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Synergy to Spud First Well in Cannon Project; Talks Strategy

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Synergy Resources Corporation has entered into a day rate drilling contract with Ensign Drilling Company of North America.

Ensign is preparing to spud the first of eleven wells at the Company's Cannon prospect, which includes six Codell wells and five Niobrara wells. On the six Codell wells, the Company plans on utilizing sliding sleeves and slickwater frac for the completions and estimates total drilling and completion (D&C) costs are to be $3.3 million per well. For the five Niobrara wells, the Company plans on completing the wells using sliding sleeves and hybrid gels frac and estimates the D&C costs to be $3.5 million per well. If during drilling it becomes necessary to use a plug and perf completion design instead of sliding sleeves, the D&C costs would increase by approximately $300,000 per well. All eleven Cannon wells are permitted to be standard length laterals with an average of 22 frac stages per well. 

Operations Update

Drilling operations at the Company's Weis pad were successfully completed on January 17, 2015. This brings the total to twenty nine wells that have been drilled but not yet completed. The Company determined that with the recent decline in drilling costs and the recently revised completion design, it would be economic to move forward with drilling its Cannon prospect. Importantly, the Company maintains a 100% working interest in the Cannon prospect and the pad is located in the western area of the Company's acreage position where line pressures have been lower, which is conducive to more efficient production. 

The Company anticipates drilling operations on the Cannon pad will be concluded by late May or early June. The timing of the completions for the eleven Cannon wells, and the other aforementioned twenty nine wells, remains at the Company's discretion pending market conditions. This timing may impact total D&C costs as the Company continues to work to negotiate lower completion costs.

The importance of pad location has increased over the last several months as midstream infrastructure challenges and winter weather have continued to impact production. Weather has impacted production sporadically during the fiscal second quarter as the area experienced several severe cold snaps, most notably in late December and early January. More significantly, midstream processing constraints in the northern area of our acreage have continued to restrict production.

High line pressures have significantly impacted our vertical wells resulting in a reduction in the Company's daily vertical production over the past several weeks. Additionally, the recently completed Weld 152 and Kelly Farms pads in the northern portion of the Wattenberg Field have experienced line pressures over 400 psi and the horizontal wells are only producing intermittently, thus reducing current daily horizontal production by 700-900 BOE.

The Company's second fiscal quarter production is also running below expectations due to a delay in completions by other operators in which Synergy has a non-operated working interest. These new wells were estimated to contribute between 200-300 BOED net to Synergy's production for the quarter and now are scheduled for initial production to begin in late February or early March. If current midstream conditions and delays in non-operated well completions persist, the Company anticipates its fiscal 2Q average daily production will range between 7,000 and 7,300 BOE.