Mbbls)
Net (3)
(Mbbls)
Gross (2)
(MMcf)
Net (3)
(MMcf)
Gross (2)
(MBOEs)
Net (3)
(MBOEs)
Proved
Developed Producing 4,404 2,774 208 120 1,339 1,033 4,836 3,067
Developed Non-Producing 6 6 - - 2 1 7 6
Undeveloped 1,688 1,142 76 48 494 384 1,847 1,254
Total Proved 6,099 3,921 285 169 1,834 1,419 6,689 4,327
Total Probable 2,139 1,255 101 58 661 510 2,351 1,399
Total Proved + Probable 8,238 5,176 386 227 2,495 1,929 9,040 5,726
  1. Deer Mountain West
Light & Medium Oil Natural Gas Liquids Natural Gas(1) Total
Reserves Category Gross (2)
(Mbbls)
Net (3)
(Mbbls)
Gross (2)
(Mbbls)
Net (3)
(Mbbls)
Gross (2)
(MMcf)
Net (3)
(MMcf)
Gross (2)
(MBOEs)
Net (3)
(MBOEs)
Proved
Developed Producing 154 125 6 5 41 38 168 135
Developed Non-Producing - - - - - - - -
Undeveloped 461 402 18 15 120 111 499 436
Total Proved 615 527 25 20 161 148 667 571
Total Probable 323 251 13 10 87 79 350 274
Total Proved + Probable 938 778 38 30 248 227 1,017 845
  1. Virginia Hills
Light & Medium Oil Natural Gas Liquids Natural Gas(1) Total
Reserves Category Gross (2)
(Mbbls)
Net (3)
(Mbbls)
Gross (2)
(Mbbls)
Net (3)
(Mbbls)
Gross (2)
(MMcf)
Net (3)
(MMcf)
Gross (2)
(MBOEs)
Net (3)
(MBOEs)
Proved
Developed Producing 219 129 15 10 71 62 246 149
Developed Non-Producing - - - - - - - -
Undeveloped - - - - - - - -
Total Proved 219 129 15 10 71 62 246 149
Total Probable 259 197 18 14 84 76 291 224
Total Proved + Probable 478 326 33 24 155 138 537 373

Notes:

(1) Estimates of reserves of natural gas include associated and non-associated gas.

(2) "Gross" reserves are Arcan's working interest share of remaining reserves before the deduction of royalties.

(3) "Net" reserves are Arcan's working interest share of remaining reserves less all Crown, freehold, and overriding royalties and interests owned by others.

GLJ employed the following pricing, exchange rate and inflation rate assumptions as of July 1, 2013, in the GLJ Report in estimating reserves data using forecast prices and costs(1):

Medium and Light Crude Oil Natural Gas
Year Inflation WTI
Cushing
Oklahoma
40
°API
(US$/bbl)
Edmonton
Par Price
40
°API
($/bbl)
Cromer
Medium
29.3
°API
($/bbl)
Alberta Gas Reference
Price
Plant Gate
($/MMBTU)
AECO -
C Spot
($/MMBTU)
Exchange
Rate
(US$/CDN$)
2013 Q1 0.9 94.37 88.75 80.75 2.87 3.18 0.991
2013 Q2 (estimate) 0.4 93.69 92.47 86.31 3.36 3.60 0.983
2013 Q3-Q4 2.0 95.00 92.50 85.10 3.51 3.71 1.000
2014 2.0 95.00 94.00 86.48 3.62 3.83 1.000
2015 2.0 95.00 94.00 86.48 4.07 4.28 1.000
2016 2.0 97.50 96.50 88.78 4.51 4.72 1.000
2017 2.0 97.50 96.50 88.78 4.74 4.95 1.000
2018 2.0 97.50 96.50 88.78 5.00 5.22 1.000
2019 2.0 98.54 97.54 89.74 5.10 5.32 1.000
2020 2.0 100.51 99.51 91.55 5.21 5.43 1.000
2021 2.0 102.52 101.52 93.40 5.32 5.54 1.000
2022 2.0 104.57 103.57 95.28 5.42 5.64 1.000

Note:

(1) All pricing in the above table, excluding inflation and the exchange rate, is escalated at 2.0 percent per year thereafter. Thereafter, inflation is assumed to be constant at 2.0 percent and the exchange rate is assumed to be constant at 1.000.

About Arcan Resources Ltd.

Arcan Resources Ltd. is an Alberta, Canada corporation that is principally engaged in the exploration and development of light oil resources located in the Western Canadian Sedimentary Basin.

Legal Advisories

Readers are cautioned that this press release contains the term "netbacks". Netbacks represent revenue, less royalties and operating expenses. Netbacks do not have any standardized meaning prescribed by Generally Accepted Accounting Principles and are therefore unlikely to be comparable to similar measures presented by other companies. Management of Arcan believes that netbacks are a useful supplemental measure as they provide an indication of the ability to fund future growth through capital investment and/or repay debt. Barrels of oil equivalent ("BOE") may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 million cubic feet ("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. In addition, given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalent of six to one, utilizing a BOE conversion ratio of 6 Mcf: 1 barrel would be misleading as an indication of value. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties due to the effects of aggregation.

Discovered Oil Initially in Place (DOIIP) is defined as the quantity of oil that are estimated to be in place within a known accumulation. These are Arcan estimates and there is no certainty that it will be economically viable or technically feasible to produce any portion of this DOIIP except for those identified as proved or probable reserves. Unless specifically stated otherwise, all reserves contained herein are attributable to the independent reserves report prepared by GLJ Petroleum consultants Ltd. with an effective date of July 1, 2013.

The undiscounted or discounted net present value ("NPV") of future net revenue attributable to reserves estimated by GLJ do not represent the fair market value of those reserves.

Forward-looking Information

This press 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", "believe", "plans", "possible", "potential" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements pertaining to the following: the volume and product mix of the asset's oil and gas production; reserve and resource information and estimates; capabilities of the newly constructed battery; year round well access; net present value associated with the estimated reserves; production and facilities; recompletion and drilling opportunities; projected project and well economics; well spacing and facility capacity estimates; and estimated recoveries, waterflood recoveries, and response.

The forward-looking information and statements contained herein reflect material factors and expectations and assumptions of Arcan including, without limitation: that the owner of the assets will conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing and, in certain circumstances, proposed tax and royalty regimes; pricing forecasts and expectations; the accuracy of Arcan's internal estimates including those relating to reserves and resources volumes; the reliability of information obtained from third party sources; the estimated effects of the implementation of the waterflood on the assets; the ability for the existing infrastructure capacity to account for future growth; certain commodity in place, recoveries, price and cost assumptions; and the impact of any disposition of any of the Offered Properties. Arcan believes the factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable at this time, but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking information and statements included herein are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve 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 information or statements including, without limitation: changes in commodity prices; unanticipated operating results or production declines; changes in tax or environmental laws or royalty rates; inaccurate estimates of the assets oil and gas reserves and production volumes; increased costs and expenses; the impact of competitors; reliance on industry partners; and certain other risks detailed from time to time in Arcan's public disclosure documents including, without limitation, those risks identified in this press release, and in Arcan's Annual Information Form for the year ended December 31, 2012, a copy of which is available on Arcan's SEDAR profile at www.sedar.com.

Arcan cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking information and statements contained in this news release speak only as of the date of this news release, and Arcan does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.

Neither 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 release.

Contact Information

  • Arcan Resources Ltd.
    Terry McCoy
    Chief Executive Officer
    (403) 262-0321
    tmccoy@arcanres.com

    Arcan Resources Ltd.
    Douglas Penner
    President
    (403) 262-0321
    dpenner@arcanres.com

    Arcan Resources Ltd.
    Suite 2200, 500 - 4th Avenue S.W.
    Calgary, AB T2P 2V6