RMP Energy Inc.

May 17, 2011 06:00 ET

RMP Energy Announces 2011 Capital Budget and Market Guidance

CALGARY, ALBERTA--(Marketwire - May 17, 2011) - RMP Energy Inc., formerly Orleans Energy Ltd., ("RMP" or the "Company") (TSX:RMP) is pleased to announce its 2011 capital expenditure program. For 2011, RMP has budgeted to invest approximately $75 million ($65 million net of realized dispositions) in exploration and development capital project activities (the "2011 Capital Budget"), of which $24.6 million ($14.4 million net of dispositions) was incurred in the first quarter of 2011. The focus of RMP's 2011 Capital Budget, in light of current low natural gas prices, will be the delineation and development of the 100%-owned, Montney light oil resource play at Waskahigan in West Central Alberta. The 2011 Capital Budget is primarily oil-focused and includes the drilling of a total of 13 wells (11.2 net), including nine (9.0 net) horizontal Montney wells at Waskahigan, of which three wells (3.0 net) were successfully drilled in the first quarter.

RMP's technical team has designed a long-term development and delineation plan encompassing a two-phased drilling approach at Waskahigan. The first phase of pool development is expected to consist of 28 horizontal wells being drilled with a spacing of two wells per section. The second phase of drilling, with down-spacing to four wells per section, will add an additional 36 locations. Similar regional Montney pools are being developed with eight wells per section.

In addition to Waskahigan, in the third quarter, RMP intends to drill one (1.0 net) horizontal exploration well testing a Montney oil prospect at Ante Creek, Alberta. The remaining budgeted drilling includes a third horizontal well (0.4 net) at Pine Creek in West Central Alberta, associated with the non-operated development of the Wilrich tight gas play wherein two (0.8 net) wells were successfully drilled in the first quarter. Approximately $14 million of the 2011 Capital Budget has been allocated towards strategic investment in company-owned field infrastructure at Waskahigan; consisting of the construction an oil battery and compressor facility with an anticipated commissioning date in early fourth quarter 2011. Final evaluation and infrastructure design has been completed with key, major equipment items ordered.

The Waskahigan facility will provide RMP with the following operational advantages in support of its two-phased, long-term development drilling plan:

i)Year-round production capability;
ii)Substantially greater crude oil and material gas handling capacity with initial, capacity of 2,500 bbls/d of oil (approximately 4,300 boe/d including solution gas);
iii)Direct tie-in to an independent oil sales pipeline, thus precluding the need to truck crude oil to handling facilities;
iv)Improved operating conditions through a pipeline system utilizing company-operated compression; and,
v)Operational control of infrastructure.

Notwithstanding an oil-focused drilling program for the balance of this year, RMP continues to monitor industry activity in both its Deep Basin areas of Resthaven/Bilbo and Ricinus wherein the Company holds 41.25 sections (100% working interest) and 49.0 sections (64% working interest) of land, respectively. At Resthaven there are multi-zone targets throughout the stratigraphic section. Competitor activity at Resthaven has demonstrated noteworthy drilling success in both the Nikanassin and Montney formations. At Ricinus, the area is prospective for multi-zone targets including the Glauconite, Ellerslie and Basal Quartz/Cadomin. Recent results by industry, targeting the Cretaceous Ellerslie channel systems that are present throughout the area, have been very encouraging. RMP and its partner are currently evaluating 2D and 3D seismic to determine the potential for future drilling. A stronger gas price macro environment, in conjunction with current technical evaluations and continued industry success in both areas, is expected to lead to RMP becoming operationally active in 2012 at Resthaven and Ricinus.

Forecasted Production

Based on the 2011 Capital Budget, RMP's average daily production for 2011 is projected to range between 3,400 to 3,600 boe/d, weighted 30% towards light oil and natural gas liquids. This forecast assumes the commissioning of the new Waskahigan facility in early fourth quarter 2011. RMP's second quarter 2011 production will be moderately compressed as a result of an unscheduled plant outage at the mid-stream-operated Kaybob South #3 Gas Plant ("K3 Gas Plant"). On May 5, 2011, the Company was notified by the operator of the K3 Gas Plant that a mechanical failure had occurred at the plant. The K3 Gas Plant was shut down and is expected to re-start after repairs are completed, which may take four to eight weeks to complete. In the interim, the plant operator intends to undertake a temporary modification to the plant to facilitate a resumption of gas processing this week. However, this temporary operation is dependent on a stabilized, plant inlet operating environment. RMP is mitigating the impact to its operations of this plant shut down by re-routing approximately 550 boe/d (approximately 30% of its Kaybob field production) to another plant in the area.

Forecasted Net Debt and Cash Flow

Projected cash flow from operations for 2011, utilizing commodity price assumptions of an AECO gas price of C$3.50 per gigajoule, a West Texas Intermediate oil price of US$90.00 per bbl, and an exchange rate of 1C$ = 1.03US$, is estimated between $23 million to $26 million. The Company's cash flow projections are net of the costs relating to the reorganization and acquisition of RMP Energy Ltd., which aggregate approximately $4.9 million. The Company presently does not have any commodity price hedging contracts in-place for 2011.

The Company intends to fund the 2011 Capital Budget with proceeds from the first quarter Kaybob deep rights disposition, cash flow from operations, present cash on-hand and draws on its bank credit facility which has a borrowing capacity limit of $60 million. Based on the 2011 Capital Budget and cash flow projection, RMP's year-end 2011 net debt is estimated between $33 million to $36 million or only 1.1 to 1.3 times of forecasted 2011 cash flow from operations adjusted for the add-back of the aforementioned non-recurring, one-time reorganization and acquisition cost of $4.9 million.

RMP anticipates releasing its financial statements for the interim three month period ended March 31, 2011 on or about June 8, 2011.

The following are abbreviations that may be contained within this news release:

Crude Oil and Natural Gas Liquids Natural Gas and Natural Gas Liquids
bbl barrel mcf/d thousand cubic feet per day
boe barrels of oil equivalent mmcf/d million cubic feet per day
Mboe thousand barrels of oil equivalent mmbtu million British Thermal Units
Mbblsthousand barrelsBcfBillion cubic feet of gas
bbls/d barrels per day GJ gigajoule
boe/d barrels of oil equivalent per day NGLs natural gas liquids

The information in this news release contains certain forward-looking statements. These statements relate to future events or our 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 "appear", "seek", "anticipate", "plan", "continue", "estimate", "approximate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar expressions. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control, including: the impact of general economic conditions; 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; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry ; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, such 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 that the Company will derive from them. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

In this news release, reserves and production data are commonly stated in barrels of oil equivalent ("boe") using a six to one conversion ratio when converting thousands of cubic feet of natural gas ("mcf") to barrels of oil ("bbl") and a one to one conversion ratio for natural gas liquids ("NGLs" or "ngls"). Such conversion may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

As an indicator of the Company's performance, the term cash flow from operations or operating cash flow contained within this news release should not be considered as an alternative to, or more meaningful than, cash flow from operating, financing or investing activities, as determined in accordance with Canadian generally accepted accounting principles ("GAAP"). This term does not have a standardized meaning, nor is it a financial measure, under GAAP. Cash flow from operations is widely accepted as a financial indicator of an exploration and production company's ability to generate cash which is used to internally fund exploration and development activities and to service debt. This measure is widely used by shareholders and investors in the valuation, comparison and investment recommendations of companies within the natural gas and crude oil exploration and production industry. Cash flow from operations, as disclosed within this news release, represents cash flow from operating activities before any asset retirement obligation cash expenditures and before changes in non-cash operating activities working capital. The Company presents cash flow from operations per share whereby per share amounts are calculated consistent with the calculation of earnings per share. Additionally, net debt refers to outstanding bank debt plus working capital deficit (excludes current unrealized amounts pertaining to risk management commodity contracts) plus long-term accounts receivables. Net debt is not a recognized measure under Canadian GAAP.

Any references in this news release to initial and/or final raw test or production rates and/or "flush" production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter. Additionally, such rates may also include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company.

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