Granite Oil Corp.

Granite Oil Corp.

February 22, 2016 08:00 ET

Granite Oil Corp. Announces 2016 Budget and Regulatory Approval of Consolidated EOR Scheme

CALGARY, ALBERTA--(Marketwired - Feb. 22, 2016) -

Editors Note: There is a photo associated with this press release.

GRANITE OIL CORP. ("Granite" or the "Company") (TSX:GXO)(OTCQX:GXOCF) Granite is pleased to announce its budget and guidance for 2016.

Granite also announces that it has received the approval of the Alberta Energy Regulator ("AER") to operate its gas injection enhanced oil recovery ("EOR") scheme on its 100%-owned Alberta Bakken property under a consolidated regulatory framework across 23 contiguous sections of land. This approval is a key milestone for Granite as it provides Granite with additional flexibility to expand and optimize its EOR scheme, a process which forms the backbone of Granite's operational plan for 2016.

Fourth Quarter 2015

Granite drilled two horizontal production wells during the fourth quarter of 2015 and averaged approximately 3,330 bbls/d of oil production during the quarter. Capital expenditures were approximately $8.5 million, including $1.7 million for the expansion of its gas injection facilities, which provides long-term injection capacity for the continued expansion of the EOR scheme. Granite also drilled a vertical test well in the western portion of the Bakken pool at a cost of $1.6 million. This was Granite's final commitment well and continued to expand the size of Granite's Bakken oil resource.

Granite paid down approximately $1.8 million of bank debt during the quarter resulting in year-end net debt of approximately $39.8 million, a 4% reduction relative to September 30, 2015.

2016 Budget

Granite's budget for 2016 is sustainable and is funded by internally generated funds flow. It is designed to bridge the current low commodity price environment plus maximize shareholder value over the long-term. The budget aims to improve Granite's annual production decline rate to 16-18% by year-end which will allow Granite to operate more efficiently in 2017 and beyond. Based on an average WTI oil price of US$32.50, Granite's capital program and dividend obligations will be fully funded by internally generated funds flow. Budget details include:

  • Maintaining Granite's year-end net debt level of approximately $39.8 million, protecting Granite's balance sheet and providing go-forward flexibility. Based on our budget, this level would equate to a debt to cash flow ratio of 1.7 times.
  • Maintaining the current dividend rate of $0.42/share per year (an aggregate annual payout of approximately $12.8 million).
  • At an average WTI oil price of US$32.50, the Company expects oil production volumes will average 3,000 bbls/d in 2016. The Company has the ability to quickly adjust its program, and at an average WTI oil price of US$37.00 in 2016, oil production volumes will average 3,250 bbls/d.
  • Generating funds flow of $23 million at US$32.50.
  • A $10.2 million capital program, consisting of the drilling of four Bakken horizontal wells and expenditures related land acquisitions and facilities.
  • Operational focus on the mitigation of production decline rate through increasing gas injection volumes in the EOR scheme optimizing existing production to achieve voidage replacement ratio ("VRR"; calculated as total volume injected/total volume produced) of 100%, providing improved returns in all commodity price environments.
  • Capital cost reductions for wells drilled of 15% to $1.7 million per well, reflecting current service cost reductions ($2.0 million per well in 2015).
  • Continued improvements on operating cost structure, with forecasted operating costs and G&A costs of $6.00 and $2.50 per barrel of oil, respectively, in-line with second-half 2015 results.
  • Further expansion of Granite's EOR scheme with the commissioning of an eighth injector well on the western side of Granite's Bakken oil pool area. Regulatory approval for this injector well has been obtained.
2016 Budget US $32.50 WTI US $37.00 WTI
Oil Production bbls/d 3,000 3,250
Capex MM$ 10.2 14.2
Dividend ($0.035/month) MM$ 12.8 12.8
Funds Flow MM$ 23.0 27.1
Exit Net debt MM$ 39.8 39.7
All-in Payout Ratio % 100 99
Wells # 4 6
Capex per Well MM$ 1.7 1.7
Royalty % 25.5 28.0
Operating and Transportation $/bbl 7.25 7.25
G&A + interest MM$ 4.3 4.2
Differential to WTI US$/bbl 13.00 13.00
CAD/USD FX Rate $ 1.4 1.4

Risk Management

For the first half of 2016, the Company has an average of 665 bbls/d of oil hedged at an average of $44/bbl U.S. WTI and 750 bbls/d of oil hedged at an average of $77/bbl CAD WTI.

For the second half of 2016, Granite has an average of 750 bbls/d of oil hedged at an average of $45/bbl U.S. WTI and 500 bbls/d of oil hedged at an average of $79/bbl CAD WTI.

Regulatory Approval of Enhanced EOR Scheme and Operational Update

A key component to Granite's success is the evolution of its gas injection EOR scheme on its 100%-owned-and-operated Bakken oil pool. The Alberta Energy Regulator (AER) approval, obtained in the fourth quarter of 2015, allows for an accelerated implementation of Granite's long-term plan while providing the flexibility to optimize injection volumes, production rates, and future drilling.

The approval grants Granite Good Production Practice 'GPP' over 23 contiguous sections of land, estimated by Granite to contain approximately 200 million bbls of original oil in place ("OOIP"). The approval removes gas-associated rate restrictions for all wells within the EOR scheme area. The Company currently has five producing oil wells flowing at restricted rates located within this area. The approval also allows for injected volumes to exceed produced volumes (VRR of greater than 100%) for a period, until cumulative production has been met, providing the opportunity to return the pool to original pressure conditions. The map attached shows the scope of the AER injection approval area and the associated gas injection wells and production wells.

In anticipation of this approval, a gas pipeline and meter station from a local gas utility provider was recently commissioned by Granite. This provides Granite access to its existing gas production located north of the Bakken oil pool to support its EOR scheme. This infrastructure also allows the Company to access any third party gas through the Alberta sales distribution network.

The Company took advantage of low equipment costs in the fourth quarter of 2015 with the purchase of approximately 2,000 HP of additional gas injection compression. This equipment is currently being installed and will provide the Company with additional gas injection capacity for up to 15 MMscf/d. With current oil production rates, the Company needs approximately 7.5 MMscf/d of gas injection to achieve a VRR of 100%. As Granite's recently received EOR approval allows for injection rates above 100% VRR, investing in this infrastructure is a key component to the Company's 2016 plan, and the long-term development of the EOR scheme. With this infrastructure build out, Granite will be well-positioned to take advantage of potential depressed gas prices to further increase injection, thereby further accelerating re-pressurization of the Bakken reservoir, should the opportunity arise.

Granite entered 2016 in a strong position, both operationally and financially. With its strategic plan, Granite will be well-positioned to enter 2017 with lower decline rates, long-term facility capacity and a strong balance sheet. Granite will continue to closely monitor oil prices and other critical factors and, with its strong balance sheet and improving decline profile, will be in a position to react to all commodity price scenarios.

Reader Advisory

Forward-Looking Statements. Certain statements contained in this news release may constitute forward-looking statements. These statements relate to future events or Granite'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. Granite 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 news release should not be unduly relied upon by investors. These statements speak only as of the date of this news release and are expressly qualified, in their entirety, by this cautionary statement.

In addition, and without limiting the generality of the foregoing, this news release contains forward-looking statements pertaining to the following: Granite's plans for 2016, Granite's future production levels and funds flow, total payout ratio, net debt, projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, the effectiveness of the EOR Project, capital expenditure programs, treatment under governmental regulatory and taxation regimes, expectations regarding Granite's credit facility and its 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 news release related to Granite's business and operations, Granite has made assumptions regarding, among other things: prevailing commodity prices, exchange rates, estimates of cost, including drilling and operating costs, the sufficiency of budgeted capital expenditures in carrying out planned activities; the state of the economy and the exploration and production business; the legislative and regulatory environments of the jurisdictions where Granite carries on business or has operations, the impact of increasing competition, and Granite's ability to obtain additional financing on satisfactory terms.

Granite'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 Granite'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.

This forward-looking information represents Granite'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. Granite 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.

This news release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about Granite's prospective results of operations, cash flows, netbacks, debt, operating costs and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this news release was made as of the date of this news release and was provided for the purpose of providing further information about Granite's anticipated future business operations. Granite disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this news release should not be used for purposes other than for which it is disclosed herein.

Non-GAAP Measurements. This news release contains the terms "funds flow", which should not be considered an alternative to or more meaningful than cash flow from (used in) operating activities as determined in accordance with IFRS. These terms do not have any standardized meaning under IFRS. Granite's determination of funds flow may not be comparable to that reported by other companies. Management uses funds from operations to analyze operating performance and leverage, and considers funds from operations to be a key measure as it demonstrates the Company's ability to generate cash necessary to fund future capital investments and to repay debt, if applicable. Funds from operations is calculated using cash flow from operating activities as presented in the statement of cash flows, before changes in non-cash working capital. Granite presents funds from operations per share whereby per share amounts are calculated using weighted-average shares outstanding, consistent with the calculation of earnings per share. Net debt, which represent current assets less current liabilities, excluding current derivative financial instruments, is used to assess efficiency, liquidity and the Company's general financial strength. No IFRS measure is reasonably comparable to working capital deficit.

Original Oil in Place (OOIP). OOIP is the equivalent to Discovered Petroleum Initially In Place (DPIIP) for the purposes of this news release. DPIIP is defined as quantity of hydrocarbons that are estimated to be in place within a known accumulation, plus those estimated quantities in accumulations yet to be discovered. There is no certainty that it will be commercially viable to produce any portion of the resources. A recovery project cannot be defined for this volume of DPIIP at this time, and as such it cannot be further sub-categorized. The OOIP estimates included in this press release have an effective date of January 1, 2016.

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.

To view the Map associated with this release, please visit the following link:

Contact Information

  • Granite Oil Corp.
    Michael Kabanuk
    President & CEO
    (587) 349-9123

    Granite Oil Corp.
    Jonathan Fleming
    (587) 349-9118