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Delphi Energy Completes 8 Slickwater Montney Wells in 2014

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   |    Friday,October 24,2014

Delphi Energy Corp. has provided the following update.

Bigstone Montney

  • Delphi has successfully completed its sixth Montney horizontal well of 2014 at 3-26-59-23 W5M in East Bigstone. The 3-26 well (100 percent working interest) was drilled to a total depth of 5,593 metres with a horizontal lateral length of 2,601 metres and stimulated with a 30 stage slickwater hybrid completion. The well is currently being equipped to produce through the Company’s 100 percent owned compression and dehydration facility and is expected to be on-stream in the next two weeks.
  • Delphi has also finished drilling its seventh Montney well of 2014 at 13-23-60-23 W5M. The 13-23 well (100 percent working interest) was drilled to a total depth of 4,995 metres with a horizontal lateral length of 2,161 metres in 25 days. Completion operations are expected to commence in the next two weeks. The 13-23 well will be the twelfth well completed using a 30 stage slickwater hybrid fracture stimulation technique in East Bigstone.
  • Delphi has now commenced drilling operations at its eighth Montney well of 2014 at 16-27-60-23 W5M (87.5 percent working interest).
  • Since February 2013, the Company has brought on-stream ten Montney horizontal wells completed with the 30 stage slickwater hybrid fracture stimulation technique at East Bigstone. Three of the wells have achieved payout with another three expected to reach payout by December 31, 2014. At payout, the average production rate of the three wells was approximately 730 barrels of oil equivalent per day generating cash operating income (revenues less royalties, operating costs and transportation) at payout of approximately $2.0 million per month from the three wells.
  • During the month of September 2014, corporate production averaged approximately 11,000 boe/d with production from the Montney formation at East Bigstone averaging approximately 7,700 boe/d, an eleven-fold increase from 700 boe/d in February 2013. Over that same time period, the Company spent approximately $143.0 million on drilling, completions and infrastructure at East Bigstone. The cash operating income generated from the Montney production for September 2014 was approximately $6.2 million, equivalent to an annual run-rate of approximately $75.0 million.
  • Production data gathered over the past 20 months continues to validate the robust economics of Delphi’s East Bigstone Montney project, with variability in individual well performance being observed as follows. Five of the ten wells with initial natural gas production rates at or above the type curve of seven million cubic feet per day (mmcf/d), are observed to have both field condensate yields, 40 barrels per million cubic feet of raw natural gas, (bbls/mmcf) and decline rates consistent with the type curve model. 10-27-60-23 W5M which achieved payout in 14 months, 15-30 -60-22 W5M which achieved payout in six months, and 13-30 -60-22 W5M which is expected to have a payout of eight months are three examples of this observed performance. The remaining five wells with initial natural gas production rates lower than the type curve generally have higher field condensate yields, ranging from 50 to 90 bbls/mmcf of raw natural gas, and initial declines less than that of the type curve. 15-24-60-23 W5M which achieved payout in nine months and 15-21-60-23 W5M which is expected to have a payout of 12 months are two examples of this observed performance. The average production rate of the ten wells continues to match the type curve’s profile of a 180 day average (IP180) production rate of 1,083 boe/d and the 365 day average (IP365) production rate of 843 boe/d.
  • On October 22, 2014 a landslide in the Bigstone area shut down the Alliance pipeline lateral connecting the Bigstone West Gas Plant. Only the Company’s sweet natural gas production of approximately 700 boe/d is currently processed through its ownership interest in the Bigstone plant. The Company has been able to mitigate any production loss through alternative transportation arrangements. The landslide has no impact on Delphi’s Montney production.

Acquisitions and Disposition Activity

Delphi has closed the previously announced acquisitions at Bigstone and the minor non-core disposition at Hythe. The Company incurred net capital of $1.8 million on a combined basis for all three transactions while largely replenishing its East Bigstone Montney drilling inventory, acquiring West Bigstone production and reserves for approximately proved developed producing value and acquiring underutilized strategic infrastructure with a replacement cost of approximately $25.0 million.

Acquisitions

  • The Company has closed the acquisition of eight gross (3.5 net) sections of Montney rights directly offsetting Delphi’s current Montney production and recent drilling activity at East Bigstone for a purchase price of $8.8 million after closing adjustments. The assets include three gross (1.5 net) non-producing horizontal Montney wells that are tied-in to Delphi’s 100 percent owned compression and dehydration facility. The three wells acquired on the lands were completed with a completion technique (conventional gelled oil fracture stimulations) similar to that used by Delphi in the initial stage of its Montney development at East Bigstone. The lands acquired have an internally estimated drilling inventory of 13 gross (5.8 net) horizontal Montney wells, not including the re-drilling of the three aforementioned wells.
  • Delphi has also closed the West Bigstone acquisition of approximately 430 boe/d (87 percent natural gas) for a purchase price of $9.0 million after closing adjustments. The assets consist of 26.3 gross sections (19.3 net) of Cretaceous rights contiguous to the Company’s deeper Montney rights at West Bigstone and an extension of its current Cretaceous rights in the greater Bigstone area. As part of the transaction, Delphi has also acquired approximately 40 kilometres of field gathering infrastructure and a 100 percent working interest in an under-utilized 15 mmcf/d sweet shallow cut natural gas processing plant. The Company’s initial exploratory horizontal Montney test well at West Bigstone currently produces to this natural gas processing plant. In addition to providing Delphi with direct-to-sales infrastructure for future Montney development at West Bigstone, the asset also contains opportunities in the Cretaceous Gething formation analogous to the Company’s horizontal Gething well at 12-16-60-23 W5M (“12-16″). Since commencing production in 2012, with an average initial production rate over the first 30 days of 772 boe/d (87 percent natural gas), the 12-16 well has produced approximately 1.1 billion cubic feet (bcf) of raw natural gas and 27 thousand barrels of field condensate and gas plant recovered natural gas liquids. The Company now has 87.5 gross (63.0 net) sections of Cretaceous Gething rights across Bigstone.

Dispositions

  • Delphi has closed the sale of certain interests from its Hythe property for gross proceeds of $16.0 million after closing adjustments. The disposed assets were producing approximately 430 boe/d (55 percent natural gas) and included 23.3 gross (17.7 net) sections of primarily shallow Cretaceous rights. These assets were not attracting capital from the Company’s spending plans due to the superior economics of the Company’s Montney development at Bigstone. The disposition was completed to substantially fund the acquisition of assets mentioned above that complement Delphi’s Montney development opportunities at Bigstone.
  • The disposition process of the Company’s Wapiti assets has concluded. Delphi has decided that the Wapiti assets will not be sold at this time and will remain as one of the Company’s three core areas. The potential purchaser has been unable to act within the terms of the revised Letter of Intent which expired on October 9, 2014 and to date has failed to demonstrate reasonable progress in consummating the contemplated transaction.

Outlook

  • The Company has realized significant gains in spud to spud cycle times of its horizontal Montney drilling program at Bigstone. The accelerated drilling times have allowed the Company to increase its drilling activity in 2014 from six to eight horizontal Montney wells. On-stream dates for these two additional wells will be at the end of 2014 or early in 2015 and will not materially impact the Company’s production guidance for 2014.
  • Production for the fourth quarter of 2014 is forecast to average 11,200 to 11,500 boe/d, representing a 26 percent increase over the comparative quarter of 2013 of 8,988 boe/d. Third quarter production was approximately 9,500 boe/d, based on field estimates. Delphi’s Montney production was curtailed in August as a result of repairs to a third party natural gas liquids pipeline and scheduled gas plant turnaround maintenance at the Company's Wapiti property in September. Given the strong Montney production performance detailed above, the Company remains on track to meet its 2014 annual production guidance of 10,000 to 10,500 boe/d and exit production forecast of 11,500 to 12,000 boe/d.

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