The Company averaged 1,201 BOE/d of sales in the fourth quarter of 2012. The Company experienced 7.5 percent of unscheduled downtime in the quarter so the quarterly production number is approximately 100 BOE/d below total capability. Hatton was 12 BOE/d below its production allowable due to the two producing wells being shut-in for safety reasons during the drilling and testing of an additional well drilled from the production pad. Queensdale was 14 BOE/d below capability because of mechanical issues that affected the largest producing well in late November and December. The properties on the Peace River Arch were approximately 35 BOE/d below capability because of high line pressures in the main gas sales lines in late November and all of December. Tweedie was 13 BOE/d below capacity because of a suspected hole in the tubing of the highest volume producing well, which caused it to be shut-in from mid November to the present. Virginia Hills was down 20 BOE/d because of compressor failure issues at a third party gas facility on two occasions in the quarter.
The Company averaged 1,234 BOE/d for 2012 (59 percent oil and liquids). On a BOE basis this is essentially flat to 2011 but this represents a 20% increase in oil and liquids from 2011, reflecting the continuing focus of the Company to switch from a predominantly gas producing Company to an oil and liquids producer. The 41 percent gas production generated 11.5 percent of the total revenue although this improved to 15.6 percent in the fourth quarter when gas prices showed modest improvement.
The Company will utilize a cashflow driven capital budget for 2013. The Board of Directors has approved an interim capital budget of $5 million for the first half of the year. At the May 2013 Board meeting the Company will have a better idea of the impact of production levels, commodity prices and differentials on its cashflows. The Company has approximately $30 million of unutilized credit facilities.
The Company will focus its first quarter capital program at Hatton where it intends to upgrade the battery to include a free water knock-out treater and a water disposal well. The latest well will also be tied in to the facility and the gas from the facility will be tied into the local gathering system. These upgrades are expected to significantly reduce operating costs, thereby increasing operating netbacks. Although it is tempting to accelerate production volumes at Hatton the Company does not intend to sell extra volumes in the first quarter at low prices due to over expanded differentials and high operating costs. The Company anticipates that operating costs will improve to approximately $8/bbl from $17.35/bbl experienced in the fourth quarter of 2012 at Hatton, and heavy oil differentials have already started to rebound from historic lows in January and February. Once the facilities are upgraded the Company plans to commence a five well drilling program (likely after break-up) consisting of four development wells and one step-out exploration well. These wells will all be drilled into the thickest part of the reservoir and two will be drilled from existing pads. The cost of a vertical well tied-in to the central facility is approximately $875,000 but the Company anticipates that by drilling a program these costs could be reduced by a further 10 percent. This type of program coupled with significant reserves per well and the low decline rates observed in the wells to date will allow the Company to show both production and reserves growth with accompanying cashflow growth while restricting capital spending to cashflow. This growth will not be apparent in the first half of 2013 because of the focus on building facilities but should be apparent from mid year on. The Company has an inventory of 13 development wells on the current pool at Hatton and has identified three potential satellite pools.
Most Popular Stories
- Dell Offers Undisclosed Number of Employee Buyouts
- Saab Gets Back into the Game; U.S. Auto Sales Soar
- Authorities Close to Deal with JPMorgan Chase over Madoff Response
- Apple Activates Customer-Tracking iBeacon
- 2013 Tech Gift Guide: iPad Mini Still Hot; Chromecast a Great Low-Cost Option
- U.S. Stocks Rise on Sysco Acquisition
- A Biography of Jonathan Ive, Apple's Creative Chief
- American Airlines, US Airways Complete Merger
- Unemployed Wait as Lawmakers Debate
- Tech Giants Call for Controls on Government Snooping