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Boulder Energy Lowers Belly River Well Cost to $3.5 MM

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Boulder Energy Ltd. has released an operational update and its financial and operational results for the three and six months ended June 30, 2015.

Operational Update

• The Company has reported that as a result of its successful drilling efforts late in the second quarter and early in the third quarter, its current average production stands at approximately 7,700 boe per day (including 6,100 bbls of liquids) based on field estimates, with an additional two wells awaiting completion.
• Well results year to date have been in line with the Company's budget assumptions with the average IP30 year to date standing at 541 boe/day. 
• For the remainder of the year, Boulder plans to operate one drilling rig and drill an additional 5 to 7 wells which, when combined with the new well costs described below, should result in 2015 year end net debt being approximately equal to June 30, 2015 net debt of $141 million (assuming US$45 WTI).
• Boulder's goal for the year is to maintain oil production volumes in an effort to reduce overall corporate decline closer to the 30% target level. The Company believes that this strategy will benefit its long term growth profile regardless of the commodity price environment all the while protecting Boulder's strong balance sheet.
• In the second quarter, the Company drilled and completed a total of 6 gross (6.0 net) wells. As this drilling began in the middle of May, the wells were brought onto production late in the second quarter, with the 6 wells only contributing a combined 87 producing days in the second quarter. As a result, the impact of Boulder's second quarter capital expenditures is principally being seen in the Company's current production.

Well Costs

• strong>The Company made the decision in February 2015 to temporarily suspend drilling on its Brazeau Belly River property in an effort to optimize its service costs with providers to reflect the new oil price reality. 
• strong>This, along with monobore drilling methods, has resulted in a 22% all-in well cost reduction from the $4.5 million per well planned in the Company's long term budget and a 33% reduction from the $5.2 million per well averaged in 2014. The new well cost of $3.5 million per well is an important milestone for the Company as it allows for quicker payouts on its wells at current commodity prices, which in turn will have a positive impact on the Company's growth rate for many years to come.

Exploration and Delineation Efforts

• strong>Boulder continues to delineate its 97,635 net acre land position by drilling both step-out wells in existing zones as well as exploring new zones in new areas within its Brazeau Belly River property. The Company continues to push forward in this respect even in the current commodity price environment as it will de-risk areas and drilling locations that will allow for future growth when commodity prices become more favorable.
• strong>The Company drilled a 2.5 mile step-out in the "C sand" on the western portion of its Brazeau Belly River property early in the third quarter. The well had an IP21 rate of 490 boe/day (86% oil). The well was drilled with a 2,027 meter lateral and completed with a 22 stage cemented liner system at a total cost of $3.66 million. This successful delineation de-risks numerous development drilling opportunities in the area as well as providing confidence in further "C sand" step-out wells on the Western acreage defined by mapping of vertical wells.
• The Company is currently drilling a "D sand" well in the northern portion of its lands. The well will be drilled off of an existing 5 well drilling pad that had previously targeted the "C sand". Dependent on success, the well will open up numerous drilling opportunities that are 2 miles north of its current prolific "D sand" development drilling. Eventually this drilling pad could have a total of 10 development wells drilled on it, which speaks to the operational efficiencies to be gained in the future from this multi-zone light oil play.

Down-spacing and Infill Drilling

• strong>As part of its long term strategy, Boulder is committed to prudently testing down-spacing opportunities that exist on its land base in existing oil pools. The results of these efforts over the coming quarters could have a material impact on both reserve bookings, by increasing the recovery factors, as well as increasing drilling opportunities on the Company's Brazeau Belly River property beyond the 440+ locations already identified. None of these down-spacing locations were included in the Company's previous reserve bookings.
• To date, Boulder has drilled 3 infill wells on its Brazeau Belly River property in two separate development pools with positive results. The Company has not noted any increase in production declines from existing offsetting wells on any of the three infill wells. The Company will continue to monitor the data from these efforts before further development continues. 

Data from the three infill wells is listed below: 

• Beginning in May of 2015, the regional TCPL gas system began an unscheduled mandated maintenance program. This issue has caused continuous disruption in sales gas to both Boulder and the rest of the industry and is the first time a disruption to sales gas has occurred since purchasing the property in 2011. Sales gas remains at, or at times below, firm sales gas commitments that Boulder has on the order of 6mmcf/day. As a result of this and other regulatory issues, the Company was forced to shut in or flare gas and at times shut in oil volumes to comply with the outages. This issue negatively affected production on the order of 1,146 boe/day (30% liquids) in the second quarter. The Company reacted quickly to this issue by expediting government approval of a gas re-injection and storage scheme into an existing horizontal well. This gas re-injection scheme is now injecting approximately 2.5 mmcf/d of gas into the reservoir so that the gas may be stored and then sold at a later date. 
• Boulder also recently received approval to re-inject gas into a second horizontal well which will allow the Company to inject more gas as the 2015 drilling program continues. As the length of the outages is not yet known, this makes it difficult to predict exact timing of this gas being sold; however, the Company has been creative in getting most of its oil to market. As Boulder's oil volumes account for approximately 90% of its revenues, the Company does not expect this issue to influence its second half 2015 cash flow projections although it may affect its gas sales volumes depending on timing of the issue being resolved. Currently, the Company has approximately 1,900 boe/day (24% liquids) of behind pipe volumes as issues with TCPL persist.

Liquids Yields

• During the second quarter of 2015, Keyera changed the deep cut process at their West Pembina Gas Plant. As a result, the sales liquids yield has dropped from 55 bbls/mmcf to approximately 25 bbls/mmcf with most of the reduction pertaining to propane. This is not a result of the liquids yields from the Belly River reservoir in which historical sales gas has been constant at 55 bbls/mmcf for the past twenty years. This change negatively impacted overall sales production by approximately 215 bbls/day in the second quarter; however, the Company continues to extract and get paid for its higher end liquids at the Keyera Gas plant while also selling a higher heat content gas into the TCPL system. These changes will not be impactful on future cash flow.

Outlook

• After a quiet first half of 2015 on the operations front pending completion of the Reorganization, Boulder is positioned to deliver on its long term plan to shareholders. Although the Company is facing some temporary headwinds in getting its gas to market, it has reacted quickly to deal with the issue, allowing oil volumes to get to sales to maintain cash flow for the second half of 2015 in line with expectations and beyond. The Company has diligently focused and succeeded in reducing capital expenditures on a per well basis to maximize profitability and growth in the new oil price reality. 
• Assuming US$45 WTI for the second half of the year, the Company plans to incur approximately $45 million of capital expenditures which, when combined with the new well costs of $3.5 million per well, should result in 2015 year end net debt being approximately equal to June 30, 2015 net debt of $141 million. Prudently continuing the exploration and delineation of its long term light oil resource play is expected to provide a healthy inventory of de-risked locations to exploit when oil prices become more favorable. In the meantime, the Company is committed to maintain oil volumes while lowering overall corporate declines, with a focus on operational efficiencies and preserving a strong balance sheet.