DeeThree Exploration Ltd.
TSX : DTX
OTCQX : DTHRF

DeeThree Exploration Ltd.

March 05, 2015 08:00 ET

DeeThree Exploration Announces 2014 Year End Reserves and Provides Operations Update

CALGARY, ALBERTA--(Marketwired - March 5, 2015) -

Not for distribution to U.S. news wire services or dissemination in the United States

DEETHREE EXPLORATION LTD. ("DeeThree" or the "Company") (TSX:DTX)(OTCQX:DTHRF) is pleased to report its 2014 year end oil and gas reserves. At December 31, 2014 DeeThree has increased its proved plus probable reserves by 31% to 51.8 mmboe as compared to the prior year. DeeThree's reserve additions were predominately a result of the successful 2014 drilling program.

RESERVE HIGHLIGHTS

  • Total proved plus probable reserves increased 31% to 51.8 million boe (75% oil and NGLs) as at December 31, 2014 from 39.4 million boe (77% oil and NGLs) as at December 31, 2013.

  • Total proved reserves increased 35% to 35.4 million boe (74% oil and NGLs) as at December 31, 2014 from 26.3 million boe (77% oil and NGLs) as at December 31, 2013.

  • Achieved finding, development and acquisition costs ("FD&A"), including the change in future development capital ("FDC"), of $21.51 per boe on proved plus probable reserves additions and $27.88 per boe on total proved reserves additions.

  • Predominately all 2014 reserve additions were added organically with only $23 million spent on acquisitions (comprised mainly of undeveloped land in the Company's core areas).

  • Achieved finding and development costs ("F&D"), including the change in future development capital ("FDC") of $20.12 per boe on proved plus probable reserves additions and $26.14 per boe on total proved reserves additions.

  • Proved plus probable future net capital of $388 million represents less than 2.5 years of the Company's forecasted capital budget.

  • On a fully diluted per share basis, increased proved plus probable reserves by 17% and increased proved reserves by 20%.

  • Net asset value per fully diluted share calculated on a present value before tax discounted at 10% ("BTPV10") increased to an estimated $8.75 per share at December 31, 2014 inclusive of an internal land value of $78 million.

  • Completed several significant infrastructure projects at a total cost of approximately $18.1 million including expanding the Company's Brazeau Belly River battery capacity to 12,000 bbls/d and the addition of compression capacity in Lethbridge to re-inject all of the Company's produced gas in support of its Bakken Enhanced Oil Recovery Scheme.

  • Proved plus probable reserve additions replaced 2014 production by 3.0 times.

  • Proved plus probable recycle ratio of 2.1 based on estimated 2014 operating netback of $45.16 per boe.

The evaluation of DeeThree's petroleum and natural gas reserves as at December 31, 2014 was prepared by the Company's independent reserve engineering firm, Sproule Associates Limited ("Sproule") and was conducted pursuant to National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGEH") reserves definitions. Additional reserve information as required under NI 51-101 will be included in the Company's Annual Information Form which will be filed on SEDAR by March 31, 2015. Financial information presented above is based on management prepared financial statements for the year ended December 31, 2014 which are in the process of being audited by DeeThree's independent auditors and, accordingly, such financial information is subject to change based on the results of the audit. See "Reader Advisory - Unaudited Financial Information" below.

RESERVES INFORMATION

The Company's reserves are located in the Brazeau area of west central Alberta and Peace River Arch area of northwestern Alberta, which feature light crude oil, natural gas and natural gas liquids and in the Lethbridge area of southern Alberta, which features Bakken oil plus shallow natural gas.

In 2014, the Company drilled a total of 47 gross (46.93 net) wells with a 94% percent success rate, 28 gross (27.93 net) wells on the Belly River property, 18 gross (18.0 net) on the Alberta Bakken property, and 1.0 gross (1.0 net) wells on the Peace River Arch property.

The following table represents the Company's reserves effective as at December 31, 2014 as evaluated by Sproule. The evaluation of DeeThree's petroleum and natural gas reserves was conducted pursuant to NI 51-101 and COGEH reserves definitions.

Natural Gas Crude Oil NGLs BOE(3)
Gross(2)
(mmcf)
Gross(2)
(mbbls)
Gross(2)
(mbbls)
Gross(2)
(mboe)
Proved
Developed producing 24,815 10,837.4 1,058.9 16,032.0
Developed non-producing 7,809 191.8 286.8 1,780.1
Undeveloped 23,053 12,387.9 1,311.78 17,541.7
Total Proved(1) 55,677 23,417.1 2,657.3 35,353.9
Total Probable(1) 21,735 11,829.6 1,026.6 16,478.7
Total Proved plus Probable(1) 77,412 35,246.7 3,683.8 51,832.6
Notes:
(1) Total values may not add due to rounding.
(2) "Gross" Company reserves are the Company's total working interest share before the deduction of any royalties and without including any royalty interests of the Company.
(3) In the case of BOEs, using BOEs derived by converting gas to oil equivalent in the ratio of six thousand cubic feet of gas to one barrel of oil (6 MCF:1 bbl). See "Reader Advisory - BOE Presentation" and "Reader Advisory - Information Regarding Disclosure on Oil and Gas Reserves" below.

The following table summarizes the Net Present Value of the Company's share of oil and natural gas reserves effective as at December 31, 2014.

Before Income Taxes Discounted At

('000s)
0%
($)
5%
($)
10%
($)
Proved
Developed producing 542,053 433,604 363,181
Developed non-producing 56,697 25,884 14,291
Undeveloped 508,124 343,569 245,083
Total Proved(1)(2)(3) 1,106,874 803,056 622,556
Total Probable(1)(2)(3) 599,905 381,846 271,378
Total Proved plus Probable(1)(2)(3) 1,706,779 1,184,902 893,934
Notes:
(1) Total values may not add due to rounding.
(2) Forecast pricing used is based on Sproule published price forecasts effective December 31, 2014.
(3) It should not be assumed that the net present values of future net revenues estimated by Sproule represent fair market value of the reserves. There is no assurance that the forecast price and cost assumptions will be attained and variances could be material. See "Reader Advisory - Information Regarding Disclosure on Oil and Gas Reserves" below.

The following table provides a reconciliation of the Company's gross reserves based on forecast prices and costs.

RECONCILIATION OF COMPANY GROSS RESERVES BY PRINCIPLE PRODUCT TYPE
Light and Medium Oil Natural Gas (1) Natural Gas Liquids TOTAL
Proved (MBbl) Probable (MBbl) Proved Plus Probable (MBbl) Proved (MMcf) Probable (MMcf) Proved Plus Probable (MMcf) Proved (MBbl) Probable (MBbl) Proved Plus Probable (MBbl) Proved (MBOE) Probable (MBOE) Proved Plus Probable (MBOE)
Balance at December 31, 2013 (1) 17,953.5 9,787.2 27,740.7 39,007 15,640 54,647 1,830.0 734.2 2,564.1 26,284.7 13,128.0 39,412.6
Discoveries, Extensions and Improved Recovery 9,508.1 4,791.7 14,299.8 19,354 8,499 27,853 1,159.0 480.0 1,639.0 13,892.8 6,688.2 20,580.9
Infill Drilling 46.8 23.1 69.9 - - 1 - - - 46.9 23.2 70.0
Acquisitions/Dispositions 151.2 28.2 179.4 3,310 509 3,819 208.9 32.9 241.8 911.8 146 1057.7
Economic Factors (39.5 ) (3.5 ) (43.0 ) (184 ) (43 ) (227 ) (5.7 ) (0.1 ) (5.8 ) (75.9 ) (10.8 ) (86.7 )
Technical Revisions (1,158.1 ) (2,797.1 ) (3,955.2 ) (722 ) (2,870 ) (3,592 ) (290.6 ) (220.4 ) (511.0 ) (1,569.1 ) (3,495.9 ) (5,065.0 )
Production (3,044.9 ) - (3,044.9 ) (5,088 ) - (5,088 ) (244.3 ) - (244.3 ) (4,137.1 ) - (4,137.1 )
Balance at December 31, 2014 23,417.1 11,829.6 35,246.7 55,677 21,735 77,412 2,657.3 1,026.5 3,683.8 35,353.9 16,478.6 51,832.6
Notes:
(1) Estimates of reserves of natural gas include associated and non-associated gas.
(2) Figures may not add due to rounding.

The following table summarizes the net asset value per fully diluted share calculated as at December 31, 2014 on a present value before tax discounted at 10%.

NPV 10%
December 31, 2014 ($'000s) $/share(6)
Proved plus probable NPV(1)(2) 893,934 9.60
Net undeveloped land(3) 77,954 0.84
Net Debt(4) (171,347 ) (1.84 )
Proceeds from stock options(5) 14,048 0.15
Net asset value 814,589 8.75
Notes:
(1) Evaluated by Sproule as at December 31, 2014. Net present value of future net revenue does not represent fair market value of the reserves.
(2) Net present values ("NPV") equals net present value of future net revenue before taxes based on Sproule's forecast prices and costs as of December 31, 2014.
(3) Internally evaluated.
(4) Net debt as at December 31, 2014, including working capital deficit (unaudited).
(5) Proceeds from the exercise of stock options based on the closing trading price of DeeThree's common shares on December 31, 2014.
(6) Based on a total of 93.1 million fully-diluted common shares outstanding at December 31, 2014, including 89 million common shares of and common shares issuable upon exercise of 4.1 million stock options.
(7) Figures may not add due to rounding.

Operations Update

DeeThree is pleased to report that its organic growth has continued into 2015. The Company has drilled 5.0 gross (5.0 net) of its previously budgeted 10.0 gross (10.0 net) wells in the first quarter to date. Results have exceeded expectations in both of its core areas and, as a result, the Company has elected to reduce its first quarter capital program and now plans to drill one more well in the first quarter for a total of 6.0 gross (6.0 net) wells. In addition, the Company has significantly reduced declines on its historical Bakken production with its enhanced oil recovery initiative. DeeThree is on-track to achieve its previously announced guidance.

The Company is experiencing a significant reduction in costs due to its optimization efforts and reduced service costs. DeeThree has flexibility both financially and operationally, and will take further advantage of lower industry activity going forward.

Brazeau Belly River

DeeThree's drilling success on its Brazeau Belly River property has continued into 2015. The Company has drilled 3.0 gross (3.0 net) wells and completed two to date. DeeThree continues to see production performance gains with its drilling and completion optimization strategies. Highlights include a Belly River well drilled in the D zone which tested at a final flowing rate of 1,700 bbls/d of crude oil and 1.9 mmscf/d of natural gas at 260 psi wellhead pressure after a four day test. The Company has successfully increased production performance to date and a primary focus in 2015 will be to further reduce costs.

DeeThree is on-track to achieve the 10% cost reductions incorporated in its 2015 budget, released on January 13, 2015. In addition to reduced service costs, DeeThree is aggressively pursuing process improvements in order to minimize costs and maximize returns. DeeThree has completed several key initiatives over the last year including land consolidation, facility and infrastructure expansions and has obtained down-spacing approvals to provide operational flexibility and cost control.

Alberta Bakken

The Company continues to focus on its gas reinjection enhanced oil recovery ("EOR") scheme on its Alberta Bakken property. Based on the success of the pilot which started in July of 2013, the Company invested an additional $7 million of capital in 2014, installing a built-for-purpose compressor and associated high pressure injection lines which has the capacity to re-inject all currently produced gas. Since increasing the injection rate in September of 2014, the Company has observed reduced declines over a 14 section area in the heart of the pool. Preliminary results from reservoir modeling by third party consultants, using Petrel modeling software, predict the potential for an increase of up to 200% in recovery factors associated with gas reinjection beyond the recovery factors with primary drilling alone.

The first well drilled and completed in 2015 is a horizontal infill well located within the gas reinjection area. This well has exceeded expectations and provides additional data which further support the case for gas reinjection. The 1-24-3-17 W4M well tested at various flowing rates of up to 1,800 bbls/d of crude oil and has continued to flow at a restricted rate of 370 bbls/d of oil and 450 mscf/d of gas at 305 psi after 14 days of production. DeeThree has drilled a second well into the pool using monobore technology and has seen drill cost reductions of 25-30%.

Given the improved decline rates in the EOR area, the positive data from the computer modeling of the reservoir, and the recent new well data described above, management is increasingly confident that the EOR scheme is effective and as such, plans to accelerate the transition towards full implementation of EOR for its Alberta Bakken property. DeeThree is focused on the long term development of the pool with the goal of maximizing oil recovery and capital efficiency with a capital program tailored to match the EOR strategy. With an improving decline rate, increasing pressure support, a large drilling inventory and reduced capital costs, the Company is expecting to grow production and free cash flow at a sustainable rate even under current commodity pricing.

2015 GUIDANCE and 2014 YEAR END REPORTING

The Company continues to prove up the depth and quality of its two core properties while simultaneously reducing capital costs. With approximately 93% of the 2015 budget being directed towards drilling and completions, the Company will demonstrate measurable improvement in capital efficiencies.

DeeThree maintains a high level of financial flexibility with year-end 2014 net debt of $170-175 million relative to a bank line of $310 million. In addition, the Company has over 2,000 bbls/d of oil hedged in 2015 at favorable rates which will help to mitigate commodity price volatility.

The Company will report its 2014 year end results and provide an operational update on March 26, 2015.

Reader Advisory

Forward-Looking Statements. Certain statements contained in this press release may constitute forward-looking statements. These statements relate to future events or the DeeThree's future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These 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 statements. DeeThree believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon by investors. These statements speak only as of the date of this press release and are expressly qualified, in their entirety, by this cautionary statement.

In particular, this press release contains forward-looking statements, pertaining to the following: projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, oil and natural gas production levels, the success of the enhanced oil recovery scheme on DeeThree's Alberta Bakken property, capital expenditure programs, treatment under governmental regulatory and taxation regimes, expectations regarding DeeThree's ability to raise capital and to continually add to reserves through acquisitions and development, and projections of market prices and costs.

With respect to forward-looking statements contained in this press release, DeeThree has made assumptions regarding, among other things: the legislative and regulatory environments of the jurisdictions where DeeThree carries on business or has operations, the impact of increasing competition, the cost of oilfield services and DeeThree's ability to obtain additional financing on satisfactory terms.

DeeThree's actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; uncertainties associated with estimating reserves; uncertainties associated with DeeThree's ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect DeeThree's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

This forward-looking information represents DeeThree's views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. DeeThree has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

Test Rates. Test rates are not necessarily indicative of long-term performance or of ultimate recovery. Neither a pressure transient analysis nor a well-test interpretation has been carried out and the data should be considered to be preliminary until such analysis or interpretation has been done.

Unaudited Financial Information. Certain financial and operating information included in this press release are based on estimated unaudited financial results for the year ended December 31, 2014 and are subject to the same limitations as discussed under "Forward- Looking Statements" set out above. These estimated amounts are subject to change upon the completion of the audited financial statements for the year ended December 31, 2014 and changes could be material. DeeThree anticipates filings its audited financial statements and related management's discussion and analysis for the year ended December 31, 2013 on SEDAR on March 26, 2014.

Information Regarding Disclosure on Oil and Gas Reserves. The reserves data set forth above is based upon an independent reserves assessment and evaluation prepared by Sproule with an effective date of December 31, 2014 (the "Sproule Report"). The presentation summarizes the Company's crude oil, natural gas liquids and natural gas reserves and the net present values before income tax of future net revenue for the Company's reserves using forecast prices and costs based on the Sproule Report. The Sproule Report has been prepared in accordance with the standards contained in the COGEH and the reserve definitions contained in NI 51-101. All evaluations and reviews of future net cash flows are stated prior to any provisions for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures for wells to which reserves have been assigned. It should not be assumed that the estimates of future net revenues presented in the tables above represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of our crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein. The reserve data provided in this release only represents a summary of the disclosure required under NI 51-101. Additional disclosure will be provided in the Company's Annual Information Form filed on www.sedar.com on or before March 31, 2015.

Non-IFRS Financial Measures. This press release includes references to financial measures commonly used in the oil and gas industry such as "funds from operations" and "recycle ratio", which do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS"). Management believes that in addition to net income and cash flow from operating activities, these non-IFRS financial measures are useful supplemental measures in assessing DeeThree's ability to generate the cash necessary to repay debt or fund future growth through capital investment. Readers are cautioned, however, that these measures should not be construed as an alternative to net income or cash flow from operating activities determined in accordance with IFRS as an indication of DeeThree's performance. DeeThree's method of calculating these measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. For these purposes, DeeThree defines funds from operations as cash provided by operations before changes in non-cash operating working capital.

Finding, Development and Acquisition Costs. The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.

BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

We seek Safe Harbor.

Contact Information

  • DeeThree Exploration Ltd.
    Martin Cheyne
    President and Chief Executive Officer
    (403) 263-9130
    www.deethree.ca