Iron Bridge Resources Inc. (TSX :IBR) published a Gold Creek operations update and reported its financial results for the second quarter ended June 30, 2018.

Gold Creek Montney Operations Update

At Gold Creek, Iron Bridge holds 49,600 net acres (77.5 net sections) within the oil-rich window of the Gold Creek Montney formation. Asset development of the Montney formation in the Gold Creek area is focused on horizontal drilling with increased frac stages and proppant intensity.

At the end of April the company brought on-production its two (2.0 net) new Gold Creek Montney horizontal wells (100/8-21 and 102/8-21). Production from these wells during the second quarter and the month of July was constrained by water injection limitations, which has been recently alleviated with the in-service of an additional third injection well. An existing Montney legacy well was converted to an injection well, which in addition to alleviating water management issues, will also provide pressure support to the producing reservoir.   IBR now has capacity to handle Montney formation water production from all of its existing producers.

In the second quarter, the Company also completed the previously-described enhancement work to its wholly-owned Gold Creek 2-23 Facility. The battery was upgraded and re-configured and is now optimized and is capable of processing 2,800 bbls/d of light oil and 22 MMcf/d of natural gas for an oil equivalent capacity of approximately 6,500 boe/d.

In preparation for the next phase of its Montney development, the Company recently permitted and licenced six new well locations (6.0 net), which are ‘drill ready’ from the Company’s Gold Creek 2-23 Facility surface lease pad.

Second Quarter 2018 Results Commentary

In the second quarter, average daily production was 2,314 boe/d (weighted 30% light crude oil and NGLs), representing an 84% sequential increase over the prior quarter output of 1,256 boe/d. Please refer to the foregoing Gold Creek Montney Operations Update section of this news release for further production discussion.

Adjusted Funds Flow and Field Operating Netback
Second quarter adjusted funds flow was $1.22 million ($0.01 per share basic), impacted by corporate costs related to IBR’s defense against the ongoing hostile take-over offer. Please refer to G&A Expense section hereafter. The Company’s Gold Creek field operating netback during the second quarter was $11.58/boe, lower than the operating netback of $16.69/boe in the preceding first quarter of 2018, due primarily to lower realized gas prices in the second quarter.

P&NG Revenue
Petroleum and natural gas (“P&NG”) revenue in the second quarter was $5.54 million, an increase of 63% from the preceding first quarter 2018 revenue amount of $3.39 million. There was no realized commodity hedging activity in either quarter. IBR’s average selling price for its Gold Creek light oil (43 degree API) was $81.27/bbl in the second quarter, reflecting a $6.32/bbl oil differential to the Canadian-dollar equivalent WTI price of C$87.59/bbl. IBR’s natural gas sales price of $1.33/Mcf in the quarter was at a premium to the AECO benchmark price, as its Gold Creek Montney gas benefits from a relatively-higher heat content as compared to the standard heat conversion used in the AECO benchmark pricing. IBR’s average selling price for its Gold Creek NGLs was $54.86/bbl in the second quarter, approximately 68% of its realized oil sales price.

Royalty Expense
For the second quarter, royalties were approximately $150 thousand (2.7% royalty rate). P&NG royalty expense was positively impacted by a Crown GCA net recovery related to a prior period in the amount of $208 thousand. At Gold Creek, a significant portion of the Company’s current Montney production and future new well production, benefits from the Alberta Government’s Modernized Royalty Framework, which provides for a pre-payout drilling and completion cost allowance based on a revenue minus cost royalty structure across all hydrocarbons, a post-payout royalty rate based on commodity prices, and the reduction of royalty rates for mature wells. IBR’s significant Gold Creek Montney leasehold position of 49,920 gross acres (49,600 net acres) is substantially all Crown-lease based.

Net Operating Expense
For the second quarter, total net operating expenses were $1.85 million ($8.78/boe). IBR’s 2018 operating cost profile has benefited from the Company’s strategic transition to a geographically-concentrated, Montney-focused play at Gold Creek with a lower operating cost structure.  Moreover, future production additions are expected to provide further operational efficiencies with fixed costs being distributed over a higher, future production base.

Net Transportation Expense
For the second quarter, total net transportation expenses were $1.11 million ($5.25/boe). Transportation expense represents the cost of pipeline transporting IBR’s crude oil and natural gas and trucking its NGLs to their respective title transfer points. IBR is party to ‘take-or-pay’ firm transportation service agreements for both its natural gas (Alliance Pipeline system) and crude oil (Pembina Peace system) sales production, which ensures uninterrupted delivery of the Company’s light oil and gas production.

G&A Expense
Iron Bridge’s second quarter head office general and administrative expenses (“G&A”) amounted to $1.31 million ($6.22/boe). Reported G&A for the quarter includes approximately $0.3 million of costs incurred in connection with defending the hostile, unsolicited take-over bid and the related strategic alternatives, “white-knight” process presently ongoing. This extraordinary item impacted IBR’s second quarter per unit G&A expense by $1.42/boe. Excluding these costs, the Company’s per-unit G&A expense for the second quarter would have been $4.80/boe, a significant decrease of 50% from the preceding first quarter 2018 per-unit G&A cost of $9.54/boe.

Capital Expenditures
Second quarter exploration and development capital expenditures amounted to $4.63 million. In the quarter, the Company completed necessary enhancement work to its wholly-owned Gold Creek 2-23 Facility. The battery was upgraded and re-configured in order to alleviate pressure restrictions, more efficiently handle high-volume wells and to support future development and growth of its Montney production base. In April 2018 the Company finalized tie-in connection and equipping of its new Gold Creek Montney horizontal wells (100/8-21 and 102/8-21), in addition to its second water injection well. Reported second quarter 2018 capital expenditures also includes residual costs for the completion and testing operations for both the 100/8-21 and 102/8-21 wells, in addition to residual drilling costs with equipment de-mobilization and lease restoration associated with IBR’s second Montney delineation, land-holding horizontal well.

EnerCom conference

Iron Bridge is presenting at EnerCom’s 2018 The Oil & Gas Conference – Aug. 20-22 in Denver, Colorado. To register for the conference, please visit the conference website.

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