Penn West Announces its Financial and Operational Results for the Year Ended December 31, 2016 and 2016 Reserves Results
PENN WEST PETROLEUM LTD. (TSX – PWT; NYSE – PWE) ("Penn West", the "Company", "we", "us" or "our") is pleased to announce financial and operational results for the year ended December 31, 2016, along with year-end 2016 reserves results.
"2016 was a year of reshaping and rebuilding for Penn West as we examined every aspect of our business to ensure we are well structured to thrive in today's commodity price environment," commented David French, President and Chief Executive Officer.
"Throughout 2016 we focused our efforts on three things. First, we simplified our balance sheet by completing our disposition program resulting in $1.4 billion in asset-sales in 2016, with an additional $65 million closed to date in the first quarter and a final $10 million to be completed shortly. These sales allowed us to reduce our debt by 76% in 2016 and significantly lower environmental liabilities, putting us on track to bring our Alberta Liability Management Ratio ("LMR") to two times by the end of 2017.
Second, we refocused our attention on operational efficiencies in a small number of key development areas where we hold industry leading positions. These changes are already bearing fruit, exhibited by a 12% increase in our cash margins, inclusive of hedging, year over year. Our portfolio offers an attractive balance of shorter-cycle opportunities including industry leading well rates in the Alberta Viking and cold flow manufacturing in Peace River, complemented by our mid-cycle Cardium integrated waterflood development. Our production mix is liquids-weighted and can be toggled higher or lower as we see fit. We are working the right assets and delivering their promise.
And lastly, we reshaped our year-end reserves to reflect a simpler and cleaner Penn West. We received our first foothold reserve bookings for early results in our Cardium waterflood program, saw proceeds from sales from our divestment program exceed the change in our net asset value, and realigned our reserves in Peace River to shift from thermal to cold flow development. Our year-end results and reserves reflect the substantial underlying value of our new portfolio and provide a platform well positioned for growth and cash flow generation for years to come.
As we close the chapter on 2016, 2017 offers investors and stakeholders a platform focused on long-term value creation. The foundation of our portfolio of assets is best defined as leading positions in key development areas that will offer double-digit organic and self-funded growth in production over the course of 2017."
2016 Year-End Operational and Financial Highlights
Simplifying our Balance Sheet by Completing the Disposition Program
Improving Efficiencies with a Focused Portfolio
2016 Year-End Reserves Highlights
Foothold Reserve Bookings for Cardium Waterfloods
Asset Dispositions Accretive to Net Asset Value
Realigned Reserves in Peace River for Cold Flow Development
We realigned our reserve book in the Peace River to shift away from thermal to cold flow development to better align with our near-term development plans in the current price environment. The removed thermal undeveloped bookings of 27 mmboe would have contributed only $20 million in proved plus probable ("2P") before-tax present value, with associated future development capital of $389 million
Recognizing the Efficiency Improvements and Potential in the Portfolio
Hitting the Ground Running in 2017
As a result of the asset dispositions and portfolio renovation over the past year, Penn West now holds a focused portfolio with industry leading positions in the Cardium, Peace River, and Alberta Viking areas.
In the fourth quarter of 2016, we completed our second half drilling program of 5 Cardium wells, 11 Alberta Viking wells, and 19 Peace River oil wells. The second half 2016 drilling program contributed over 3,000 boe per day of production on December 31, 2016.
Our 2017 total capital budget remains unchanged at $180 million from our previous announcement. Our capital program is focused on (i) Building a Cardium Waterflood Platform, (ii) Manufacturing Cold Flow in Peace River, (iii) Leveraging our Infrastructure Advantage in the Alberta Viking, and (iv) Pursuing New Ventures.
For more information on our 2017 capital program, please see our January 5, 2017 press release, http://pennwest.mediaroom.com/index.php?s=27585&item=135287.
Building a Cardium Waterflood Platform
Our strategy in the Cardium is based on integrated waterflood development in Pembina and Willesden Green, combining new horizontal producers with simultaneous vertical injection drilling to support reserve development and arrest base decline.
Our main focus in Pembina in 2017 will be in PCU#9, where we will drill three vertical injection wells to support an existing producing well in the first quarter. After breakup, we plan to drill an additional 3 horizontal wells plus 15 injection wells. We are also working with our partners in PCU#11 on preparing for our second half development program.
In 2016, in the J-Lease area of Pembina, we fracture-stimulated the two horizontal wells drilled in late September using a cemented liner system, and brought the wells on production in November. This year, we plan to focus on waterflood optimization opportunities in J-Lease, including converting several producing wells to injection. We are already seeing waterflood response in several areas based on earlier horizontal injector conversions.
In 2016, in the Crimson area of Willesden Green, we drilled the second and third horizontal wells of our three well development program in early October and completed all three wells in November. The wells were brought on production in early January and are performing in line with expectations. This year, we expect to drill 15 vertical injection wells prior to breakup and six injection wells in the second half of the year.
We are currently optimizing and upgrading some of our water injection infrastructure projects in preparation for our development program in the second half of the year.
Manufacturing Cold Flow in Peace River
This year, we will increase the development pace in the Peace River area with a 24 well program. We are currently carried on 90% of our capital and operating commitments through our joint venture partner, and we forecast the carry to finish by the end of 2017.
In 2016, in the Peace River area, we drilled and rig released the remaining 15 wells of our 19 well second half program in the fourth quarter. Through simultaneous drilling and facility build operations, we were able to reduce per well costs to $2.4 million, approximately 15% below budget.
In the first quarter 2017 we drilled 3 wells and brought on production 4 additional wells. We are currently running two rigs in the area and plan to bring on production an additional 8 wells during the third quarter.
Leveraging our Infrastructure Advantage in the Alberta Viking
In 2016, in the Alberta Viking, we brought 9 wells on production in the fourth quarter and 2 wells on production in the first quarter of 2017. These wells continue to perform ahead of expectations with average per well production rates, including oil rates, approximately 25% ahead of the average industry type curve in the play. We believe the success of these wells can be attributed to the novel approach, including energized fracs, we are taking with our completions in the area.
In the second half of the year, we have budgeted to drill 7 wells in the area. We are currently working on a small debottlenecking project in the area, which will allow us to expand the gas plant capacity at two of our gas plants.
Pursuing New Ventures
We have approximately 700 net sections of secondary rights in our portfolio. In the second half of the year, we have plans to expand our reach by testing the deeper hydrocarbon formations below our Cardium rights, primarily in the Mannville. We are encouraged by offsetting industry activity, showing the potential for high production rates and liquid yields in the 30-40 bbls/mmscf. We have budgeted to drill 3 Mannville wells, our first operated development into the multi-horizon potential across the Cardium area acreage, and are partnered on an additional 4 Mannville wells.
We are currently evaluating whether to reallocate some of the Mannville capital in the second half of the year elsewhere in the portfolio due to the recent fall in natural gas prices. We will continue to monitor our opportunities and commodity prices over spring breakup.
Hitting the Ground Running: Updated 2017 Guidance
Earlier this year, we re-evaluated a portion of our acreage in the outer Cardium and central Alberta that we originally planned to sell. These assets have meaningful deeper mineral rights in the Mannville that we intend to further evaluate in the near future. We decided to retain these assets and sell a portion of our freehold and gross overriding royalties for approximately equal proceeds. As a result, retained production in our key development areas in the fourth quarter of 2016 increased by approximately 3,500 boe per day to 28,655 boe per day.
We are increasing full year 2017 average production guidance to 30,500 – 31,500 boe per day, and remain confident in our ability to generate double-digit organic production growth from the fourth quarter of 2016 to the fourth quarter of 2017. We anticipate our 2017 capital program will be paid for fully with Funds Flow from Operations.
Updated Hedging Position
Our hedging program helps reduce the volatility of our Funds Flow from Operations, and thereby improves our ability to manage our ongoing capital programs. We target having hedges in place for approximately 25 percent to 50 percent of our crude oil exposure, net of royalties, and 20 percent to 50 percent of our gas exposure, net of royalties.
Senior Management Changes
We are pleased to announce that Mr. Andrew Sweerts, Penn West's Vice President of Business Development & Commercial, has assumed the position of Vice President of Production & Technical Services. Mr. Sweerts has 25 years of experience in leading asset & divestment and trading activities, directing projects and overseeing joint venture partnerships.
Replacing Mr. Sweerts as Vice President of Business Development and Commercial is Mr. Mark Hodgson. Mr. Hodgson brings over 16 years of experience in the industry most recently leading Bankers Petroleum Ltd. technical and commercial expansion efforts in Eastern Europe. Prior to New Ventures, Mr. Hodgson held positions managing service functions of Legal, Crude Marketing, Stakeholder Engagement, Supply Chain, Investor Relations, and Corporate Planning at various entities.
Conference Call Details
A conference call will be held to discuss the matters noted above at 6:30 am Mountain Time (8:30 am Eastern Time) on Wednesday, March 15, 2017.
To listen to the conference call, please call 647-427-7450 or 1-888-231-8191 (toll-free). This call will be broadcast live on the Internet and may be accessed directly at the following URL:
A digital recording will be available for replay two hours after the call's completion, and will remain available until March 29, 2017 21:59 Mountain Time (23:59 Eastern Time). To listen to the replay, please dial 416-849-0833 or 1-855-859-2056 (toll-free) and enter Conference ID 77593566, followed by the pound (#) key.
An updated corporate presentation, the year ended 2016 management's discussion and analysis and the audited consolidated financial statements are available on the Company's website at www.pennwest.com. Additionally, the year ended 2016 management's discussion and analysis and the audited consolidated financial statements will be posted on SEDAR at www.sedar.com, and on EDGAR at www.sec.gov.
SOURCE: Penn West
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.