TORONTO, ONTARIO--(Marketwired - March 27, 2014) - Candax Energy Inc. ("Candax" or the "Company") (TSX:CAX), a company focused on mature oil field development in Tunisia, today announced financial and operating results for the year ended December 31, 2013. The audited financial statements, notes and MD&A pertaining to the period are available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com and by visiting www.candax.com. All monetary figures reported herein are U.S. dollars unless otherwise stated.
Selected Operational & Financial Highlights
- Production, net of royalties, increased in 2013 to 437 bopd from 371 bopd in 2012 as a result of production improvements on Ezzaouia and the continued success of the gas cycling program on El Bibane;
- Revenue for the year was $16.5 million compared to $8.7 million in 2012. The increase in revenue reflects a revenue recognition policy whereby revenues are only recognized when crude oil inventory is sold. During 2013, two crude oil liftings took place, which increased revenue by 90% when compared to the prior fiscal year;
- Total Proven plus Probable Net Reserves (2P) of oil declined by 14% from the previous year to 2.55 MMbbls;
- The Company reported a loss for the year ended December 31, 2013 of $41 million ($0.04 per common share) compared to a loss of $13.7 million ($0.01 per common share) for 2012. The 2013 loss includes costs related to a workover campaign on Ezzaouia of $1.5 million and impairment charges on El Bibane of $32 million and on Belli and Al Manzah of $1.5 million;
- As at December 31, 2013, Candax held cash and cash equivalents of $11.1 million; and
- As at December 31, 2013, Candax had total loans and borrowings of $37.8 million, with a current portion of loans and borrowings of 3.3 million.
"Candax's two key areas of focus in 2013 were shifting the Ezzaouia field to a beam pump extraction methodology and the progressing of our geosciences work in order to map out an optimum development platform for the company's assets," said Benoit Debray, Chairman and CEO of Candax. "The first area of focus will secure our near term future by ensuring consistent cash flow, while the second area of focus will clarify and help reduce risk, as we look to invest in the future growth of the company. While there is still work to be done in both areas, we made strong progress in 2013."
Review of Key Operations
Candax holds 100% equity in the El Bibane field, 100% equity in the Robbana field and 45% equity in the Ezzaouia field with ETAP, the Tunisian state oil and gas Company, as sole partner. The streamlining of ownership interests has allowed the Company to develop its fields according to its own vision of these assets' potential. El Bibane and Robbana are operated from Tunis by Ecumed, a 100% subsidiary of Candax. Ezzaouia is operated from Tunis by Maretap, a 50/50 joint venture between ETAP and Ecumed.
During 2013, Candax's geosciences team in Tunis performed a Geological and Geophysical ("G&G") major action plan under the supervision of the Geosciences Committee. A peer review of intermediate results was performed in December 2013, leading to the 2014 production forecast and a strategic preliminary development plan for the Company's three main assets (El Bibane, Robbana and Ezzaouia). G&G work is ongoing in 2014 with the objective of producing detailed development plans to support a drilling campaign anticipated to commence by the end of 2014 or early in 2015.
The El Bibane field is located 16 kilometres offshore from the port of Zarzis in the Gulf of Gabes, in approximately 20 metres of water depth. The field was discovered by Marathon Oil Corporation in 1982, but was not developed until 1998. Initially, the field produced at a rate of 4,000 bopd. The reservoir is located in the Cenomanian Zebbag fractured dolomite formation at approximately 2,150 metres below surface.
In 2011, Candax contracted Beicip-Franlab, a leading petroleum consulting firm, to conduct a full-field compositional simulation reservoir study. Results indicated that the oil-water contact had moved up significantly due to past production of the gas cap. This explained the very high water-cut observed on the two horizontal wells, EBB-3 and EBB-4.
In April 2012, a new production scheme was proposed by the Company to the Tunisian authorities (Direction Générale de l'Énergie, "DGE"). A gas cycling pilot program was initiated, designed to increase condensate recovery as well as the potential for oil recovery from the El Bibane reservoir, by producing wet gas from EBB-5 and reinjecting dry gas in EBB-4. The gas injection process started in May 2012, which stabilized condensate production of over 200 bopd at the onshore plant. These production volumes represented a 100% increase over production recorded in 2011.
In March 2013 Candax reviewed the results of the gas cycling pilot in order to plan future actions. At this point, the Company decided to increase the gas compression capacity at the El Bibane onshore Central Processing Facilities (CPF) with the objective of increasing the condensate recovery from the field. After the completion of an engineering study, a lease-to-purchase contract was signed in May 2013 to commission a second gas compressor on the EBB CPF. The compressor was delivered on site in December 2013 and is in the process of being commissioned. Following the confirmation of gas availability at various pressure levels and related gas-to-condensate ratio, the Company expects that the second compressor should significantly increase the current condensate production from the field. The Company's short term objective is to produce in excess of 260 bopd in the second quarter of 2014, compared to an average production of 235 bopd during 2013.
The Ezzaouia field is located on the Zarzis peninsula, in the southern Gulf of Gabes. Marathon Oil Corporation discovered the field in 1986 and brought it on stream in 1990. Candax is the sole partner of ETAP with a 45% equity interest. The field is operated by Maretap, a 50/50 (Ecumed/ETAP) joint venture company. Maretap does not own any of the assets and operates on a cash call basis. Two reservoirs are present in the Ezzaouia field: the late cretaceous Zebbag fractured dolomite and the late Jurassic M'Rabtine sandstone. The Jurassic M'Rabtine reservoir now contributes to most of the production from the field.
A reprocessing of the 3D seismic data in 2011, followed by a structural reinterpretation and an update of the reservoir model in 2012, indicated that a significant volume of remaining reserves could still be produced, mainly from the Jurassic reservoir. This provided a strong incentive for the Partners to reconsider the Ezzaouia field strategy and rejuvenate field production.
In keeping with a new strategic approach towards this asset, the Company's preliminary objective was to address the recurrent mechanical failures observed on production wells, which had lead to costly workovers. The results of an artificial lift optimization study conducted in 2012 and several investigations in the production wells made it clear that the jet pumping artificial lift system was no longer effective for the Ezzaouia Jurassic reservoir in its present state. Production of formation water, combined with some CO2 from produced gas, had induced heavy scaling in the jet pumps as well as corrosion/erosion tubing integrity failures. This was proved in 2012/2013 through a coiled tubing jet blasting campaign, the implementation of a scale prevention program and several remedial workovers
As a result, Maretap, with the support of its partners ETAP and Candax, initiated workover programs in order to convert all Jurassic producer wells from jet pumping to beam pumping methodology.
In January 2014, the workover campaign was successfully completed on all but one of the Company's Jurassic wells, which are now producing by means of beam pumps. The lone exception is a well that is still awaiting receipt of pre-ordered pumping equipment. Average gross production for 2013 was 443 bopd (200 bopd net Candax) and the forecast for 2014 is 713 bopd (321 bopd net Candax).
The Company's secondary objective on the Ezzaouia asset was to start the detailed geological review and reservoir modelling needed to build the re-development plan of the Ezzaouia Jurassic. To do so, in early September 2013, a joint geoscience study was initiated by the Partners (ETAP, Ecumed / Candax) for the Ezzaouia Jurassic with the objective to define the most appropriate scheme to produce the remaining reserves. The Partners have budgeted the drilling of a new well by the end of 2014.
The Robbana field, located on the Djerba Island in the southern Gulf of Gabes, was discovered in 1988. The Robbana-1 well encountered two hydrocarbon-bearing clastic reservoirs in the Cretaceous Upper Meloussi formation. The field came on production in 1993 from the discovery well and stopped producing in 2009. A peak monthly average production rate of 410 bopd of 43° API waxy oil with a low GOR was recorded in May 1994. Cumulatively, the well produced 435,000 bbls before it was shut-in in 2009 after severely decreased production.
Candax initiated a light workover in April 2011 to check the reservoir static pressure on Robbana-1. Measurements showed a significant increase in reservoir pressure, which indicated potential aquifer support. In July 2011, Candax reopened the well, which then stabilized at approximately 50 bopd. A full workover was conducted in 2012 in order to re-perforate the two hydrocarbon-bearing horizons and to optimize the beam pumping system. Unfortunately, the re-perforation of the lower zone did not result in oil production from that zone. When the well was reopened, production returned to approximately 30 bopd, a level below the one at which the well was producing before the workover. At the end of 2013, production remained stable at an average of 27 bopd.
The G&G study, started in 2013, is in its final stage and should lead to a selection of a location and plan for drilling operation in 2015.
The Belli field is located in the Grombalia Exploitation Permit located approximately 60 km from the city of Tunis. Three Belli wells were drilled in the early 1990's and produced a total of 8.6 million barrels of oil from the carbonates of the Bou Dabbous Eocene formation. The principal oil producer, the Belli-1 well, started production in 1992 with a flow rate of 10,000 bopd under natural flow. A few months later, water production started to gradually increase until, in 1996, the well was shut-in with an oil rate of 50 bopd and a 97% water-cut while being produced by jet pumping. As the Bou Dabbous carbonates are assumed to be oil-wet, it was presumed that spontaneous imbibition had partially reloaded the fracture and vugular porosity systems in the 17 years that the field has been shut in.
Preparations for an extended production test have been completed, including a positive injectivity test on the water injection well, Belli-3. A workover and testing program on Belli-1 was completed in December 2013. Test results have revealed that the well, in its current configuration, will not be brought back to commercial production. The test procedures involved a workover to reperforate the reservoir, a swabbing test of the formation and an extended well test using Sucker Rods Pump (SRP). The SRP production test was halted due to fluid segregation in the casing which prevented the small volume of produced oil to flow through the tubing. Despite this disappointing result, the Company intends to move forward with G&G studies to explore the possibility of any remaining reservoir potential.
This field, located close to Belli, produced 1.8 million bbls of oil before being shut-in in 2007. It is anticipated that fluids have partially resegregated, which would make modest volumes of oil readily accessible. Candax has not yet planned any operations for this field.
Two prospects were identified by the former studies of the Middle Triassic (Ras Hamia sandstones), in the Ezzaouia and El Bibane concessions. The unrisked prospective gas resources have been evaluated by Ryder Scott in 2007 at 1,806 BCF and 1,417 BCF respectively (medium case). In 2012, Candax launched a study to revisit the mapping and potential of the Triassic Ras Hamia Reservoir. Candax has come to the conclusion that this play, given the range of uncertainties embedded in the currently available data, lacks sufficient evidence to warrant drilling an exploration well. Further work will be completed in order to obtain and integrate additional available geological data, especially regarding source rock and reservoir facies evolution.
On November 2, 2011, Dana Gas relinquished its right to participate in future wells below the currently producing horizons of the El Bibane and Ezzaouia concessions. As compensation for Dana Gas relinquishing its rights, Candax has an obligation to make a lump sum payment of USD$1 million in the event that a commercial discovery is made at the Deep Triassic level.
Block 1101 is an onshore exploration permit located in northwest Madagascar, covering 14,900 km2.
On June 28, 2013, Candax announced that its subsidiary, Candax Madagascar Limited ("CML"), reached an agreement to sell its 10% working interest in Block 1101 in Madagascar to Oyster Oil & Gas Limited ("Oyster").
On October 23, 2013, the Company received sale proceeds of CAD$500,000, as per the agreement, which represented the last step to reach completion pursuant to the Sale and Purchase Agreement dated September 6, 2013. An additional CAD$500,000 is to be paid in a combination of cash and shares of Oyster upon the drilling of the first exploration well on the Block. In addition, Candax will be compensated with future payments of up to CAD$3,000,000 from Oyster upon the successful commercial development of the field. Through a royalty agreement with East African Exploration Madagascar Ltd (EAX, a wholly owned subsidiary of Afren Plc), Candax is also entitled to receive a fourteen percent (14%) share of all net EAX production proceeds, up to a cumulative total of USD$3.55 million US dollars as well as a 0.33% share of all net EAX production proceeds up to a cumulative total of USD$15 million.
The encouraging results of the gas-cycling pilot program encouraged the Company to increase the gas compression capacity at the El Bibane onshore Central Processing Facilities (CPF) in order to facilitate the increase of condensate production from the field.
A G&G study will be performed in 2014 by the geoscience team in Tunis with the objective of improving the recovery rates on this complex reservoir.
With the workover campaign now complete, the average total Ezzaouia field production is expected to be approximately 700 bopd for 2014. In the meantime, the Partners will continue to pursue joint G&G studies within the field, with the objective of confirming significant potential for recoverable reserves. The Partners have budgeted for drilling a new well at the end of 2014.
Year End Reserves
Candax also announced an update to its net reserves as at December 31, 2013.
Total Proven plus Probable Reserves (2P) of oil declined by 14% from the previous year to 2.55 MMbbls.
The net present value (NPV) of the future cash flows (escalated price forecast, before tax and discounted at 10%, "PV10") attributable to the 2P reserves is valued at $57.1 million (compared to $82.9 million in 2012). This 31% decrease is due entirely to a re-assessment of the El Bibane field.
Overall results were as follows:
- 1P Reserves increased 84% from 0.67 million bbls to 1.24 million bbls
- 2P Reserves decreased 14% from 2.95 million bbls to 2.55 million bbls
- 3P Reserves (Contingent Reserves) were reported at 3.68 million bbls (not reported as at December 31, 2012)
Field Results were as follows:
- Ezzaouia 2P Reserves increased from 1.01 million bbls to 1.39 million bbls
- Ezzaouia PV10 increased from $31.9 million to $42.9 million
- Robbana 2P Reserves increased from 0.32 million bbls to 0.34 million bbls
- Robbana PV10 increased from $6.5 million to $7.1 million
- El Bibane Reserves decreased from 1.63 million to 0.84 million
- El Bibane PV10 decreased from $44.4 million to $7.1 million
The results of the independent engineering report, in particular the reduction in Reserves on El Bibane and the increase in 1P Reserves, reflect the company's de-emphasis on the higher risk drilling prospects of El Bibane and focus on the lower risk development and near term production possibilities of Ezzaouia and Robbana.
The Company's December 31, 2013 independent engineering report was prepared by Gaffney Cline & Associates and encompasses all of Candax's producing properties in Tunisia. For the year ended December 31, 2012, Ryder Scott Company Petroleum Consultants prepared the independent engineering report. Both reports were prepared in accordance with NI 51-101 guidelines and additional disclosure on the reserves and valuations is included in Candax's Annual Information Form.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
This press release includes "forward-looking statements", within the meaning of applicable securities legislation, which are based on the opinions and estimates of Management and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements.
Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Such risks and uncertainties include, but are not limited to, risks associated with the oil and gas industry (including operational risks in exploration development and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections in relation to production, costs and expenses; the uncertainty surrounding the ability of Candax Energy Inc. to obtain all permits, consents or authorizations required for its operations and activities; and health safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, the ability of Candax Energy Inc. to fund the capital and operating expenses necessary to achieve the business objectives of Candax Energy Inc., the uncertainty associated with commercial negotiations and negotiating with foreign governments and risks associated with international business activities, as well as those risks described in public disclosure documents filed by Candax Energy Inc. Due to the risks, uncertainties and assumptions inherent in forward-looking statements, prospective investors in securities of Candax Energy Inc. should not place undue reliance on these forward-looking statements. Statements in relation to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based uncertain estimates and assumptions, that the reserves described can be profitably produced in the future.
Candax is an international energy company with offices in Toronto and Tunis. The Candax group is engaged in exploration and the production of oil and gas in Tunisia and holds an interest in an exploration permit in Madagascar.