Open Range Energy Corp.
TSX : ONR

Open Range Energy Corp.

November 08, 2011 21:20 ET

Open Range Energy Corp. Reports Strong Production Growth From Repeated Horizontal Drilling Success

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2011) - Open Range Energy Corp. (TSX:ONR) ("Open Range" or the "Company") is pleased to release third-quarter 2011 financial and operating highlights and an update on exploration and production operations at the Company's core Ansell/Sundance Deep Basin property.

Following the recent tie-in of multiple new horizontal Wilrich wells, current net production is over 5,000 boe per day, operations with two drilling rigs are ongoing and Open Range is on-track to exit 2011 at its guidance of 6,200 boe per day.

Open Range's complete third quarter financial results are included in the consolidated financial statements and notes thereto as well as the management's discussion and analysis for the three and nine months ended September 30, 2011 prepared for Poseidon Concepts Corp. and filed on SEDAR at www.sedar.com and posted to the Company's website at www.openrangeenergy.com.

EXPLORATION & PRODUCTION HIGHLIGHTS
Three months
ended
Sept. 30, 2011(1
) Three months
ended
Sept. 30, 2010(1
) Nine months
ended
Sept. 30, 2011
(1
) Nine months
ended
Sept. 30, 2010(1
)
Production
Natural gas (mcf per day) 23,113 20,139 22,654 20,653
Oil and NGL (bbls per day) 322 328 314 337
Total (@ 6:1) (boe per day) 4,174 3,685 4,090 3,779
Realized average sales prices
Natural gas ($ per mcf)(2) 4.20 4.29 4.26 4.70
Oil and NGL ($ per bbl) 80.27 61.95 81.87 65.75
Combined average ($ per boe) 29.45 29.01 29.88 31.52
Royalties ($ per boe) (2.76 ) (2.75 ) (2.80 ) (3.14 )
Operating costs ($ per boe) (3.70 ) (4.14 ) (3.69 ) (4.89 )
Transportation costs ($ per boe) (0.98 ) (0.98 ) (0.84 ) (0.88 )
Operating netback ($ per boe) 22.01 21.14 22.55 22.61
G&A costs ($ per boe) (1.98 ) (2.68 ) (2.07 ) (2.48 )
Net interest expense ($ per boe) (1.29 ) (1.58 ) (1.43 ) (1.36 )
Corporate netback ($ per boe) 18.74 16.88 19.05 18.77
(1) Open Range's transition date to International Financial Reporting Standards (IFRS) was January 1, 2010; therefore, information above including comparative information was calculated in accordance with IFRS.
(2) Includes the realized gain or loss on commodity contracts.
In the three months ended September 30, 2011, Open Range:
  • Increased funds from operations by 16 percent from $6.3 million in the third quarter of 2010 to $7.3 million in the current quarter, or $0.10 per diluted share;
  • Had average production of 4,174 boe per day, an increase of 13 percent over the third quarter of 2010;
  • Executed a capital program that included two drilling rigs operating at Ansell/Sundance, which spud five (3.8 net) horizontal wells, of which two (1.2 net) were on-production by the end of the quarter, as well as expansion of the operated Ansell/Sundance gas plant to 60 mmcf per day and construction of the 14-kilometre West Sundance lateral pipeline;
  • Continued on its track of increasing operating efficiencies, with operating costs of $3.70 per boe plus transportation costs of $0.98 per boe, for a total of $4.68 per boe ($0.78 per mcfe), compared to a total of $5.12 per boe ($0.85 per mcfe) in the third quarter of 2010, an improvement of nine percent;
  • Incurred all-in cash costs (operating, transportation, G&A, interest) of $7.95 per boe of production, a reduction of 15 percent from the third quarter of 2010; and
  • Continued to generate solid operating netbacks in the current commodity price environment, achieving an average netback of $22.01 per boe in the third quarter, up from $21.14 per boe in the third quarter of 2010.
Subsequent to September 30, 2011, Open Range:
  • Tied in an additional two (1.6 net) new horizontal Wilrich wells at Ansell/Sundance, bringing the Company's net Wilrich production to approximately 2,700 boe per day, including natural gas liquids, by early November;
  • Among these the 12-31 horizontal well (60 percent working interest) has produced at an initial seven-day average rate of 6.5 mmcf per day gross, plus natural gas liquids, for a total of approximately 700 boe per day net to Open Range;
  • Maintained its operational momentum, with additional horizontal wells targeting the Notikewin, Cardium, and Wilrich currently drilling or awaiting completion;
  • Was reformed as an independent exploration and production company on November 1, 2011, following a vote of shareholders at a special meeting held October 31. Independent trading was initiated November 4, 2011 on the TSX under the symbol ONR; and
  • Commenced independent operations with opening net debt of approximately $20 million on recently expanded, $75 million bank lines.

MESSAGE TO SHAREHOLDERS

Following a positive third quarter in which Open Range spud five gross (3.8 net) horizontal wells at its core Ansell/Sundance Deep Basin property and completed new strategic infrastructure, the Company has had an extremely strong October and early November. The recent tie-in of four gross (2.8 net) horizontal wells has added volumes such that November production is averaging 5,150 boe per day to date. With an additional four gross (3.6 net) horizontal wells targeting the Notikewin, Cardium and Wilrich anticipated to be on-production before year-end, the Company is on-track to meet its production guidance to exit 2011 at 6,200 boe per day.

Field Operations

Open Range's Wilrich program is clearly working, with demonstrable repeatability over a sustained program that by year-end 2011 will total 10 gross horizontal wells on-production. The Company's net Wilrich production, which commenced in October 2010, has grown to 2,700 boe per day. The key characteristics of our Wilrich horizontal play – repeatability, strong initial productivity and declining well completion costs – are driving profitable growth in the current commodity price environment.

The current multi-well drilling program recently yielded what appears to be the best Wilrich well and the best overall well the Company has drilled to date at Ansell/Sundance. The 12-31 well (60 percent working interest) was spud September 10 on the western Ansell/Sundance lands, was rig-released October 5, fractured and flow-tested in late October, and tied into the Ansell/Sundance gas plant on October 26. Over its first seven days the well averaged 6.5 mmcf per day plus approximately 13 bbls of liquids per mmcf, at 10,000 kPa (1,450 psi) flowing pressure. This has added approximately 700 boe per day net to Open Range's production.

Central to the Company's second-half 2011 capital program has been the focus on optimizing the drilling and completions process in order to maximize the economic return. The range of measures has included reducing the number of fracturing stages and the total amount of sand pumped, with the goal to reduce completion costs and cycle time from spud to production without compromising productivity.

With its last four Wilrich horizontal wells Open Range achieved an average cycle time of only 46 days from spud to production – an improvement of 10-15 days from previous wells. By drilling from established well sites having an existing producing well and pipeline, the Company has been able to conduct production testing in-line and tie-in the new horizontal wells in as little as two days.

Efficiency gains have enabled Open Range to drill, complete and tie-in recent Wilrich horizontal wells for approximately $5.2 million all-in, producing savings of up to $1 million. Current practice is to construct new well sites with capacity for up to four well heads. This fall Open Range is drilling both a Wilrich and a Notikewin horizontal well from a common pad containing a producing vertical well and pipeline.

In addition to the multiple Wilrich wells, the Company in October drilled its third Notikewin horizontal well (100 percent working interest), which is currently awaiting fracturing, and just finished drilling its first-horizontal well into the Cardium Formation (60 percent working interest). Open Range's two earlier Notikewin horizontal wells, drilled in 2010, were completed using a cemented liner. This year's two Notikewin wells will employ a packer system, an approach that has proved highly effective in competitor wells on offsetting lands. The Notikewin channel sands feature high gas-in-place and deliver long-life production. The slightly shallower Cardium typically delivers somewhat lower initial productivity but high liquids content. Competitors are reporting 40 bbls per mmcf or greater in recent Cardium horizontal wells near Ansell/Sundance.

The approximately $6.0 million expansion of the Company-operated Ansell/Sundance gas plant to 60 mmcf per day capacity was commissioned in October, with Open Range's working interest increased to 69 percent. The 14 km West Sundance lateral was recently completed and brought the prolific 12-31 Wilrich well on-stream into the Ansell/Sundance plant. This system will also facilitate development of the Company's lands further to the west.

Financial Results

Growing liquids-rich production and control of strategic infrastructure enabled the Company to maintain its top-decile operating and cash costs within its peer group. On a per-unit-of-production basis, operating costs declined by nine percent from the third quarter of 2010, and all-in cash costs declined by 15 percent period-over-period. Even on an absolute dollar basis, operating costs declined by nearly $1 million in the nine months ended September 30, 2011 from the comparable period of 2010, despite the Company's growing operations. With royalties remaining at 10 percent of revenue in both of the three- and nine-month periods, Open Range sustained strong operating netbacks of over $22 per boe throughout the year to date.

The Company's approximately 50 vertical wellbores on-stream at Ansell/Sundance create a foundation of low-cost, low-decline production from which to grow using horizontal wells. Company control of recently expanded, operated infrastructure delivers consistently low costs while enabling rapid tie-in of new production. This sustains the quarter-over-quarter trend of lower operating costs per unit of production.

Outlook

We continue to be pleased with the strong repeatability shown by our Wilrich play and excited about the expanding horizontal opportunities in additional horizons at Ansell/Sundance. Our first new Notikewin horizontal well was rig-released in late October and is to be fractured on November 11, our first Cardium horizontal well is to be completed around mid-month, another Wilrich is drilling and should be completed by early December, and our second new Notikewin began drilling in early November and should be on-stream by the end of December. At least two further Wilrich wells are to spud before year-end.

This level of activity not only places Open Range on-track to meet its 2011 exit guidance of 6,200 boe per day, but moves the Company into 2012, with two rigs continuing to drill. Our medium-term goal continues to be achieving 10,000 boe per day by year-end 2012. To do so we will maintain a strong focus on exploiting our large Wilrich inventory, currently in excess of 30 net locations with no more than two wells per section, as well as drilling additional Notikewin and Cardium wells, plus testing other horizons at Ansell/Sundance and elsewhere.

Following the appointment of Lyle Michaluk, Open Range's former Vice President, Finance and CFO, to the position of CEO of Poseidon Concepts Corp., the Company is actively engaged in recruiting a new Vice President, Finance and CFO. In addition, John Mueller, Open Range's former Vice President, Operations and COO, is departing the Company for personal reasons. Open Range extends deepest thanks to both gentlemen for their able service and strong contribution to the Company's success over the previous six years. Rob McKechney, previously the Company's Manager of Engineering, has been named Vice President, Operations, while Ryan Karr has been promoted to Manager of Engineering.

Open Range's balance sheet is strong, with bank lines recently increased from $70 million to $75 million and opening net debt at November 1, 2011 of approximately $20 million. The Company will continue to lever its key advantages – growing liquids-rich production, a proven, low-risk horizontal drilling inventory with an expanding range of opportunities, and a highly competitive cost structure – as it works towards its medium-term goal of 10,000 boe per day.

Open Range intends to release its initial 2012 capital program and guidance in December.

Reader Advisory

This news release contains certain forward-looking statements, which include assumptions with respect to (i) results from drilling and completion operations; (ii) production; (iii) future capital expenditures and operating activities and how they will be financed; (iv) funds from operations; (v) cash flow from operations; and (vi) general oil and gas industry activity. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. 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, operating risk liability; 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, 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. Additional information on the foregoing risks and other factors that could affect Open Range's operations and financial results are included in the Company's annual information form and other reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). 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
    www.openrangeenergy.com