CALGARY, Alberta, Oct. 17, 2019 (GLOBE NEWSWIRE) -- GRANITE OIL CORP. (“Granite” or the “Company”) (TSX:GXO)(OTCQX:GXOCF) is pleased to report the preliminary results for the third-quarter and an operational update.
During the recently completed third quarter, the Company made significant progress on debt repayment and completed an initial test of a recompletion program which has the potential to have material, positive impacts on go-forward development of the Company’s Bakken oil pool.
Preliminary Third Quarter Results
Granite continued its focus on debt reduction during the third quarter of 2019, further decreasing net debt by an estimated $1.7 million to an estimated $41.1 million at the end of the quarter. The Company has successfully reduced net debt by approximately 14% over the first nine months of 2019, and is on-track to reduce it by a further ~4% by year end.
Capital expenditures for the quarter were approximately $1.5 million, which funded the recompletion test described below, well workovers, and facility projects designed to reduce future operating costs. Estimated production was approximately 1,575 boe/d, which is principally the result of the Company electing to keep over 250 bbl/d of oil production from five re-pressurized wells originally slated to be brought on-stream during the quarter shut-in for a future recompletion program. Severe weather in Southern Alberta at the end of September prevented the Company from shipping its oil inventory for the final three days of the quarter. This impacted oil sales, which averaged approximately 1,510 bbl/d, and associated revenue for the quarter. Accordingly, these sales volumes and revenues will be realized in October and reflected in the Company’s fourth-quarter results.
With the ever-increasing focus on abandonment liabilities of Canadian oil and gas producers, the Company remains proactive in its efforts to achieve its goal of abandoning all of its shut-in shallow gas wells by year-end 2020. During the third quarter, Granite completed the abandonment of approximately 18% of the Company’s wells slated for abandonment. This commitment to the responsible management of its assets will help to further improve Granite’s top-tier liability management ratio (‘LMR’) of 6.5, and will ultimately result in a significant reduction to operating costs as the Company removes tax and lease-rental obligations associated with these assets.
Granite continues to test new ways to improve both the efficiency at which it adds oil production and the ultimate, long-term oil recovery of its large, 100%-owned, early-life-cycle Bakken oil pool through its gas injection enhanced recovery scheme (‘EOR’) and other complementary strategies.
Over recent years, Granite has evolved its completion programs in parallel with its gas flood to optimize production rate and ultimate recovery of its development wells. As part of this evolution, the Company has tested progressively tighter frac spacing, having reduced from as high as 80 meters in 2015 down to approximately 26 meters on its most recent development well. Granite’s four most recent development wells have been completed with average frac interval spacing of approximately 33 meters and have demonstrated consistently stronger production performance.
With the success of increased frac density on new development wells, Granite has been evaluating the potential of a recompletion program to efficiently add production and increase the overall oil recovery of legacy producing wells originally completed with longer frac interval spacing.
During the third quarter, Granite tested a recompletion program on a producing well originally completed in 2015 with average frac interval spacing of approximately 80 meters. The test consisted of 21 new frac stages added over a previously completed lateral length of approximately 700 meters. Interval spacing between new frac stages averaged approximately 25 meters, with average proppant tonnages of approximately 7.5 tons per stage. The initial test was conducted on a well in the gas flood area which was underpressured, allowing for more accurate quantification of results, and has increased production by approximately three-times relative to the pre-frac production rate over an extended testing period.
The Company has identified 15 additional wells as recompletion candidates, with up to 12,000 meters of potential unstimulated lateral to be fracked. Of significant, compounding benefit is the Company’s ability to utilize its gas injection EOR scheme to increase reservoir pressure prior to future operations in order to enhance production rates following the recompletions. Accordingly, in anticipation of the test results, the Company elected to keep five wells shut-in in a repressurized area during the third quarter for a future recompletions program. The significantly higher reservoir pressure in this area relative to the test well is expected to provide additional torque on the production rates of these wells.
The Company will remain focused on its debt-reduction and efficiency goals through the remainder of 2019 and will commence a recompletion program in the first quarter of 2020. Granite is encouraged by the potential of future recompletions to accelerate its plans by strengthening the Company’s ability to add producing barrels through this relatively low-risk capital operation. With over 80 potential infill drilling locations that will serve as the backbone of future development of its Bakken pool, the recompletion strategy provides an additional mechanism by which Granite can increase shareholder value in the current energy environment.
Granite continues to strengthen its balance sheet while successfully navigating a volatile and challenging market. As the Company continues to pay down debt, it is increasing its inventory of highly economic capital projects, reducing its already limited abandonment liability, and improving corporate and operational efficiencies. Granite has consistently proven its free-cash-flow-generating capability and the efficiency at which it adds producing barrels. At its current debt repayment rate, Granite is rapidly positioning itself to increasingly deploy a larger component of its free cash flow to growth projects and other available avenues to increase shareholder value.
For further information, please contact Michael Kabanuk, President & CEO, by telephone at (587) 349-9123, or Devon Griffiths, COO, by telephone at (587) 349-9120.
Forward-Looking Statements. Certain statements contained in this news release may constitute forward-looking statements or information (collectively, “forward-looking statements” or “statements”). These statements relate to future events or Granite’s future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, this news release contains forward-looking statements, pertaining to the following: forecasted capital expenditures and plans; recompletion, drilling and development plans; Granite’s financial strength; anticipated production rates; projections of market prices and costs; supply and demand for oil and natural gas; the quantity of reserves; the success of the enhanced oil recovery scheme and the recompletion program; expectations regarding Granite’s credit facility; treatment under governmental regulatory and taxation regimes; and expectations regarding Granite’s ability to raise capital and to continually add to reserves through acquisitions and development.
Granite believes the expectations reflected in such forward-looking statements and the assumptions upon which such forward-looking statements are based, to be reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon by investors. These statements speak only as of the date of this news release and are expressly qualified, in their entirety, by this cautionary statement. Granite’s actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; general economic conditions; stock market volatility and the ability to access sufficient capital from internal and external sources; uncertainties associated with estimating reserves; uncertainties associated with Granite’s ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel. Readers are cautioned that the foregoing list of factors is not exhaustive. Management has included the above summary of assumptions and risks related to forward-looking information provided in this news release in order to provide security holders with a more complete perspective on Granite’s future operations and such information may not be appropriate for other purposes. Additional information on these and other factors that could affect Granite's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
With respect to forward-looking statements contained in this news release, Granite has made assumptions regarding, among other things: prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; the legislative and regulatory environments of the jurisdictions where Granite carries on business or has operations; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells and recompleting existing wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to market oil and natural gas successfully and Granite’s ability to obtain additional financing on satisfactory terms.
The forward-looking statements represent Granite’s views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. Granite has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking statements will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.
Net debt, which represent current assets less current liabilities, excluding current derivative financial instruments, is used to assess efficiency, liquidity and the Company's general financial strength. No IFRS measure is reasonably comparable to working capital deficit.
BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.