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 and year ended December 31, 2016, and to provide an operational update. PPR's audited consolidated financial statements ("Annual Financial Statements") and related Management's Discussion and Analysis ("MD&A") for the three months and year ended December 31, 2016 are available on its website and filed on SEDAR.
PPR is a light and medium oil-weighted growth company, 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"). Results for the fourth quarter of 2016 reflect the first full quarter of operations as PPR.
FOURTH QUARTER 2016 HIGHLIGHTS
2016 ANNUAL HIGHLIGHTS
YEAR IN REVIEW
In September 2016, Lone Pine and Arsenal completed a business combination to form Prairie Provident. Upon completion, Lone Pine securityholders held approximately 77% of the fully diluted PPR shares, while former Arsenal securityholders held approximately 23%. With a larger operational footprint and increased access to capital, PPR commenced a variety of initiatives:
Prairie Provident successfully completed its 2016 capital program spending $31.2 million in this core area, within capital expenditure guidance provided in the third quarter of 2016. The 2016 Wheatland capital program included a total of 14 gross (12.65 net) wells drilled with 12 brought on-stream. The remaining two wells drilled and completed in 2016 that were not on production by the end of the year were brought on-stream in February 2017, bringing the total number of developed wells in the area to 18. During the fourth quarter of 2016, average sales volumes in the Wheatland area were approximately 1,797 boe per day (30% light/medium oil), which is expected to increase in the first quarter 2017 due to new volumes coming on stream late in 2016 and early 2017.
Our development across this region has been focused primarily in the northern and central region of the play and has yielded three significant discoveries. Our focus for 2017 will be on the multiple follow-up locations across the fairway, while future exploration will be tested over the next two years in the southern sections. Our 2017 capital program contemplates the drilling of up to 14 wells in the Wheatland area and the Company has already drilled and cased the first four Ellerslie wells from our 2017 budget.
Prairie Provident continues to improve its drilling cycle times and overall costs 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. These design optimizations combined with lower service costs have reduced drilling times from an average of 13 days down to 8.5 days, while all-in costs have been reduced significantly to approximately $1.6 million per well, down over 40% from $2.7 million per well one year ago.
At Princess, two discovery wells are awaiting tie-in that have cumulatively tested at more than 400 bbl/d of oil, while a total of 15 additional locations have been identified in the Detrital and Glauconite formations. During the three months and year ended December 31, 2016, our Princess properties produced average sales volumes of approximately 480 boe per day (83% medium oil) and 143 boe per day (83% medium oil), respectively. Prairie Provident plans to drill up to 8 wells at Princess in 2017.
During the three months and year ended December 31, 2016, our Evi properties produced average sales volumes of approximately 1,458 boe per day (97% light oil) and 1,323 boe per day (95% light oil), respectively. The Evi properties provide the Company with a stable cash flow base that complements its development programs, while the economics (rates of return, payback and recycle ratio) remain very 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.
The Company currently has nine (9.0 net) injection wells (eight horizontals and one vertical) in operation. Initial results from the program correspond with an independent study conducted in 2015 on the feasibility of a full-field waterflood program. An additional four injector conversions are planned for 2017, and over the long-term, our 'full field low case scenario' contemplates 14 producing wells to be converted to injection wells for total future costs of approximately $13.5 million.
Subsequent to year-end, the Company closed the Red Earth Acquisition which is complementary to existing operations at Evi. The transaction added approximately 1,100 boe/d (98% oil and liquids), provides for synergistic opportunities to reduce area estimated operating costs by $2 million per year (or $2.00/boe), and optimize waterflood expansion with seven prospective projects.
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. 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. Given the continued volatility in commodity prices, the Company remains focused on capital management, targeting a debt to EBITDAX ratio of 1.0 time. We will continue to add positions to our hedge book (currently covering 63% of 2017 forecast base oil production (net of royalties) at $69.51/bbl) to provide downside price protection and support our adjusted funds from operations through 2018 and beyond.
In connection with closing the Red Earth Acquisition in March of 2017, our credit facility was amended upward and the Company now has a total borrowing capacity of $65 million, comprised of a $55 million syndicated revolving credit facility and a $10 million operating facility. This increased financial flexibility, combined with forecasted 2017 adjusted funds from operations of $31 - 35 million, will allow the Company to fund a $25 - 35 million capital budget. Our 2017 budget is scalable depending on commodity prices, with excess adjusted funds from operations directed to debt repayment.
An active drilling program in 2017 is expected to position the Company to deliver production per share growth of approximately 55% and generate strong rates of return on its assets at current commodity prices. Our inventory of conventional horizontal and vertical wells provides the Company with over five years of drilling to underpin profitable per share growth. Waterflood initiatives are expected to lower corporate decline rates and stabilize production levels over the medium and longer term. Prairie Provident is positioned to execute a profitable organic growth program through 2017.
Over the last several quarters, various positive indicators have been observed within the Canadian energy industry which has given us the confidence to continue executing our returns-based growth strategy and make the accretive Red Earth Acquisition to expand our asset portfolio. We recognize that the macro environment remains challenging with continued uncertainty around OPEC production cuts, the stability of oil prices, and the potential implementation of various policies by the new administration in the United States. Against this backdrop, we are committed to pursue the generation of positive returns for shareholders while pursuing growth.
From a capital markets standpoint, we remain focused on increasing exposure of the Company to the investment community and enhancing the trading liquidity of our shares; however, we are firmly of the belief that continued operational execution, growth on a per share basis, and prudently managing our balance sheet will ultimately be the key drivers towards increasing shareholder value.
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 Glacu 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.