Current GXO:CA Stock Info

Granite Oil: presenting company at EnerCom Dallas

Granite Oil Corp. (ticker: GXO) published results of the independent reserves report prepared by Sproule Associates Limited at December 31, 2016.

During 2016, Granite invested approximately $21.5 million of estimated capital expenditures (unaudited), all organically, into its 100%-owned Bakken asset. This represents a 48% decrease in year over year capital expenditures as the Company’s highly effective gas injection Enhanced Oil Recovery (“EOR”) scheme continues to drive efficiency gains. Material improvements in oil recoveries combined with significant reductions in capital costs resulted in the Company achieving the lowest Finding and Development costs (“F&D”) and highest Recycle Ratios in the Company’s history. As well, producing and proven reserves continue to account for an increasing portion of the Company’s total reserve base. As the Company injects its natural gas back into its Bakken oil pool, reserve adds are primarily attributed to oil.

In 2016 Granite drilled and completed ten 100% working interest horizontal wells with a 100% success rate, converted three producing oil wells to gas injection wells and built up its EOR infrastructure. The Company also increased its strategic land position, adding key priority acreage within the Bakken oil fairway that will be the focus of a 2017 exploration program. Granite took advantage of seasonally low gas prices late in the second and early in the third quarters of 2016, purchasing gas to re-pressurize significant portions of the pool.

2016 Reserves Highlights

  • Proven Developed Producing (PDP) F&D costs were $12.95/boe resulting in a PDP recycle ratio of 2.1 times(1)(2);
  • Total Proved (TP) F&D costs were $4.91/boe, including the change in Future Development Capital (FDC), resulting in a TP recycle ratio of 5.5 times(1)(2). Total Proved F&D costs excluding the change in FDC were $9.09/boe;
  • Proved plus Probable (2P) F&D costs were $4.55/boe, including the change in FDC, resulting in a 2P recycle ratio of 5.9 times(1)(2). Proved plus Probable F&D costs excluding the change in FDC were $10.76/boe;
  • PDP reserves increased by 11% to 6,178 Mboe and went from 31% to 33% of the Company’s total 2P reserves, a 6% increase year over year;
  • TP reserves increased by 12% to 12,483 Mboe and went from 63% to 67% of the Company’s total 2P reserves, a 6% increase year over year;
  • 2P reserves increased by 5.4% to 18,653 Mboe;
  • Reserve additions in all categories of reserves were primarily attributed to oil;
  • Granite’s 2016 drilling program resulted in PDP, TP and 2P reserve additions replacing 158%, 225%, and 190% of production, respectively;
  • Costs associated with drilling future wells as provided for in the Sproule Report dropped by 27% to an average of $1.55 million per well, reflecting the significant cost improvements achieved in 2016. The Company believes this to be conservative, with realized all-in costs for wells in the second half of 2016 averaging approximately $1.25 million;
  • Granite remains conservative with only 30 undeveloped Bakken locations booked as of December 31, 2016, versus 28 booked at 2015 year end, leaving approximately 70% of its potential infill Bakken locations within its EOR area unbooked. The Company will continue to focus on adding reserves per well as the development and performance of the EOR progresses; and
  • The net present value of future net revenues discounted at 10% (PV10) before taxes of Granite’s 2P reserves, as set out in the Sproule Report, plus an internally estimated undeveloped land value of $30 million, and net of estimated net debt of $31.5 million at December 31, 2016, is $8.37 per fully diluted common share(3).

Notes:

  1. Financial information is based on the Company’s preliminary 2016 unaudited financial statements and is therefore subject to audit.
  2. Recycle ratio is calculated as operating netback divided by F&D costs. In the case of recycle ratios calculated on TP and 2P reserves, the F&D cost includes changes in FDC. Calculation is based on estimated 2016 operating netback of $27.00 per boe, which is calculated as revenue (including realized hedging gains) less royalties and production costs. See “Readers Advisories” for the method of calculating operating netback.
  3. The calculation of the net present value of future net revenue per share includes an estimated undeveloped land value of $30 million and is net of estimated net debt of approximately $31.5 million (unaudited).

Operations Update

Granite’s Bakken property produced an average of approximately 2,866 boe per day (99% oil) during 2016, with an estimated fourth quarter average production rate of 2,978 boe per day (98% oil). During 2016, Granite’s averaged realized operating netback is estimated to be $27.00/boe.

The Company is pleased it has drilled and completed its first three wells of 2017 for an average estimated all-in cost of $1.25 million per well, representing only a very minor increase over its lowest cost wells of 2016. Despite general escalation in costs as well as delays in equipment availability, the Company, with help from its service providers, has continued to make permanent improvements in well design to offset this trend. Furthermore, with all-season access, the Company is confident it has an advantage in its ability to access services at opportune times.

Granite reiterates its previously announced 2017 capital budget of $16.5 million, continuing a trend of decreasing year over year capital requirements driven by the efficiency of its EOR scheme. This growth budget targets a 6% year over year increase in average production, includes a $3.0 million high-impact exploration program, and funds a sustainable $0.42/year per share dividend, giving a current yield of over 7%. With major efficiency gains in recoveries and capital costs realized in 2016, as highlighted by its reserve metrics, we are excited about 2017. The Company will continue to maximize shareholder value and returns from its Bakken property by prioritizing its free cash flow-generating pool, building an increasing base of highly efficient EOR wells, and exploring its large Bakken oil fairway.

2016 Year End Reserves

The evaluation of Granite’s petroleum and natural gas reserves prepared by independent reserves evaluator Sproule in accordance with definitions, standards and procedures contained in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”). The reserves evaluation is based on forecast prices and costs, and applies Sproule’s forecast escalated commodity price deck, foreign exchange rate, and inflation rate assumptions as at December 31, 2016 as outlined in the table below entitled “Pricing Assumptions”. Additional reserve information as required under NI 51-101 will be included in the Company’s Annual Information Form which will be filed on SEDAR on March 22, 2017. Financial information presented above is based on management-prepared financial statements for the year ended December 31, 2016, which are in the process of being audited by Granite’s independent auditors and, accordingly, such financial information is subject to change based on the results of the audit. See “Reader Advisory – Unaudited Financial Information” below.

Summary of Reserves

The following table is a summary of the Company’s estimated reserves as of December 31, 2016, based on the Sproule Report.

Summary of Company Gross Oil and Gas Reserves as at December 31, 2016 (1)(2)(3)(4)(5)(6)

Reserves Category Oil
(Mbbl)
Gas 
(MMcf)
Oil Equivalent
(MBOE)
BTAX PV 10%
($000’s)
Future Development Capital 
($000’s)
Recycle Ratio Net Undeveloped Wells Booked
Proved Developed Producing 5,659 3,117 6,178 131,452 2.1
Proved Developed Non-Producing 155 7,376 1,507 9,121 1,231
Proved Undeveloped 4,587 1,263 4,798 63,480 51,524 33
Total Proved 10,400 11,757 12,483 204,053 52,755 5.4 33
Probable Developed Producing 2,057 1,327 2,278 34,242
Probable Developed Non-Producing 98 3,753 794 4,070
Probable Undeveloped 3,015 500 3,099 49,828 8,272 5
Total Probable 5,170 5,579 6,170 88,140 8,272 5
Total Proved + Probable 15,570 17,336 18,653 292,193 61,027 6.0 38

Granite Oil Corp. is a presenting company at EnerCom Dallas, an investment conference hosted by EnerCom at the Tower Club, downtown Dallas, Texas. The conference is March 1-2, 2017 and it is patterned after EnerCom’s popular The Oil & Gas Conference which is held in Denver every August. Register for EnerCom Dallas and request meetings with Granite Oil Corp. at the conference website.


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