Granite Oil Corp.
TSX : GXO
OTCQX : GXOCF

Granite Oil Corp.

January 24, 2017 18:45 ET

Granite Oil Corp. Announces 2017 Budget With Continued Development of its Core Bakken Pool and an Exploration Program

CALGARY, ALBERTA--(Marketwired - Jan. 24, 2017) - GRANITE OIL CORP. ("Granite" or the "Company") (TSX:GXO)(OTCQX:GXOCF) Granite is pleased to announce its budget and guidance for 2017.

Granite is pleased with its accomplishments throughout 2016. Notwithstanding record low oil prices, it was a transformational year that saw major advancements in the Company's Gas Injection Enhanced Oil Recovery ("EOR") Scheme over its Bakken pool and significant, permanent efficiency gains in its capital spending making the Company stronger going into 2017 and beyond.

In December 2015 Granite received approval from the Alberta Energy Regulator to expand the Company's highly effective EOR Scheme across 24 contiguous sections of its 100%-owned Alberta Bakken oil pool. Granite focused relentlessly on the effective transition of the pool to full-scale EOR. Throughout 2016, Granite converted three additional producing wells to gas injectors and took advantage of seasonally low gas prices to increase its gas injection by over 60%. By prioritizing this transition, Granite returned significant portions of the heart of the pool to original pressure conditions ahead of schedule.

The Company also continued to optimize its development drilling program with modifications to well and completion design, and focused primarily on drilling EOR-specific wells. With more data, results from the 15 EOR-specific wells drilled and completed throughout 2015 and 2016 continue to out-perform. These results include increased oil recovery per meter of lateral section by a Company-estimated 2.4 times along with improved decline profiles. Granite continues to rapidly learn and optimize, with the wells drilled in the second half of 2016 performing significantly better than those drilled in the first half of 2016. As well, adjusting for lost production through the conversion of producing wells to gas injectors, the Company's historical base production has also shown reduced declines from its gas injection support, meeting a major objective of 2016 in getting its decline below 20%. Please refer to the new corporate presentation at www.graniteoil.ca.

Granite also reduced all-in well costs by over 55% from $2.67 million in 2015 to $1.2 million by the end of 2016. These gains were primarily achieved through operational optimization and well design resulting in similar cost savings realized on the first two wells of 2017 despite recent increases in service costs. When combined with the significant improvement in recovery, these wells are the most capital efficient including recycle ratios at current oil prices, in the Company's history.

2017 Budget

Granite's budget for 2017 will continue a trend of decreasing capital as the Company and its Bakken asset become more efficient. In 2017, Granite will be sustainable, funded by internally generated funds from operations, grow production year over year, and maintain the divided of $0.42/share per year. The budget will continue to focus on maximizing long-term shareholder value by advancing its free cash flow-generating Bakken oil pool and exploring its high-impact Bakken land position.

Firstly, Granite will continue to improve the Company's annual production decline rate, reducing future maintenance and growth capital requirements, and prioritize the most efficient recovery of the Company's large oil in place. Secondly, the Company will execute a high-impact exploration program on strategic lands acquired in 2016 within its 100%-owned, 80 section Bakken oil fairway. The exploration program will include three wells targeting high-priority Bakken targets that have been high-graded over several years of geosciences work.

Based on an average WTI oil price of $55 US, Granite's capital program and dividend obligations will be fully funded by internally generated funds from operations. Details of Granite's 2017 budget include:

  • Annual average production volumes of approximately 3,050 bbl/d oil, representing an eight percent year over year growth;
  • Annual dividend payments totaling $14.5 million at the current dividend rate of $0.035/share per month (current yield of seven percent);
  • Capital expenditures of approximately $16.5 million, consisting of:
    • $13.5 million of development capital put towards the drilling and completion of 10, 100% working interest, EOR-specific Bakken horizontal wells, and continued EOR expansion through the conversion of three additional producing wells to gas injection wells; and
    • $3.0 million of exploration capital put towards the drilling of high-priority exploration targets;
  • Top-tier forecasted operating and G&A costs of $6.25 and $2.25 per barrel of oil, respectively; and
  • Maintain its strong and flexible financial position with a net debt of approximately $31 million on a $60 million bank line, with a top-tier debt to funds from operations ratio of 1.0 times.
2017 Budget (Based on US $55 WTI)
Oil Production bbls/d 3,050
Total Capex $MM 16.5
Dividend ($0.035/month) $MM 14.5
Funds From Operations $MM 30.0
Exit Net Debt $MM 31
All-in Payout Ratio % 100
Development Wells # 10
Capex per Well $MM 1.2
Royalty % 29
Operating and Transportation $/bbl 7.50
G&A $/bbl 2.25
Interest $MM 1.0
Differential to WTI US$/bbl 14.00
USD/CAD FX Rate $ 0.74
Positive Quality Adjustment US$/bbl 2.09

Risk Management

For the first half of 2017, the Company has an average of 1,000 bbls/d of oil hedged at an average of US $48.05/bbl WTI.

For the second half of 2017, Granite has an average of 750 bbls/d of oil hedged at an average of US $52.23/bbl WTI.

Fourth Quarter 2016

Granite drilled three horizontal production wells during the fourth quarter of 2016 and averaged approximately 3,000 boe/d including approximately 2,950 bbls/d of oil, representing an 8% quarter over quarter growth. The Company averaged approximately 3,050 bbls/d of oil in the final two months of 2016 with several wells flowing at restricted rates, as it continues to focus on building and strengthening the base production. Capital expenditures were approximately $5.0 million, including $3.8 million for drilling and completions operations.

Outlook

Granite enters 2017 in a strong position, both operationally and financially. With lower decline rates, a deep inventory of increasingly efficient drilling, 100% ownership and a strong balance sheet, Granite will continue its focus on improving the value of its unique asset.

Granite will also continue to closely monitor oil prices and other critical factors. With its solid financial position and operational flexibility, the Company is well-positioned to continue creating long-term shareholder value through a range of commodity pricing.

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 2017, Granite's future production levels, funds from operations, all-in 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, funds from operations, netbacks, net 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 includes non-GAAP measures as further described herein. These non-GAAP measures do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS or, alternatively, "GAAP") and therefore may not be comparable with the calculation of similar measures by other companies.

This news release contains the term "funds from operations", 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. This term does not have any standardized meaning under IFRS. Granite's determination of funds from operations 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. This news release also contains the term "net debt", which represent current assets less current liabilities, excluding current derivative financial instruments. This term does not have any standardized meaning under IFRS. Management uses net debt to assess efficiency, liquidity and the Company's general financial strength. No IFRS measure is reasonably comparable to net debt.

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.

Contact Information

  • Michael Kabanuk
    President & CEO
    (587) 349-9123

    Tyler Klatt
    V.P. Exploration
    (587) 349-9125