Prairie Provident Resources Inc. ("Prairie Provident", "PPR" or the "Company") (TSX:PPR) is pleased to announce its operating and financial results for the three months ended March 31, 2017, and to provide an operational update. PPR's consolidated financial statements ("Financial Statements") and related Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2017 are available on its website and filed on SEDAR.
Prairie Provident was formed through the business combination of Lone Pine Resources Inc. and Lone Pine Resources Canada Ltd. (now Prairie Provident Resources Canada Ltd.) (collectively, "Lone Pine") and Arsenal Energy Inc. ("Arsenal") which was effected on September 12, 2016 (the "Arsenal Acquisition"). Financial Statements referenced herein present the results for the historical Lone Pine properties for the period up to September 12, 2016 and for the combination of Lone Pine and Arsenal after September 12, 2016. This is a significant factor in understanding the year-over-year and quarter-over-quarter financial results of Prairie Provident. This news release contains forward-looking information and statements and non-IFRS measures. Readers are cautioned that the news release should be read in conjunction with the Company's disclosures under the headings "Forward-Looking Statements" and "Non-IFRS Measures" included at the end of this news release.
FIRST QUARTER 2017 HIGHLIGHTS
Prairie Provident's successful 2016 capital program at Wheatland included the drilling of 14 wells and achieving organic production additions of approximately 1,650 boe/d, which brought total production in the region to approximately 2,500 boe/d at year-end. During the first quarter of 2017, a total of $3.9 million was invested to drill and case four Ellerslie wells (100% success rate), while two wells completed in the fourth quarter of 2016 were brought on-stream in February 2017. Average sales volumes in the Wheatland area were approximately 2,500 boe/d (30% light/medium oil) in the first quarter and production is expected to increase in the second quarter of 2017 as volumes from the four wells that were drilled in the first quarter come on-stream.
Our 2017 capital budget continues to include the planned drilling of up to 14 wells at Wheatland, with four drilled to date. Prairie Provident anticipates following up on recent well results during the second quarter and resuming its Wheatland drilling program in the third and fourth quarters of 2017, the extent of which will be subject to commodity prices. The total number of wells in the area has now reached 22, of which 18 are on production.
Drilling to date in the northern and central region of the play has yielded three significant discoveries and three development wells were drilled on these projects in the first quarter of 2017. Also in the first quarter of 2017, an exploratory well was drilled in the far western block on a large mapped Ellerslie feature over 12 sections of PPR lands. This exploration well is currently being tied in and future development plans will depend in part on the longer-term production rates from this well. Our focus for 2017 will be on follow-up locations across the fairway, while future exploration in the southern sections is expected to be tested over the next two years.
Prairie Provident has maintained its reduced drilling cycle times (approximately 8.5 days) at Wheatland by pad drilling and utilizing a mono-bore drilling design, which has significantly reduced surface costs, lowered the environmental footprint and increased the anticipated return on capital. We remain optimistic about maintaining these efficiencies despite the increased competition for oilfield services and suppliers.
For the first quarter of 2017, our Princess properties produced average sales volumes of approximately 425 boe per day (85% medium oil). During the quarter, PPR focused on identifying and selecting up to eight potential drilling locations at Princess, conducting pre-drilling activities, and pursuing the necessary approvals to drill four of the eight identified locations. A total of 15 additional locations have been identified in the Detrital and Glauconite formations. In addition, PPR intends to tie-in two discovery wells in early Q3. The Company continues to evaluate options to alleviate gas and water handling bottlenecks, which are inherent in the area, to allow for expanded drilling.
During the first quarter of 2017, capital expenditures at Evi totaled $0.9 million which included advancing the waterflood project through the conversion of four wells to injection wells. The Company currently has 24 injection wells (22 horizontals and 2 verticals) in operation and 8.25 of 37 sections in the main Evi area are under waterflood.
The existing waterflooded patterns continue to show encouraging results with flattened decline. The Red Earth Acquisition brought additional flood expansion prospects and the Company is evaluating potential acceleration of the waterflood project in the next budget cycle. Over the long-term, our full field waterflood scenario contemplates converting an additional 20 producing wells to injection wells for projected total future costs of approximately $20 million.
At Evi, average sales volumes for the quarter of approximately 1,625 boe per day (98% light oil) included approximately 125 boe/d of production averaged over the period related to the Red Earth Acquisition that closed on March 22, 2017. The Red Earth Acquisition, which added approximately 1,100 boe/d (98% oil and liquids) of run-rate production, is complementary to existing Evi operations and provides for synergistic opportunities to reduce estimated area operating costs by $2 million per year (or $2.00/boe). The initial stages of our integration on these new assets have gone smoothly.
The Evi properties provide the Company with a stable cash flow base that complements its development programs, and lowers decline rates, while generating economics (rates of return, payback and recycle ratio) that remain robust, even at current strip pricing. PPR believes that the waterflood program will continue to stabilize production from this play and enhance long-term recoveries.
2017 OUTLOOK AND GUIDANCE
PPR's capital allocation process considers numerous operational dynamics and financial factors. We incorporate competitive elements into the process such that projects with the highest rates of return are given top priority and growth on a per share basis is a central tenet of the planning process. We invested less than $10 million of our 2017 capital budget in the first quarter, and yet are well positioned with current production volumes close to our expected annual average. Through 2017, we will continue to focus on improving corporate netbacks by targeting the production of higher value streams (oil / condensate rich liquids) and enhancing our capital efficiencies through various operational initiatives such as pad drilling and operating in areas with underutilized infrastructure capacity.
Oil prices have remained volatile through the first quarter and into the second quarter of 2017 given deteriorating confidence in OPEC's compliance on production cuts, while the Canadian energy sector continues to consider the potential implementation of various trade tariff policies by the new administration in the United States. We remain cautiously optimistic on a tightening supply / demand balance for energy commodities in the second half of 2017 and believe that our company remains uniquely positioned to navigate through this challenging macro environment. We remain committed to pursue a combination of per share and returns focused growth.
Our credit facility was increased to $65 million in conjunction with the March 2017 closing of the Red Earth Acquisition and we exited the first quarter approximately 70% drawn on the facility. While our leverage level is well supported by our reserves base and future cash flows, it is above the target level that we are comfortable maintaining on a run-rate basis. Our second quarter 2017 capital activity is expected to be slower due to spring break-up and as we calibrate the direction of commodity prices. For the balance of 2017, our capital budget contemplates up to an additional ten wells at Wheatland and up to eight wells at Princess that are ready for development; however, we remain focused on prudent capital management and will scale our 2017 budget depending on commodity prices.
With a strong hedging program that has protected approximately 70% of our 2017 estimated base production volumes (net of royalties), and forecast 2017 adjusted funds from operations between $31 - $35 million, we anticipate that PPR can fund our $25 - 35 million capital budget. We are committed to managing our capital structure to enhance financial flexibility for funding PPR's future growth
PPR continues to expect significant 2017 production per share growth (target of 55%) and our inventory of conventional horizontal and vertical wells provides the Company with over five years of drilling opportunities to underpin long-term per share growth. As additional optionality, our waterflood initiatives are expected to lower corporate decline rates and stabilize production levels over the medium and longer term.
ABOUT PRAIRIE PROVIDENT:
Prairie Provident is a Calgary-based company engaged in the exploration and development of oil and natural gas properties in Alberta. The Company's strategy is to grow organically in combination with accretive acquisitions of conventional oil prospects, which can be efficiently developed. Prairie Provident's operations are primarily focused at Wheatland and Princess in Southern Alberta targeting the Ellerslie and the Lithic Glauc formations, along with an early stage waterflood project at Evi in the Peace River Arch. Prairie Provident protects its balance sheet through an active hedging program and manages risk by allocating capital to opportunities offering maximum shareholder returns.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.