Crocotta Energy Inc.

TSX : CTA


Crocotta Energy Inc.

March 25, 2014 06:00 ET

Crocotta Energy Announces Strong Reserve Growth

CALGARY, ALBERTA--(Marketwired - March 25, 2014) - Crocotta Energy Inc. ("Crocotta") (TSX:CTA) is pleased to announce its 2013 year-end reserves as independently evaluated by GLJ Petroleum Consultants Ltd., in accordance with National Instrument 51-101 ("NI 51-101").

2013 Highlights

  • Increased proved plus probable reserves by 21% to 46.3 million barrels of oil equivalent ("boe")
  • Increased proved reserves by 29% to 28.6 million boe
  • Increased reserves per share by 12%
  • Reserve Replacement of 355% on a proved plus probable basis and 301% on a proved basis
  • Achieved all-in finding, development and acquisition costs ("FD&A") including changes in future development costs ("FDC") on a proved plus probable basis of $20.48 per boe ($20.96 per boe on a proved basis)
  • Achieved three-year all-in FD&A including changes in FDC on a proved plus probable basis of $14.84 per boe ($18.20 per boe on a proved basis)
  • Reserve life index of 13.7 years on a proved plus probable basis (8.5 years proved) based on Q4 2013 average production of 9,233 boepd
  • All FDC booked can be funded within projected cash flow

Capital and Reserve Discussion

Crocotta's capital was spent on achieving the following goals for 2013:

  • Being a low cost operator and improving netbacks
  • Proving up Edson Cardium and Dawson-Sunrise Montney
  • Expanding opportunity base within core areas and adding lands that could develop into new core areas

Facilities and pipeline capital totaled $23.7 million (19% of Capex) to expand both Edson and Montney facilities and gathering systems. At Edson, Crocotta signed an agreement to move substantially all its product in the area to the Alliance Pipeline as well as focusing capital to reduce operating costs. The benefits were substantial with an estimated increase in netback by approximately $4 per boe by Q413. Edson operating costs in Q413 were $4.00 per boe (excluding 2012 adjustments booked in Q413 that relate to a third party processing facility). While the commitment to improving netback did not necessarily result in more reserves, it did contribute materially to the value of the Edson asset that is approximately $100 million higher than year-end 2012.

Montney facilities were commissioned in late 2013 which reduced costs and increased liquid yields. By Q413, area Montney costs had dropped to $6.30 per boe from $10.50 per boe in Q1-Q313 and netbacks improved to $23.65 per boe from $13.85 per boe.

Crocotta's second goal was to prove up both the Cardium at Edson and the Montney at Dawson-Sunrise. Approximately $58 million (45% of capital) was spent on proving up and expanding the Cardium at Edson. As expected, reserve increases at Edson were predominantly in the Cardium and viewed by Crocotta as conservative given the early nature of production on the play. The Montney saw some increases but mainly saw movement from probable reserves to proved reserves as production in the area has matured. We believe the Montney has potential to materially add reserves in the future as we delineate our lands with future drilling. Overall, 5.2 mmboes were either moved from the probable category to the proved category or went from unbooked directly to proved. This resulted in a substantial increase to the lower-risk proved category.

Approximately $13.2 million (10.3% of Capex) was spent on expanding the land base and drilling new areas. Capital was spent approximately even on core and non-core areas and resulted in increasing the opportunity base within core areas and adding one potential new area to develop. Although initial reserve and value adds may not be material, we view the expansion of the opportunity base as a key to long-term growth.

Finding and Development Costs ("F&D")

All-in F&D costs including future development costs ("FDC") were $20.96 per boe on a Proved basis and $20.48 Proved plus Probable basis. The three-year comparative which normalizes the period costs was $18.20 on a Proved basis and $14.84 on a Proved plus Probable basis.

F&D costs were affected by a number of factors including the following:

  • 3.8 mmboe of probable undeveloped reserves booked in 2012 were converted to proved reserves in 2013. Capital spent to convert these reserves did not result in an increase in overall reserves (just moving them to the lower risk category)
  • 0.823 mmboe of P+P reserves that related to non-core properties were written off. With Crocotta's focus being on core properties, certain projects on non-core properties were written off as they are unlikely to be completed in the foreseeable future. These revisions affected finding costs negatively by $1.39 per boe on a P+P basis.
  • Certain infrastructure costs (see above) were incurred during the period that affect all future projects as well as current projects. Long-term F&D will normalize these costs but the 2013 year was negatively affected.

Crocotta has presented F&D costs below both including and excluding dispositions. While NI 51-101 requires that the effects of acquisitions and dispositions be excluded, Crocotta has calculated both with and without acquisitions and dispositions as acquisitions and dispositions can have a significant impact on a company's ongoing reserve replacement costs and that excluding these amounts could result in an inaccurate portrayal on a company's cost structure.

2013 2012 3 Year Average
Proved & Proved & Proved &
($000's, except were noted) Proved Probable Proved Probable Proved Probable
Finding & Development Costs (excluding net acquisitions/ dispositions)
Exploration and Development Expenditures 127,270 127,270 98,548 98,548 318,900 318,900
Change in FDC (1) 73,423 104,068 17,020 29,185 158,848 240,425
Finding and Development Costs excluding Net Acquisitions/ Dispositions
- Including FDC 200,693 231,338 115,568 127,733 477,748 559,325
All-in Finding and Development Costs
(including net acquisitions/ dispositions)
Exploration and Development Expenditures 127,270 127,270 98,548 98,548 318,900 318,900
Net Acquisitions (Dispositions) (including related capital) - - 5,406 5,406 (7,442 ) (7,442 )
Exploration and Development Expenditures including net acquisitions (dispositions)
127,270

127,270

103,954

103,954

311,458

311,458
Change in FDC 73,423 104,068 17,020 29,185 158,848 240,425
All-in Finding and Development Costs - Including FDC 200,693 231,338 120,974 133,139 470,306 551,883
Reserve Additions (Mboe)
Exploration and Development 9,573 11,296 6,564 10,307 26,055 38,190
Net Acquisitions/ Dispositions - - 665 807 (220 ) (997 )
Total Reserve Additions 9,573 11,296 7,229 11,114 25,835 37,193
Finding and Development Costs excluding net acquisitions/ dispositions ($/boe)
Excluding FDC 13.29 11.27 15.01 9.56 12.24 8.35
Including FDC 20.96 20.48 17.61 12.39 18.34 14.65
All-in Finding and Development Costs ($/boe)
Excluding FDC 13.29 11.27 14.38 9.35 12.06 8.37
Including FDC 20.96 20.48 16.73 11.98 18.20 14.84
  1. Future development capital ("FDC") expenditures required to recover reserves estimated by GLJ. The aggregate of the exploration and development costs incurred in the most recent financial period and the change during that period in estimated future development costs generally may not reflect total finding and development costs related to reserve additions for that period.

Netback and Recycle Ratio

Crocotta has been able to significantly improve its netback through various initiatives in 2013 that increased the net revenue stream and reduced operating costs. The effect of Crocotta's efforts were visible in Q413 where netbacks increased to $28.82 per boe (b efore 2012 non-recurring adjustments of $890,000) from $24.21 per boe in Q1-Q313. The effect at Edson was even more dramatic as netbacks increased to $30.88 per boe (from $25.37 per boe in Q1-Q313) due to operating cost being reduced to $4.00 per boe and net revenues increasing from Aux Sable processing arrangement.

At Dawson-Sunrise, Crocotta started producing through its own facility in the fall of 2013. Operating costs were reduced to $6.30 per boe in Q413 from $10.50 in Q1-Q313. Liquids yield also increased significantly and contributed to the increase in Q413 netback to $23.65 per boe as compared to $13.85 per boe in Q1-Q313.

The following chart shows netback and recycle ratio using Q413 netbacks (excluding a 2012 gas plant adjustment of $890,000 booked in Q413 financials) when compared to one and three year finding costs (All-in including FDC on a P+P basis). We have also shown Edson recycle ratio using Q413 Edson netback compared to one and three year finding costs.



Crocotta Q413
Netback and 3
Year F&D
Crocotta Q413
Netback and 2013
F&D
Edson Q413
Netback and 3-
year F&D
Edson Q413
Netback and 2013
F&D
Netback $ per Boe 28.82 28.82 30.88 30.88
F&D - $ per Boe 14.84 20.48 14.84 20.48
Recycle Ratio 1.9 1.4 2.1 1.5

Reserve Life Index

The Company's Reserve Life Index presented below is based on Q4 2013 average production of 9,233 boepd.

Reserve Category Reserve Life Index
Proved plus Probable Reserves 13.7
Proved 8.5

Reserves Summary

Crocotta's December 31, 2013 reserves as prepared by the independent reserves evaluation firm GLJ Petroleum Consultants Ltd. ("GLJ") and based on the GLJ (2014-01) future price forecast are as follows:


Light/Medium Oil

Heavy Oil

Natural Gas Liquids

Natural Gas
Barrels of Oil
Equivalent
Company
Interest
(Mbbl)

Net
(Mbbl)
Company
Interest
(Mbbl)

Net
(Mbbl)
Company
Interest
(Mbbl)

Net
(Mbbl)
Company
Interest
(Mmcf)

Net
(Mmcf)
Company
Interest
(Mboe)

Net
(Mboe)
Proved
Producing 1,110 863 0 0 2,252 1,914 51,946 43,326 12,019 9,998
Developed Non-producing 33 31 50 45 154 133 6,208 5,493 1,272 1,124
Undeveloped 1,079 949 54 44 2,284 2,017 71,285 61,138 15,298 13,201
Total proved 2,222 1,843 104 90 4,690 4,064 129,439 109,958 28,589 24,323
Probable 1,466 1,186 56 47 2,865 2,481 79,671 66,765 17,665 14,842
Total proved & probable 3,688 3,029 160 137 7,555 6,546 209,110 176,723 46,254 39,165

Notes:

  1. "Company Interest" reserves means Crocotta's working interest (operating and non-operating) share before deduction of royalties and including any royalty interest of Crocotta.
  2. "Net" reserves means Crocotta's working interest (operated and non-operated) share after deduction of royalties, plus Crocotta's royalty interest in reserves.
  3. Oil equivalent amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil.
  4. Numbers may not add due to rounding.

Reserves Values

The estimated future net revenues before taxes associated with Crocotta's reserves effective December 31, 2013 and based on the GLJ (2014-01) future price forecast are summarized in the following table:

($000s) 0% DCF 5% DCF 10% DCF 15% DCF
Proved
Producing 282,361 236,167 204,375 181,206
Developed Non-producing 26,503 18,591 14,430 11,883
Undeveloped 283,914 194,624 139,874 103,783
Total proved 592,778 449,382 358,679 296,872
Probable 446,990 267,644 178,046 126,582
Total proved & probable 1,039,768 717,026 536,725 423,454

Price Forecast

The GLJ (2014-01) price forecast for the next 5 years is as follows:


Year
WTI @ Cushing
($US / Bbl)
Edmonton Light
($Cdn / Bbl)
Natural Gas at AECO
($Cdn / Mmbtu)
2014 97.50 92.76 4.03
2015 97.50 97.37 4.26
2016 97.50 100.00 4.50
2017 97.50 100.00 4.74
2018 97.50 100.00 4.97

Forward-Looking Information

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "should", "believe", "intends", "forecast", "plans", "guidance" and similar expressions are intended to identify forward-looking statements or information.

More particularly and without limitation, this document contains forward looking statements and information relating to the Company's oil, NGLs and natural gas production and reserves and reserves values, capital programs, and oil, NGLs, and natural gas commodity prices. The forward-looking statements and information are based on certain key expectations and assumptions made by the Company, including expectations and assumptions relating to prevailing commodity prices and exchange rates, applicable royalty rates and tax laws, future well production rates, the performance of existing wells, the success of drilling new wells, the availability of capital to undertake planned activities and the availability and cost of labour and services.

Although the Company believes that the expectations reflected in such forward-looking statements and information are reasonable, it can give no assurance that such expectations will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the uncertainty of estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation, environmental risks, competition, the ability to access sufficient capital from internal and external sources and changes in tax, royalty and environmental legislation. The forward-looking statements and information contained in this document are made as of the date hereof for the purpose of providing the readers with the Company's expectations for the coming year. The forward-looking statements and information may not be appropriate for other purposes. 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.

BOE Conversions

BOE's 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.

Contact Information

  • Crocotta Energy Inc.
    Robert Zakresky
    President and Chief Executive Officer
    (403) 538-3736

    Crocotta Energy Inc.
    Nolan Chicoine
    Vice President, Finance and Chief Financial Officer
    (403) 538-3738

    Crocotta Energy Inc.
    (403) 538-3737
    (403) 538-3735 (FAX)
    www.crocotta.ca