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Delphi Energy's New Montney Fracs Give Faster Payout

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   |    Tuesday,August 11,2015

Delphi Energy Corp. has announced its operational and financial results for the quarter ended June 30, 2015.

Second Quarter 2015 Highlights

  • Produced an average of 10,210 barrels of oil equivalent per day (boe/d) in the second quarter of 2015, a two percent decrease over the comparative quarter of 2014, including production curtailments of approximately 450 boe/d;
  • Entered into an agreement for the disposition of its Wapiti assets for proceeds of $50.0 million, which subsequently closed on July 22, 2015;
  • Net debt at the end of the second quarter was $123.9 million, down $56.8 million from $180.7 million at the end of the first quarter of 2015;
  • Increased Montney production from 6,318 boe/d in the second quarter of 2014 to 6,658 boe/d in the second quarter of 2015, an increase of five percent; and
  • Maintained Montney natural gas liquids (NGL) and field condensate yields at 94 barrels per million cubic feet (bbls/mmcf) in the second quarter of 2015. Field and plant condensate yield was 60 bbls/mmcf or 64 percent of the total 94 bbls/mmcf.

Operations

  • Delphi has completed the drilling of its third Montney well of 2015 at 13-24-60-23W5 (13-24). The 13-24 well (0.83 net) was drilled to a total depth of 5,687 metres with a horizontal lateral length of 2,716 metres. A 40 stage liner was installed in 13-24 and completion operations are expected to commence later in August 2015.
  • The drilling rig has been moved to the next horizontal Montney well in East Bigstone at 14-30-60-22W5 and is expected to spud in the next few days. Commensurate with a drilling program objective that minimizes capital to bring on production, the wells being drilled in 2015 are proximal to existing gathering infrastructure. These infill drilling locations are consistent with the Company's strategy to minimize capital costs while targeting the most efficient production and proved developed producing reserves. 
  • Capital costs continue to decrease with overall drilling and completion costs for the recent activity down 17 percent compared to the wells drilled in 2014.
  • Completion operations have concluded at the Company's 16-24-60-23W5 (16-24) well that was drilled in the first quarter of 2015. A 40 stage frac program was successfully executed in late July and the well will be brought on production in August 2015.
  • The Company has commenced facility procurement for the previously announced water disposal well that was acquired in the greater Bigstone area for the handling of its produced water and completion flow-back water. After equipping of the water disposal well with the required injection facilities, Delphi expects disposal of its produced and completion water to commence in the fourth quarter of 2015. Avoiding water disposal costs through third parties will result in further reductions to both operating costs on all of the Company's Bigstone Montney production and capital costs on Delphi's completion operations for its future Montney development wells.
  • The Company is also preparing to install a pipeline to access higher quality fuel gas to improve the efficiency of the Montney 7-11 compression facility, increasing the throughput capacity and decreasing the required maintenance costs.
  • The Company has 15 wells which have been drilled with an average horizontal length of 2,500 to 3,000 metres and fracked with 30 to 40 stages utilizing the Company's slickwater hybrid frac technique. All but one of these wells now have IP30 day production performance data with eight wells having produced for at least a year providing IP365 well performance data. 
  • The eight wells have an average IP365 total sales rate of 833 boe/d with two wells averaging over 1,100 boe/d each in their first 365 days of production. The strong production performance at 365 days and greater results in shorter periods to payback, enhances the ability to grow Montney production on an absolute basis and contributes to significant value of the asset.

 

  • strong>Production volumes for the second quarter of 2015 averaged 10,210 boe/d, a two percent decrease over the comparative quarter in 2014. Production curtailments averaged approximately 450 boe/d during the second quarter. 
  • No new wells were brought on since early March 2015 as a result of spring breakup and a planned lower level of drilling activity in 2015.
  • Production volumes from the Montney development in the second quarter of 2015 increased five percent to 6,658 boe/d from 6,318 boe/d produced in the second quarter of 2014.
  • Delphi's production portfolio for the second quarter of 2015 remained similar to the prior quarter, weighted 13 percent to field condensate, 16 percent to natural gas liquids and 70 percent to natural gas and one percent to crude oil as a result of a well payout adjustment.
  • During the second quarter of 2015, Delphi invested $3.0 million in capital expenditures of which $1.7 million was incurred to complete the winter capital program and $1.3 million was incurred towards the start of the summer capital program. Delphi generally incurs capital expenditures in excess of funds from operations in the first quarter of the year followed by significantly less capital invested in the second quarter relative to funds from operations, resulting in net debt at the end of the second quarter relatively unchanged from the prior year-end amounts. 
  • strong>In the second quarter of 2015, Delphi recognized $10.5 million in proceeds of dispositions, with $10.0 million representing the non-refundable deposit received by June 30, 2015 on the sale of its Wapiti assets which closed on July 22, 2015. Net capital for the second quarter of 2015 was negative $7.4 million.
  • During the second quarter of 2015, due to minimal capital spending in other areas with the exception of Bigstone, a loss recognized on the sale of the Company's Wapiti assets and a further decrease in the forward price curves for natural gas and crude oil, Delphi undertook impairment tests on all areas other than Bigstone. As a result of these tests, Delphi recognized $19.1 million of impairments relating to its Hythe, Miscellaneous Alberta and British Columbia assets.
  • strong>At June 30, 2015, the Company had net debt of $104.1 million outstanding under its senior credit facility, $19.8 million outstanding under its subordinated credit facility and was in compliance with all covenants of the credit facilities. Total net debt at June 30, 2015 is $123.9 million, a decrease of $56.8 million from net debt outstanding of $180.7 million at March 31, 2015. The significant reduction is a result of funds from operations in the second quarter of 2015 being greater than capital invested and the disposition of the Company's Wapiti assets for $50.0 million, which closed on July 22, 2015. The proceeds were applied to the Company's outstanding indebtedness with $44.0 million repaid on the senior credit facility and $6.0 million repaid on the subordinated credit facility. The repayment of outstanding bank indebtedness is expected to result in interest savings of approximately $1.2 million for the balance of the year.
  • As a result of the disposition, Delphi's senior lenders (National Bank of Canada, Bank of Nova Scotia and Alberta Treasury Branches) have completed a review of the Company's senior credit facility resulting in a facility of $175.0 million, consisting of a revolving credit facility of $170.0 million and an operating facility of $5.0 million, with borrowings in excess of $140.0 million subject to consent of the lenders. The senior credit facility has approximately $108.0 million outstanding after the repayment of $44.0 million.
  • Effective May 12, 2015, the subordinated debt lenders agreed to an amendment to certain financial covenants in response to the continued weak commodity pricing environment. The amendment no longer requires quarterly compliance with a net debt to funds from operations ratio and is now subject to a net debt to funds from operations ratio of no greater than 3.5 times at December 31, 2015. The terms of the subordinated debt remain unchanged after the Wapiti disposition and the repayment of $6.0 million, other than the subordinated debt facility being reduced from $20.0 million to $14.0 million, the current outstanding amount.
  • The Company has total credit capacity of $189.0 million with total debt outstanding of approximately $122.0 million resulting in 35 percent of credit capacity being available.

Outlook

Delphi continues to maintain a strong risk management program for both its natural gas and natural gas liquids production. With the decrease in the Canadian dollar relative to the US dollar over the past six months, Delphi has been contracting the forward rate of the US/Cdn foreign exchange rate for its future US natural gas revenue. On average Delphi has undertaken forward rate contracts on approximately 45 percent of its future revenue from US natural gas commodity contracts at an average foreign exchange rate of US/Cdn $1.245.


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