Exploration & Production | Quarterly / Earnings Reports | First Quarter (1Q) Update

Manitok's Cardium Ops Hit New Production Record in 1Q

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Manitok Energy Inc. has reported its financial and operating results for the first quarter of 2014.

Highlights:

• Record first quarter production averaged 5,351 boe/d (59% light oil and liquids) which is a 49% increase over production of 3,586 boe/d (50% light oil and liquids) in the first quarter of 2013. Production continued to increase over comparable quarters despite closing an asset divestiture of approximately 777 boe/d (34 % sweet natural gas and 60% sour natural gas) on February 28, 2014.
• Increased light oil production by 78% which increased Manitok's light oil production weighting to 57% of total production as compared to 47% of total production in the first quarter of 2013.
• Recorded average production per diluted share growth of 46% and funds from operations per diluted share growth of 91% when compared to the first quarter of 2013.
• Recorded funds from operations of $15.5 million ($0.21 per diluted share) which is a 97% increase over funds from operations of $7.9 million ($0.11 per diluted share) in the first quarter of 2013.
• Operating netback (excluding the realized gain or loss on financial instruments) was $40.11/boe, which is a 44% increase over the operating netback of $27.78/boe in the first quarter of 2013. While the increase in netback was aided by increased production volume and stronger commodity prices, Manitok also improved its operating cost structure in the first quarter as a result of the divestiture of dry sweet and sour natural gas assets in the central Alberta foothills where the operating costs were higher than the Stolberg area on a per boe basis.
• Capital expenditures were approximately $24.1 million, before $21.9 million in asset divestitures, which included drilling 9 (6.8 net) wells for about $19.8 million and $2.4 million on equipment and facilities. Of these 9 wells, 5 (2.8 net) were drilled in the Stolberg area and 4 (4.0 net) were drilled in the Entice area.
• At March 31, 2014, net debt was approximately $26.6 million, which is 0.4 times annualized first quarter funds from operations.
• Increased net undeveloped land to 293,197 acres as at March 31, 2014, a 46% increase from 200,271 acres as at March 31, 2013.

At March 31, 2014, there were 71,615,406 outstanding common shares of Manitok. Subsequent to the first quarter and up to May 27, 2014, a total of 1,881,800 Manitok Shares were purchased through the normal course issuer bid program, at an average price of $2.47 per Manitok Share and 543,668 Manitok Shares were issued through Manitok's stock option plan, at an average price of $1.45 per share, for a total net decrease in Manitok Shares of 1,338,132 since the first quarter of 2014. The total outstanding Manitok Shares as at May 27, 2014 was 70,277,274.

Operational Update

Drilling and completions operations continue in Manitok's core areas although spring break-up has limited operational activity particularly in southern Alberta. Average production for the month of April 2014 was approximately 4,900 boe/d (61% oil) based on field estimates. This reflects the asset divestiture of 777 boe/d which closed on February 28, 2014.

Entice

To date, Manitok has successfully drilled and cased a total of 4 vertical wells and 1 horizontal well in Entice. The wells were spaced across 4 of the 9 townships acquired through Encana Corporation, which are now held in Prairie Sky Royalty Ltd., in an effort to test multiple hydrocarbon bearing formations in the northern portion of the land base. All of the vertical wells encountered multiple pay zones and Manitok is focusing on several potential new pool discoveries in four different formations. The 4 vertical wells have proven that there is multi- zone potential across the land base. The horizontal well which targeted the Basal Quartz (Ellerslie) formation is being evaluated for deliverability and reservoir extent, through production testing and pressure build-up. Completion activity has been hampered to date by road bans associated with spring break-up and wet weather. Manitok anticipates that its completion operations and initial tests to determine commerciality of the potential new pools will be completed by mid-June and a more detailed report of the results will be provided at that time, along with information regarding the next phase of drilling at Entice which is scheduled to commence immediately after spring break-up. The lease agreement with Encana includes a $22.0 million capital commitment for 2014 and to date Manitok has spent approximately $8.4 million.

Cordel-Stolberg

Of the last 4 (2.0 net) Cardium oil wells drilled (wells 23 to 26), 1 (0.3 net) is currently on production through permanent facilities while 2 (1.4 net) are currently on production through temporary facilities with tie-in to permanent facilities expected in July 2014. These wells were drilled at the north end of the field between producing wells in section 29 and a low rate well drilled in 2013 which defined the northern limits of the pool. The fourth well (0.3 net) which was drilled to the deepest portion of the structure, about 800 meters from the crest, encountered water with no oil cut. Manitok will use this well as a water injector for its upcoming Stolberg waterflood program. The 3 producing wells, when producing through permanent facilities in the third quarter of 2014, are expected to add about 450 boe/d (256 net) of initial light oil production along with associated gas.

Manitok is currently drilling 2 wells in Stolberg. The first well is targeting Cardium oil in the back-limb of the Stolberg structure in the center of the field, between the producing wells at the north and south ends of the field, which is anticipated to be a highly fractured area of the field. It is the first well of a 3 to 4 well pad where Manitok has a 30% working interest in each well. As part of the drilling program for the first well, a pilot hole was drilled to test for Cardium oil in the fore-limb of the Stolberg structure. The pilot hole was designed to gather both pressure and phase data from the fore-limb. The results showed the Cardium fore-limb's thickness is consistent with that found in most of the back-limb, the formation is oil bearing and at original reservoir pressure. This indicates that this part of the structure is not communicating with any of the 3 previously drilled fore-limb wells in the south end of the field or with the wells on the back-limb. Manitok is adjusting its drilling schedule to accommodate drilling a well into this newly discovered portion of the structure as soon as it is feasible. If successful, the Corporation will add several follow up locations to its current inventory. The current back-limb target will be production tested once drilling operations are finished which is anticipated to be within the next 2 weeks. The drilling rig will immediately move to the second well on the pad once production testing is complete.

The second well is a potential natural gas well targeting an upper formation in the Mannville group. Currently the well is drilling the horizontal section and it is anticipated to reach total depth in the next week. Early indications are encouraging as pressure responses and gas detection during drilling have been very positive. Once the drilling operation is finished, the well will be production tested immediately. If successful, the well can be tied-in and producing by early in the third quarter. The drilling rig will then move to a pad at the south end of the field where it will begin the first of up to 3 Cardium oil wells on a pad. Manitok will be in a position to release more information on the two wells mentioned above by mid-June.

In addition, the Cordel waterflood pilot as approved by the Alberta Energy Regulator is progressing. Manitok has successfully established water injection capability in the injection well. Facility design for the injection plant is complete and injection scheduled to commence in the next 30 days.

Quirk Creek

Activity in Quirk Creek has been limited due to spring break-up. A total of 2 wells have been drilled and 1 well was placed on production in early April 2014. Based on field estimates, the production rate has averaged approximately 30 boe/d (net). The completion of the second well was suspended when road bans associated with spring break-up prohibited Manitok from moving in the drilling rig required to complete the well. Manitok anticipates that it will commence the completion on the second well in the next two weeks, weather permitting. Additional capital will not be allocated to the area until the second well has been properly evaluated.

2014 Guidance

The 2014 guidance remains unchanged from the Corporation's press release dated February 27, 2014.