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Chinook Energy Inc. (ticker: CKE) reported that it has successfully completed its three-well (2.62 net wells) drilling program at Birley/Umbach, that was announced on November 9, 2016.

Chinook said it drilled the wells on schedule and under budget by approximately 26% with average drilling costs of approximately $1.28 million per well ($1.12 million, net). The company expects to complete and tie-in the three wells during the first quarter of 2017.

Proposed Asset Disposition

Chinook set out to create a stronger Montney focus and to pursue a more aggressive drilling program on its core Birley/Umbach acreage while maintaining a sound balance sheet.

To that end, the company entered into a letter of intent to sell, effective February 1, 2017, certain of its assets located in the Gold Creek area of Alberta (the “Divested Assets”) for net consideration of approximately $10.5 million, subject to customary closing adjustments.

The Divested Assets include 15.6 net sections of land and related pipelines and production facilities. As at December 31, 2015, Chinook had total proved and total proved plus probable reserves associated with these properties of 151.8 MBOE and 223.1 MBOE, respectively, with associated estimated net present values of approximately $1.84 million and $2.48 million using forecast pricing at a 10% discount.

Chinook’s average production from the Divested Assets for the first three quarters of 2016 was 99 boe/d (65% natural gas and 35% oil and natural gas liquids). The Company expects the proposed disposition to have minimal impact on its funds flow.

“We are pleased to have executed the asset disposition proposal as the funds received, together with our new credit facility, further strengthens our financial position and provides us with improved financial flexibility throughout 2017 to support an increased level of activity on our Birley/Umbach property,” said Walter Vrataric, President and Chief Executive Officer of Chinook. “Upon closing of the proposed disposition, we will focus solely on our Montney acreage at Birley/Umbach where we hold 55,090 acres (44,733 net) of Montney rights with an upper Montney drilling inventory of over 270 (227 net) management identified locations along with additional potential to reduce inter-well spacing in the upper Montney (from four to five or six horizontal wells per section) and also develop middle and lower Montney layers throughout a 250 meter thick Montney interval,” Vrataric said.

Chinook said it is investigating further opportunities to maximize the value of its remaining Alberta Montney acreage at Knopcik/Pipestone where it holds approximately 21,280 acres (12,070 net) of Montney rights.

Chinook’s current production, (excluding volumes from the proposed Gold Creek disposition) is approximately 3,030 BOEPD and it expects to exit the first quarter of 2017 at approximately 5,300 BOEPD, the company said.

New Credit Facility

Chinook has secured an $8.0 million demand revolving credit facility with a Canadian chartered bank. Borrowings under the credit facility are limited to $2.0 million subject to confirmation that the foregoing three wells of the Company are on production and producing to the lender’s satisfaction. The credit facility is subject to an annual review beginning on June 1, 2017. Chinook estimates its working capital surplus to be $13.5 million at December 31, 2016.

Natural Gas Hedges

Chinook has entered into hedges to fix the AECO price of natural gas on 7,500 gigajoules per day of natural gas production at an average of $3.205 per gigajoule in Canadian dollars for 2017.