Spartan Oil Corp.

Spartan Oil Corp.

November 14, 2011 07:30 ET

Spartan Oil Corp. Releases Third Quarter Results and Announces Increase to 2011 Capital Program and Year End Guidance

CALGARY, ALBERTA--(Marketwire - Nov. 14, 2011) - Spartan Oil Corp. (TSX:STO) ("Spartan" or the "Company") (TSX: STO), is pleased to announce that it has filed on SEDAR its unaudited interim financial statements and related management discussion and analysis ("MD&A") for the three months ended September 30, 2011. The filings are available for review at or on the Company's website at


Based on strong drilling results, Spartan's board of directors has approved an increase in the Company's 2011 capital program budget to $41.3 million from $33.6 million. The revised 2011 budget will see 18 gross (11.6 net) Cardium wells drilled at Keystone, 1 (0.50 net) Bakken horizontal well drilled at Ceylon and 2 (1.0) net Midale wells drilled at Torquay. The program will be funded through cash flow and the Company's credit facility, which was recently increased to $25 million.

Spartan exceeded its previously stated year end production guidance of 1,050 boe/d in the third week of October. We are increasing our exit guidance by 43% to 1,500 boe/d (78% oil and liquids) and revising our 2011 cash flow guidance upward to $9.3 million from $6.2 million. Year end net debt is forecast to be $9.3 million. No production volumes from the increased capital program have been included in the upward revision to the Company's 2011 exit rate production. Rather, the increase will accelerate the Company's growth through 2012.


The quarter ended September 30, 2011 marked the Company's first full quarter of operations following the completion of the Plan of Arrangement among Spartan Exploration Ltd., Penn West Petroleum Ltd. and the Company. Highlights of the quarter include:

  • Achieved a 100% success rate drilling 10 (6.67 net) wells. We are pleased with the results of our drilling program to date and our Cardium horizontal wells continue to outperform our type curve for the area.
  • Maintained a strong balance sheet, with positive working capital of approximately $6 million and a line of credit of $18.5 million at the end of the quarter. The Company's line of credit was increased to $25 million subsequent to the end of the quarter based on the Company's strong preliminary drilling results.
  • Achieved average daily production of 664 boe/d (72% oil and liquids), after the sale of 190 boe/d from southwest Saskatchewan in June.
  • Generated cash flow from operations of $2.18 million.
  • Achieved net earnings from operations of $561,273 on gross revenues of $3.90 million. Approximately 88% of Spartan's revenue in the third quarter resulted from oil and natural gas liquids production.
  • Reduced operating costs (including transportation) per boe by approximately 21% to $13.79 from $17.35 for the month of June. We expect to realize further improvements in operating costs as new wells are brought on production.
  • Achieved an operating netback of $39.07 per boe and a corporate netback of $35.71 per boe.

Financial Highlights

Selected financial and operational information is outlined below and should be read in conjunction with Spartan's interim financial statements and the related MD&A.

Three Months Ended
September 30
Total revenue $3,899,578
Cash flow from operations (1) $2,182,552
per share - basic $0.04
per share - diluted $0.04
Net earnings $561,273
per share - basic $0.01
per share - diluted $0.01
Capital expenditures $17,011,585
Working capital surplus (deficit) $5,967,910
Shares outstanding
Weighted average during quarter 59,070,801
Actual at end of quarter 59,108,929
Oil equivalent (6:1)
Barrels of oil equivalent (000's) 61,121
Barrels of oil equivalent per day 664
Average selling price ($CDN per boe) $63.18
Interest income ($CDN per boe) $1.15
Royalties $10.94
Transportation costs (per boe) $0.23
Operating costs (per boe) $13.56
Three Months Ended
September 30
Oil production
Barrels (000's) 32.611
Barrels per day 354
Average selling price ($CDN per bbl) $81.77
Gas production
Thousand cubic feet (000's) 104,460
Thousand cubic feet per day 1,135
Average selling price ($CDN per mcf) $4.28
NGL production
Barrels (000's) 11,100
Barrels per day 121
Average selling price ($CDN per barrel) $67.35

(1) Cash flow from operations is a non-GAAP measurement. See MD&A.


Spartan spent the majority of the third quarter executing on its previously announced 2011 capital program. During the quarter, Spartan drilled a total of 7 (5.66 net) horizontal wells and participated in an additional 2 (0.51 net) horizontal wells targeting Cardium oil at our Keystone property in the Pembina area of central Alberta. In addition, Spartan drilled the first Midale oil well (50% WI) on our Torquay property and equipped a vertical Bakken oil discovery well (50% WI) at our Ceylon property, both in southeast Saskatchewan. The Company spent $16.2 million on drilling, completions and facilities during the quarter. Spartan has been working diligently to tie in our new wells and, as at the date of this news release, all of the wells drilled in the third quarter are on production.

Results from our new Cardium horizontal wells have continued to exceed our type curve. Detailed results for Cardium horizontal wells in the Keystone area that Spartan operates or has an interest in and which have a minimum of thirty days of production are as follows:

Average Daily Production(1), (2) Number of Spartan Type
Producing Days Hi Low Average Wells Well
(bbl/d) (bbl/d) (bbl/d) (gross/net) (bbl/d)
1 - 30 days 225 153 187 6 / 2.51 144
31 - 60 days 203 121 159 4 / 1.26 107
61 - 90 days 142 93 118 3 / 0.76 84

(1) Production numbers are oil only (associated gas and natural gas liquids not included).

(2) After recovery of all frac fluids.

Spartan will drill or participate in up to 7 (5.5 net) Cardium horizontal wells during the fourth quarter.

In Saskatchewan, the Company is encouraged with the results of its Torquay and Ceylon wells. The Torquay well (50% WI) has averaged 211 bbl/d over the first 30 days of production. The well was drilled off a proprietary 3D seismic survey. The survey shows several distinct, independent Mississippian anomalies that are prospective for oil and the Company has identified numerous drilling locations at Torquay. Spartan and its partner are planning an initial 5 well (2.5 net) drilling program at Torquay. It is expected that 2 (1.0 net) of these locations will be drilled prior to the end of the year, with the balance being drilled in the first half of 2012. The Company has limited capital exposure on this drilling program, as the majority of the capital will be funded by our partner. Spartan will pay 50% of the first well and 10% of each of the next 4 wells, provided that, to the extent the total cost of the latter 4 wells exceeds $4.6 million, then any costs in excess of $4.6 million will be shared equally between Spartan and its partner. Following the completion of the drilling program, Spartan will retain a 50% working interest in the Torquay project.

At Ceylon, the Bakken discovery well (50% WI) that was put on production in the third quarter continues to be a strong producer. The vertical well, which was un-stimulated, has averaged 24 bbl/d at a 100% oil cut over the first 85 days of production. We believe that the potential for significantly higher rates exists through horizontal development. Spartan has recently completed a proprietary 3D seismic survey over its lands at Ceylon and is planning to drill a horizontal well prior to the end of the year. Spartan has 21 (10.5) net sections of Crown land on the Ceylon prospect.


Spartan is off to a running start. Our large and growing inventory of high netback oil resource drilling prospects and our stable production base sets the stage for significant organic growth per share in production, reserves and cash flow. Although we are optimistic about the Company's prospects, we are mindful of the uncertainty that plagues global financial markets and the effect that it can have on equity markets and commodity prices. We believe that we are well positioned to weather this uncertainty.

Capital cost control continues to be a central focus for the Company. Recent modifications to drilling and completion techniques have reduced per well on-stream costs for our Cardium horizontal wells to approximately $2.6 million from our original estimate of $3.3 million.

The Company intends to release formal 2012 guidance in late January, 2012 once all of our 2011 wells have been placed on production and evaluated.

The management and directors of Spartan appreciate the support our shareholders have shown us. We remain committed to achieving per share growth for our investors, through a high quality, repeatable inventory of low risk oil resource drilling prospects.


This press release contains certain forward-looking statements (forecasts) under applicable securities laws relating to future events or future performance. Forward-looking statements are necessarily based upon assumptions and judgements with respect to the future including, but not limited to, the outlook for commodity markets and capital markets, the performance of producing wells and reservoirs, well development and operating performance, general economic and business conditions, weather, the regulatory and legal environment and other risks associated with oil and gas operations. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "projects", "plans", "anticipates" and similar expressions. These statements represent management's expectations or beliefs concerning, among other things, future operating results and various components thereof affecting the economic performance of Spartan. Undue reliance should not be placed on these forward-looking statements which are based upon management's assumptions and are subject to known and unknown risks and uncertainties, including the business risks discussed above, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted.

In the interest of providing Spartan shareholders and potential investors with information regarding the Company, including management's assessment of Spartan's future plans and operation, certain statements throughout this press release constitute forward looking statements. All forward-looking statements are based on the Company's beliefs and assumptions based on information available at the time the assumption was made. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward looking statements. By its nature, such forward-looking information involves 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. Spartan believes 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 contained throughout this press release should not be unduly relied upon. These statements speak only as of the date specified in the statements.

In particular, this press release may contain forward looking statements pertaining to the following:

  • the performance characteristics of the Company's oil and natural gas properties;
  • oil and natural gas production levels;
  • capital expenditure programs;
  • the quantity of the Company's oil and natural gas reserves and anticipated future cash flows from such reserves;
  • projections of commodity prices and costs;
  • supply and demand for oil and natural gas;
  • expectations regarding the ability to raise capital and to continually add to reserves through acquisitions and development; and
  • treatment under governmental regulatory regimes.

The material assumptions in making these forward-looking statements include certain assumptions disclosed in the Company's most recent management's discussion and analysis included in the material available on this press release.

The Company's actual results could differ materially from those anticipated in the forward looking statements contained throughout this press release as a result of the material risk factors set forth below, and elsewhere in this press release:

  • 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 and exploration and development programs;
  • geological, technical, drilling and processing problems;
  • fluctuations in foreign exchange or interest rates and stock market volatility;
  • failure to realize the anticipated benefits of acquisitions;
  • general business and market conditions; and
  • changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry.

These factors should not be construed as exhaustive. Unless required by law, Spartan does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil is based on an energy conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead. All boe conversions in this press release are derived by converting natural gas to oil in the ratio of six thousand cubic feet of natural gas to one barrel of oil. Certain financial amounts are presented on a per boe basis, such measurements may not be consistent with those used by other companies.

Readers are further cautioned that the preparation of financial statements in accordance with Canadian generally accepted accounting principles ("GAAP") requires management to make certain judgements and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes.

Cash flow from operations and operating netbacks are not recognized measures under GAAP. Management of Spartan believe that in addition to net income, cash flow from operations and operating netbacks are useful supplemental measures as they demonstrate an ability to generate the cash necessary to repay debt or fund future growth through capital investment. Readers are cautioned, however, that these measures should not be construed as an alternative to net income determined in accordance with GAAP as an indication of Spartan's performance. Spartan's method of calculating these measures may differ from other companies and, accordingly, they may not be comparable to measures used by other companies. For these purposes, Spartan defines cash flow from operations as cash provided by operations before changes in non-cash operating working capital and defines operating netbacks as revenue less royalties and operating expenses.

Readers are also cautioned that this press release may contain the term reserve life index, which is not a recognized measure under GAAP. Management believes that this measure is a useful supplemental measure of the length of time the reserves would be produced over at the rate used in the calculation. Readers are cautioned, however, that this measure should not be construed as an alternative to other terms determined in accordance with GAAP as a measure of performance. The method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

Contact Information

  • Spartan Oil Corp.
    Richard F. McHardy
    President & CEO
    (403) 457-4006
    (403) 457-4028 (FAX)

    Spartan Oil Corp.
    Michelle A. Wiggins
    Vice President Finance & CFO
    (403) 457-4006
    (403) 457-4028 (FAX)