Anderson Energy Ltd. (“Anderson” or the “Company”) is pleased to announce its operating and financial results for the fourth quarter and year ended December 31, 2012.
– The Company completed its Cardium horizontal light oil winter drilling program using slick water frac technology. Initial production results were vastly superior to previously used fracture stimulation techniques. The average initial production rate over the first 30 days for the seven wells that used this technology was 455 BOED. With the completion of the Company’s winter drilling program, all of its drilling commitments have been fulfilled.
– Anderson closed all of the previously announced property dispositions prior to year end. Approximately $74 million in properties were sold during 2012.
– Bank debt was reduced significantly to $48.1 million at December 31, 2012 ($88.7 million – 2011) and bank loans plus cash working capital deficiency was reduced to $64.5 million ($132.7 million – 2011).
– Funds from operations were $5.7 million for the fourth quarter of 2012 and $29.6 million for the year ended December 31, 2012.
– Production in the fourth quarter of 2012 was 4,500 BOED, which includes 645 BOED related to properties sold in the quarter. Net of all of the properties sold, the Company estimates first quarter 2013 production to be approximately 3,900 to 4,200 BOED (43% oil and NGL).
– The Company’s operating netback per BOE increased throughout the year to $26.50 per BOE in the fourth quarter of 2012 compared to $22.71 per BOE for the year. Cardium operating netbacks averaged $44.32 per BOE in the fourth quarter of 2012 and $44.73 per BOE for the year.
– Proved plus probable (“P&P”) BOE reserves are 17.8 MMBOE at December 31, 2012.
– Cardium P&P reserves are 13.3 MMBOE representing 75% of total P&P reserves volumes and 90% of total P&P reserves value on a pre-tax 10% net present value (“NPV 10”) basis. Full cycle three year average finding, development and acquisition costs (“FD&A”) including future development capital in the Cardium play were $36.77 per BOE on a total proved (“TP”) basis and $25.81 per BOE on a P&P basis. For the same three year period, the Cardium P&P recycle ratio was 2.03.
– Oil and NGL represent a larger proportion of total reserves: 39% of the Company's proved developed producing (“PDP”) reserves, 43% of TP reserves and 48% of P&P reserves compared to 33%, 29% and 31% respectively at December 31, 2011. Cardium properties represent 96% of the Company’s P&P oil and NGL reserves and 55% of the Company’s P&P natural gas reserves (primarily solution gas).
– Anderson’s total P&P pre-tax NPV 10 reserves value at December 31, 2012 was $224.8 million.
– 232 additional gross (148 net) Cardium drilling locations (97% Company operated) have been identified of which only 32% on a net basis are recognized as P&P locations in the GLJ Report (as defined herein).
– The Company’s average oil price was $83.21 per bbl for the year. The Cardium oil production is light, sweet oil that was subject to an average price differential of $7.87 US per bbl in 2012.
In 2012, the Company entered into and continues to pursue strategic alternatives. Progress made to date includes:
· selling $74 million of non-strategic assets, which were primarily natural gas assets and other miscellaneous properties, and although production on a BOED basis is lower, the remaining production is more valuable as it is primarily related to the higher netback Cardium assets;
· reducing bank debt to $48.1 million at December 31, 2012 from $106.7 million at March 31, 2012 with the proceeds from the sale of assets;
· restructuring all of its shallow gas and Cardium drilling commitments such that by the end of January 2013, Anderson had completed all of its drilling commitments; and
· reducing its head office staff count and head office leasing costs.
The Company estimates its first quarter 2013 production will be 3,900 to 4,200 BOED, of which approximately
55% is from high netback Cardium properties. Oil and NGL production is estimated to be approximately 43% of
total BOED production in the quarter. Total Company operating netbacks averaged $26.50 per BOE in the fourth quarter of 2012. Cardium operating netbacks averaged $44.32 per BOE in the fourth quarter. Operating netbacks per BOE in the first quarter of 2013 are estimated to be similar to the fourth quarter of 2012. Full cycle three year average FD&A costs including future development capital in the Cardium play were $36.77 per BOE on a TP basis and $25.81 on a P&P basis. Using three year production weighted average Cardium operating netbacks, this yields a recycle ratio of 2.03 on a P&P basis.
The Company’s first slick water frac completion was in February 2012. Since then, six new wells were frac’d
with this technique, yielding substantially better initial production rates and economics. The Company continues
to be an industry pacesetter for low costs with Cardium horizontal drilling and completion costs in this past
winter’s program averaging $2.3 million per well. The wells drilled in the past winter are connected via short tieins to the Company’s pre-built infrastructure which reduced equipping and tie-in costs. The Company was able
to drill wells in 10 to 15 days depending on the depth drilled, slick water fracture stimulate the wells
approximately seven days later and have new oil production the following day, for an impressive cycle time
average of 20 days.
The Company has seen five consecutive years of long term gas price declines by its independent reserves
engineers. The Company no longer has any undeveloped shallow gas reserves contained in the reserves
evaluation as of December 31, 2012. The Company’s shallow gas land, drilling locations and infrastructure
awaits better natural gas pricing before drilling and well tie-in operations can resume. Today, 75% of the
Company’s P&P reserves are located in the Cardium properties, and these Cardium properties comprise 90% of
the pre-tax NPV 10 value of the Company.
Anderson has not drilled a gas well since mid-2010, and has been entirely focused on converting its historical shallow gas asset base into a Cardium light oil horizontal development company. This transition to light oil is necessary. The average NYMEX natural gas price in 2012 was $2.83 US per MMBtu. This resulted in an average natural gas price received by the Company of $2.21 per mcf in 2012, and the lowest natural gas price seen in the Company’s 11 year history. To put this price in perspective, the Company’s average natural gas price from 2009 to 2011 was $3.84 per mcf, and from 2006 to 2008 was $7.04 per mcf. In contrast, light oil prices remain very good, and unlike the heavy oil “bitumen bubble” which has caused heavy oil price differentials to widen out, the light oil price differential (i.e. the difference between the Edmonton par reference price and the WTI Cushing price) was $7.87 US per bbl in 2012, and is estimated to be $6.08 US per bbl in March 2013. All of the Company’s oil production is light oil.
Anderson realized a field oil price (excluding hedging) of $83.21 per bbl in 2012 and estimates it will be slightly higher in the first quarter of 2013. Today, Anderson has the advantage of being totally focused on light oil development drilling in the Cardium formation with 165 gross (90 net) sections of Cardium prospective land. Our Cardium net drilling inventory increased by 35% in the past 12 months to 232 gross (148 net) drilling locations, and 74% of the net drilling inventory can be connected to our owned and operated facilities.
In 2012, the Garrington Cardium area net operating income (revenue minus royalties minus operating expenses)
was $54.27 per BOE, with average operating expenses net of processing income of $4.85 per BOE. The Garrington Cardium property is the Company’s largest Cardium property and represents approximately 47% of the Company’s total pre-tax NPV 10 valuation. In 2012, its average production was 958 BOED and TP and P&P reserves were 3,771 and 6,120 MBOE respectively. This property contains a strategic 100% owned and operated oil battery and truck terminal which connects to the light oil Plains Rangeland pipeline system. The Company has been steadily increasing third party truck volumes from 50 m3 per day in early 2012 to over 250 m3 per day at the present time. The Company is investigating options to reconfigure this facility to substantially increase and attract third party truck volumes.
In addition to the substantive Cardium light oil drilling inventory, the Company has identified an important new
play on its lands - the Second White Specks. The Company has 104 gross (46 net) sections of Second White
Specks (“2WS”) land and has assembled a drilling inventory of 102 gross (59 net) drilling locations. This zone is
100 meters deeper than the Cardium formation and is the oil-source zone for the Cardium play and is oilcharged with similar quality light oil that is in the Cardium formation. To date, other operators have drilled six horizontal oil 2WS wells offsetting the Company lands. The Company believes this play can be exploited by drilling off existing Cardium drilling pads and handling the Second White Specks oil and solution gas at the Company’s operated Cardium facilities.
The Company no longer considers itself to be a shallow gas production and development company. The
Company is a light oil horizontal development company focused almost exclusively on the Cardium with a
stacked resource play in the Second White Specks. The Company’s assets are almost entirely west of the fifth
meridian, and a two hour drive north of Calgary on predominantly year-round access land. With a new reserves
report, excellent drilling results yielding high initial productivity, relatively low capital costs and an expanded
drilling inventory, the Company continues to explore its options through a strategic alternatives process. Anderson has prepared a confidential data room to assist in this process. Qualified parties have signed confidentiality agreements to review information in this data room.
With recent property dispositions and existing bank lines, the Company was able to complete all of its recently
restructured drilling commitments. This winter’s drilling program has demonstrated significant initial production
results for slick water frac stimulations that were vastly superior to previously announced techniques. The
Company continues to add to its Cardium drilling inventory.