Paramount Resources Ltd. Announces First Quarter 2017 Results: Sales Volumes Average 16,163 Boe/d; Karr 6-18 Facility Expansion On-Stream Ahead of Schedule
OIL AND GAS OPERATIONS
REVIEW OF OPERATIONS
Development activities at Karr-Gold Creek are currently focused on a 27 (27.0 net) well horizontal Montney drilling and completion program that commenced in mid-2016 (the "Karr Program"). The Karr Program wells have been designed with longer horizontal laterals of approximately 3,000 meters, higher intensity completions, tighter frack spacing and different completion fluids compared to prior years. The new well design is expected to significantly increase well productivity and recoverable reserves compared to the previous designs.
The first well in the Karr Program, the 15-14 well, has produced approximately 210,000 barrels of condensate since it was brought on production in September 2016 and achieved payout in approximately six months. The five wells on the 4-19 and 15-27 pads have produced approximately 570,000 barrels of condensate since first production in late-December 2016.
Production from these new Karr Program wells increased Karr-Gold Creek sales volumes to approximately 10,000 Boe/d in the first quarter of 2017, with Liquids comprising 58 percent of total sales volumes. Liquids sales constituted 78 percent of total Karr-Gold Creek revenues of $38.8 million in the first quarter of 2017.
With the start-up of two of the four wells on the 16-36 pad, the Company now has eight Karr Program wells on production. By the end of 2017, the Company expects to have completed up to 22 of the 27 wells in the program, with the remaining wells to be completed in 2018. Production at Karr-Gold Creek will ramp up over the next few months as the remaining wells on the 16-36 pad are brought on production and new pads are completed to feed the expanded 80 MMcf/d 6-18 Facility.
Paramount is targeting completions with proppant loading intensities of approximately 2.4 tonnes per meter and stage spacing of between 40 and 50 meters across a range of completion technologies. The Company will continue to evaluate these technologies as the Karr Program progresses and additional well performance data is obtained. Paramount has increased budgeted costs for the remaining Karr Program wells to implement a completion technology which is expected to further enhance well performance and generate higher returns and because of cost inflation for materials and field services.
In April 2017, Paramount completed its expansion of the 6-18 Facility, increasing the capacity of the facility to 80 MMcf/d. The project was advancing ahead of schedule in mid-April when an unscheduled outage occurred at a downstream third-party processing facility (the "Third-party Facility"). During the outage, the Company accelerated the tie-in of new equipment, eliminating the need for a scheduled outage later in the second quarter, and commissioned the expansion early. The total cost of the expansion is expected to be approximately $40 million.
Production at Karr-Gold Creek is transported through a Company-owned gathering system and compressed and dehydrated at the 6-18 Facility. Volumes are then shipped via pipeline to the Third-party Facility under a long-term firm-service arrangement to provide sales specification natural gas, condensate and C3+. The 6-18 Facility has been equipped to facilitate the trucking out of Liquids so that volumes in excess of contracted capacity at the Third-party Facility can be transported for processing at alternate locations. Paramount expects the majority of Liquids production to be trucked until mid-2018, when a condensate stabilization capacity expansion at the Third-party Facility is completed. The Company has contracted a dedicated fleet of trucks and 24-hour logistical services over this period to ensure uninterrupted egress for Liquids production.
Paramount has drilled five (4.45 net) of six planned wells in a Cretaceous exploration and delineation program at Smoky/Resthaven to date. The first well in the program, a 1.4 mile horizontal Falher well, was completed in the first quarter. Completion operations for the four other wells are scheduled to commence following spring break-up. Because of the exploratory nature of this program, drilling operations took longer than planned, resulting in approximately $10 million of additional drilling costs. Drilling of the sixth well is planned for the fourth quarter of 2017.
The Company has added one (1.0 net) new Montney well in the northern portion of its lands at Smoky/Resthaven to its 2017 capital program. The well design for this new location is expected to be similar to the Karr Program, with a planned horizontal lateral length of approximately 3,000 meters, slickwater completion fluids, approximately 70 fracture stages and proppant loading of approximately 2.4 tonnes per meter. Total estimated costs for this well are approximately $13 million, as this single well pad will not benefit from the cost synergies of multi-well pads.
A total of six (3.0 net) Montney wells have been drilled to date in 2017 at the non-operated Birch property. Two of the wells have been completed and are flowing back on clean-up.
The Company and its partner have added one (0.5 net) new Montney well to the 2017 Birch drilling program, increasing total planned wells to ten (5.0 net). Drilling of the remaining four (2.0 net) wells and completion activities are scheduled to resume later in the second quarter following break-up. The expansion of the Birch compression and dehydration facility to 40 MMcf/d (20 MMcf/d net) is progressing on schedule to start-up in the fourth quarter of 2017.
Non-Core Property Dispositions
The Company has agreed to sell its oil and gas properties in the Valhalla area of Alberta (the "Valhalla Assets") for cash consideration of approximately $150 million, subject to customary post-closing adjustments. The Valhalla Assets encompass approximately 94 (74 net) sections of land and had sales volumes of approximately 1,400 Boe/d (12 percent Liquids) in the first quarter of 2017.
The transaction is expected to close in May 2017, following approval of the transfer by the Alberta Energy Regulator. The purchase price has been deposited with Paramount's legal counsel and will be released upon satisfaction of this condition.
In addition, the Company has also completed dispositions of other non-core properties in 2017, realizing aggregate proceeds of $6.7 million.
Paramount's capital budget for 2017 has been increased to $385 million. The updated budget includes additional capital for the Karr Program related to the implementation of a completion technology which is expected to further strengthen well performance and generate higher returns, cost inflation for materials and field services, an additional Montney well and higher than expected drilling costs at Smoky/Resthaven and an additional Montney well at Birch.
Company sales volumes averaged approximately 19,000 Boe/d in March 2017 as new wells were brought on production at Karr-Gold Creek. In April 2017, sales volumes were reduced to approximately 12,000 Boe/d because of an unplanned two-week outage at the Third-party Facility that shut-in the majority of production at Karr-Gold Creek.
The Company's 2017 average sales volumes guidance remains at 20,000 Boe/d, despite the sale of the Valhalla Assets and a scheduled outage of the Third-party Facility that is expected to shut-in Karr-Gold Creek production for most of August. Fourth quarter sales volumes are expected to average over 30,000 Boe/d.
Annual operating costs for 2017 are anticipated to average approximately $10.00 per Boe. Fourth quarter 2017 operating costs are projected to be lower than in the first part of the year because of the ramp-up in production volumes at Karr-Gold Creek.
Paramount is an independent, publicly traded, Canadian energy company that explores and develops unconventional and conventional petroleum and natural gas prospects, including long-term unconventional exploration and pre-development projects, and holds a portfolio of investments in other entities. The Company's principal properties are primarily located in Alberta and British Columbia. Paramount's Class A common shares are listed on the Toronto Stock Exchange under the symbol "POU".
Paramount's first quarter 2017 results, including Management's Discussion and Analysis and the Company's Consolidated Financial Statements can be obtained through Paramount's website at www.paramountres.com
SOURCE: Paramount Resources Ltd
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