Open Range Energy Corp.

Open Range Energy Corp.

October 05, 2009 06:00 ET

Open Range Energy Corp. Provides Operational Update, Reports on Expanding Inventory and Reconfirms $54 Million in Bank Lines

CALGARY, ALBERTA--(Marketwire - Oct. 5, 2009) - Open Range Energy Corp. ("Open Range" or the "Company") (TSX:ONR) is pleased to announce improved performance from its Bluesky horizontal well at the Company's core Ansell/Sundance property. Along with repeated strong results from competitors' wells on lands offsetting Ansell/Sundance, the Company's improved technical confidence has driven plans to drill two additional horizontal Deep Basin wells in the first half of 2010 to be funded by projected cash flows. To date Open Range has built an initial inventory of more than 40 gross horizontal drilling locations in three Deep Basin horizons at Ansell/Sundance, as well as 150 gross vertical locations.


The Company's first Bluesky horizontal well (100 percent working interest) at Ansell/Sundance has now been on production for two months and has added materially to Open Range's third quarter production. The well continues to produce at 2.0 mmcf per day (333 boe per day) with a stabilized production profile and flowing casing pressure of 5,100 kPa. Cumulative production after two months is approximately 120 mmcf plus some natural gas liquids. Well cleanup is ongoing and some water from hydraulic fracturing during well completion continues to be produced. The well is outperforming expectations following well repairs undertaken late in the second quarter, strengthening the Company's confidence in the potential of multiple-stage fractured horizontal wells to cost-effectively access significant natural gas-in-place from regionally extensive Deep Basin reservoirs on the Company's lands.

Also significant are the ongoing strong results experienced by competitors' horizontal wells on lands offsetting Ansell/Sundance. A Bluesky horizontal well located within 500 metres of the Company's lands has been producing at an average rate of 3.3 mmcf per day over its first four months of production, while a Wilrich horizontal well two miles to the north of Open Range lands at Ansell/Sundance has been producing at an average rate of 3.4 mmcf per day over its first four months. Competitors are continuing to license offsetting Bluesky and Wilrich wells.

Given these promising results the Company has made preliminary plans to drill its second Bluesky horizontal well and first Wilrich horizontal well in 2010, with drilling of the Bluesky well to begin in January. Both wells can be drilled under a cash flow budget and with current financial capacity. Initial site surveying is underway. Further multi-zone vertical drilling will await improved natural gas prices and capital market conditions.


The Company has recently expanded its landholdings at Ansell/Sundance through acquisition of additional 100 percent working interest Crown lands with significant multi-zone natural gas potential. Open Range took advantage of current industry conditions to acquire 3D seismic coverage over the new Crown lands at minimal cost. The land additions bring Open Range's holdings at Ansell/Sundance to 52 gross (31 net) sections, of which 41 gross sections include multi-zone Deep Basin rights.

Open Range's technical team has been mapping the horizontal drilling potential in three Deep Basin formations underlying its Ansell/Sundance lands. Vertical well control from the Company's 39 gross producing wells and competitor successes on offsetting locations plus the success of Open Range's first Bluesky horizontal well have allowed the Company to identify over 40 horizontal drilling locations in the Bluesky, Wilrich and Notikewin formations, spaced at one horizontal well per section. This includes 10 Bluesky horizontal locations offsetting current vertical producers. To date 15 of Open Range's Ansell/Sundance vertical wells are producing from the Wilrich, enabling mapping of significant Wilrich gas-in-place and leading to an initial Wilrich horizontal inventory of 16 locations. The Notikewin is also producing in 23 of the Company's Ansell/Sundance vertical wells, and there are proven horizontal analogues offsetting the Company's land base, leading to an initial inventory of 20 horizontal Notikewin locations on Open Range lands.

As a result, Open Range now has a combined drilling inventory totalling more than 190 gross locations. This includes a current vertical drilling inventory of 150 gross locations, recently expanded by 50 percent as a result of reduced-spacing approvals, continuing exploration success, longer production history and land acquisitions.

The combined vertical and horizontal well inventories represent significant future reserves potential. To date Open Range has booked average gross proved plus probable reserves of 1.8 billion cubic feet per producing vertical well at Ansell/Sundance and 3.0 billion cubic feet in reserve assignments to the single Bluesky horizontal well. As at December 31, 2008, Open Range had approximately 45 billion cubic feet of proved plus probable reserves assigned to the Ansell/Sundance property in its independent reserve evaluation. Given that the company currently has 39 gross producing wells at Ansell/Sundance the 196-well inventory established to date represents a potential five-fold increase in the number of gross producing wells.


Open Range's timely and continuing financial prudence in the face of weak natural gas prices continues to pay dividends. Following a mid-year review of the Company's bank facilities the $54 million borrowing base was reconfirmed by the National Bank of Canada. The Company is pleased with this result, which speaks to the high quality and long reserve life of the Company's production base, as well as to the large upside potential of its resource base. Debt drawn on the Company's bank facilities was approximately $36.2 million at the end of September, leaving $17.8 million of unutilized borrowing capacity or one-third of Open Range's total bank lines.

The Company's hedging program continues to provide material benefits. Open Range had realized year-to-date gains from commodity hedging contracts of $1.7 million as at August 31, 2009, adding approximately $0.50 per mcf to the Company's realized natural gas sales pricing in 2009. Given current natural gas prices Open Range at present is realizing approximately $0.5 million per month in incremental cash flow from its hedges.

The Company has hedged a total of 8.1 mmcf per day for the balance of the year (approximately 55 percent of current production) at an average floor price of $4.73 per mcf. The Company has also hedged a total of 5.7 mmcf per day for the first quarter of 2010 using costless collars with a floor of $4.24 per mcf and a ceiling of $4.91 per mcf. Beginning next spring Open Range remains fully exposed to any upside movement in natural gas prices as it has purchased puts on a total of 3.8 mmcf per day for April to October with average floor protection at $4.53 per mcf.


Open Range has current production of approximately 2,350 boe per day (90 percent natural gas), of which 1,950 boe per day is at Ansell/Sundance. Third quarter production is up from the second quarter by approximately 50-100 boe per day, due to the contribution of the Bluesky horizontal well.

Open Range continues to be one of the lowest-cost producers in the Western Canada Sedimentary Basin. Along with the benefits of its hedging program and its predictable production base, this has enabled the Company to remain cash flow-positive and financially well-positioned through this period of weak natural gas prices. Open Range's management team looks forward with optimism to the planned resumption of horizontal drilling activity early in the new year.



Reader Advisory

This news release contains certain forward-looking statements, which include assumptions with respect to (i) production; (ii) future capital expenditures; (iii) funds from operations; (iv) cash flow; and (v) debt levels. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. All such forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Open Range's control. Such risks and uncertainties include, without limitation, risks associated with oil and natural gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Open Range's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits, including the amount of proceeds, Open Range will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to Open Range or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Open Range does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Disclosure provided herein in respect of barrel(s) of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 barrel 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

  • Open Range Energy Corp.
    A. Scott Dawson, P.Eng.
    President and Chief Executive Officer
    (403) 205-3704
    Open Range Energy Corp.
    Lyle D. Michaluk, CA
    Vice President, Finance and Chief Financial Officer
    (403) 262-9280