CALGARY, ALBERTA – Enercapita Energy Trust (the “Trust”) is pleased to announce that Enercapita Energy Ltd. (the “Company” and together with the Trust and Enercapita Energy L.P., “Enercapita”) has successfully closed an acquisition of 1,300 boe/d of low-decline, predictable, operated, predominantly light oil and liquids production in its core Boundary Lake operating area (the “Acquisition”). The purchase price paid by the Company was $48 million in cash, prior to customary closing adjustments.
The assets acquired pursuant to the acquisition (the “Assets”) consist of high working interest, operated wells producing approximately 950 bbls/d of light oil (38 degree API) and natural gas liquids, and 2,100 mcf/d of solution gas; and 100% ownership of associated infrastructure. With established waterflood in place, the Assets have a low decline rate of approximately 15%, over 70 million barrels of original oil in place and significant horizontal stimulation and development drilling upside.
The Assets are geographically adjacent to the Company’s existing assets in the Boundary Lake area, which are currently producing approximately 725 boe/d. As a result, the Company anticipates producing approximately 2,025 boe/d in the area and expects to recognize immediate operating and cost synergies.
Enercapita believes that the Company was positioned to complete the Acquisition as a result of its strong balance sheet. Prior to the closing of the Acquisition, the Company had no debt and undrawn credit facilities. The purchase price paid by the Company for the Acquisition was funded using available credit facilities. The Company expects to reduce its debt to approximately $20 million as a result of the issuance of units of Enercapita and the free cash flow generated by the Company.
Key Attributes of the Acquisition
- 1,300 boe/d (73% liquids; 38 degree API oil);
- Strategic consolidation with the Company’s Boundary Lake assets to increase production in the area to approximately 2,025 boe/d and create further operating synergies;
- Over 70 million barrels of original oil in place, 7% recovered to date, with potential recovery of up to 30%(5) ;
- High netback production of over $30/boe and estimated annual net operating income in excess of $14.2 million(1) (4);
- Low liability risk as a result of low well count and high productivity per well;
- Established waterflood in place and an annual decline of less than 15%; and
- Multiple Halfway drilling locations and significant low risk upside.
Summary of Reserves(2)
|Million boe|| NPV10%(3)
|Proved Developed Producing||3.5||$66,273|
|Proved Plus Probable||6.9||$117,958|
|Current Production||$36,923 boe/d|
|Proved Plus Probable Reserves(2)||$6.96/boe|
|Price to Annualized Cash Flow Ratio(1) (2) (4)||3.4 X|
(1) Based on 1,300 boe/d; 73% liquids; USD$70.00/bbl WTI; 14% oil differentials; $19.75/boe operating and transportation expense; 16% royalties; and a Canadian/US dollar exchange rate of $0.77.
(2) Based on an independent reserves report dated March 31, 2018, prepared in accordance with NI 51-101 and the COGE Handbook.
(3) Before tax net present value based on 10 percent discount rate and December 31, 2017 price forecast of an independent reserve evaluator.
(4) Based on current production of 1,300 boe/d.
(5) Based on management estimates.
Enercapita has had a very strong 2018 to date with successful execution of its strategic initiatives including reducing costs, replacing production through low cost capital execution, and realizing synergies associated with aggregating our asset base through acquisitions. We have been opportunistic in acquiring assets that meet our stringent criteria and, above all else, we remain focused on maximizing free cash flow and maintaining our strong balance sheet.
Pro forma the Acquisition, Enercapita is producing approximately 7,500 boe/d (69% liquids). Assuming USD$70.00/bbl WTI, $1.65/mcf, a Canadian/US dollar exchange rate of $0.77, 14% oil differentials; $19.75/boe operating and transportation expense; and 16% royalties; the Company expects to generate annualized net operating income in excess of $75 million, providing what Enercapita believes is ample free cash flow to fund preferred unit distribution payments and our budgeted capital expenditure program. The Company has approximately 45% of Q4 2018 and full year 2019 production hedged, minimizing commodity price exposure risk while allowing for significant incremental free cash flow and optionality should commodity prices increase.
Enercapita remains focused on maximizing free cash flow and creating value for our unitholders. The Company has successfully aggregated a high quality asset base consisting of long-life, low-decline, light oil production and infrastructure. These asset qualities of the Company are expected to result in significant free cash flow generation and low production replacement costs which, coupled with a strong balance sheet, has the Company well positioned as we head towards 2019.
The Trust is an energy fund focused on the growth of long-life, low-decline, low-cost, low-risk energy assets through the exploitation and optimization of existing production. The Trust is an RRSP eligible investment vehicle that streams the cash flow from its production directly to its investors on a priority basis.
Forward-Looking Statements. Certain information included in this news release constitutes forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “project”, “forecast” or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information in this news release may include, but is not limited to, statements concerning the Assets, including production, decline rates, recovery factors, drilling upside and net operating income, production, debt, operating synergies, net operating income, hedging, corporate strategy, preferred unit interest coverage, and future commodity prices and exchange rates. Statements relating to “reserves” are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.
The forward-looking statements contained in this news release are based on certain key expectations and assumptions made by Enercapita, including expectations and assumptions concerning the success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the availability and performance of facilities and pipelines, the geological characteristics of Enercapita’s properties, the successful application of drilling, completion and seismic technology, prevailing weather and break-up conditions and access to our drilling locations, commodity prices, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the availability of capital, labour and services, our ability to complete planned capital expenditures within budgeted cost estimates, the ability to market our oil and gas successfully, our ability to integrate assets and employees acquired through acquisitions, the creditworthiness of industry partners, differentials and our ability to acquire additional assets.
Although Enercapita believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Enercapita can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), incorrect assessment of the value of acquisitions, failure to realize the benefits of acquisitions, constraint in the availability of services, commodity price and exchange rate fluctuations, changes in legislation (including but not limited to tax laws, royalty regimes and environmental legislation), adverse weather or break-up conditions and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Production forecasts are directly impacted by commodity prices and the actual timing of our capital expenditures. Actual results may vary materially from forecasts due to changes in interest rates, oil differentials, exchange rates and the timing of expenditures and production additions.
The forward-looking information contained in this news release is made as of the date hereof and Enercapita undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward-looking information contained in this news release is expressly qualified by this cautionary statement.
This news release contains future-oriented financial information and financial outlook information (collectively, “FOFI”) about Enercapita’s prospective results of operations, cash flow, free cash flow, netbacks, net operating income and net debt, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs and the assumption outlined in the Non-IFRS measures section below. FOFI contained in this news release was made as of the date of this news release and was provided for the purpose of providing further information about Enercapita’s anticipated future business operations. Enercapita disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this news release should not be used for purposes other than for which it is disclosed herein.
Non-IFRS Measures. This news release provides certain financial measures that do not have a standardized meaning prescribed by IFRS. These non-IFRS financial measures may not be comparable to similar measures presented by other issuers. Cash flow, free cash flow, netback, net debt and net operating income are not recognized measures under IFRS. Management believes that in addition to net income (loss), cash flow, free cash flow, netback, net debt and net operating income are useful supplemental measures that demonstrate the Company’s ability to generate the cash necessary to repay debt or fund future capital investment. Investors are cautioned, however, that these measures should not be construed as an alternative to net income (loss) determined in accordance with IFRS as an indication of the Company’s performance. The Company’s method of calculating these measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. Cash flow is calculated by adjusting net income (loss) for other income, unrealized gains or losses, accretion expense, stock-based compensation, exploration and evaluation expenses, deferred income taxes, impairment and depletion and depreciation. Free cash flow is calculated as cash flow less planned capital expenditures. Netback is a per barrel of oil equivalent measure calculated as net operating income divided by barrels of oil equivalent. Net debt is calculated as bank debt plus trade and other liabilities plus finance lease obligations less current assets. Net operating income is calculated based on oil and gas revenue less royalties and operating and transportation expenses.
OIL AND GAS ADVISORIES
BOE Disclosure. The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions disclosed herein are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Reserves Disclosure. All reserve references in this news release are to gross reserves as at the effective date of the applicable evaluation. Gross reserves are the Company’s total working interest reserves before the deduction of any royalties and including any royalty interests of the Company. The recovery and reserve estimates of the Company’s crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein.
Original Oil in Place. Original Oil in Place (OOIP) is the equivalent to Discovered Petroleum Initially in Place (DPIIP) for the purposes of this news release. DPIIP is defined as quantity of hydrocarbons that are estimated to be in place within a known accumulation. There is no certainty that it will be commercially viable to produce any portion of the resources. A recovery project cannot be defined for this volume of DPIIP at this time, and as such it cannot be further sub-categorized.