Madalena announces year end reserves and resources

CALGARY, Feb. 22, 2016 /CNW/ - Madalena Energy Inc. ("Madalena" or the "Company") (TSXV: MVN and OTCQX: MDLNF) is pleased to announce the results of its independent reserve reports as at December 31, 2015.

On February 9, 2016, the Company announced the proposed sale of its non-core Canadian properties.  The reserves for the Canadian properties are included for reference but the majority of the discussion and analysis in this news release is focused on the Company's core business in Argentina, where Madalena holds over 950,000 net acres across 12 blocks.

Year End 2015 Reserves Highlights: 

  • Consolidated (Argentina and Canada) Proved plus Probable ("2P") are 11,366 MBoe compared to 11,494 MBoe last year;

  • Argentina Proved plus Probable ("2P") reserves have increased 8% from 8,480 MBoe to 9,134 MBoe;

  • Argentina 2P reserve replacement ratio was 158%;

  • 2P BTax NPV 10%, which is primarily supported by the Company's conventional assets, is $175,980,000 or $0.32/share and does not include any material value for the Company's unconventional assets in the Vaca Muerta shale and Lower Agrio shale which are included in the independent resource evaluations; and

  • Consolidated oil and liquids now account for 78% of the 2P reserves up from 72% last year.

Highlights of the Independent Resource Evaluation:

As disclosed in a news release dated November 4, 2015, the Company completed an independent assessment of its Contingent and Prospective Resources effective September 30, 2015, the results of which are summarized below:

  • The Company initiated and conducted independent resource evaluations on three of its twelve blocks in Argentina;

  • Best Estimate Contingent Resources attributed to the Vaca Muerta shale at the Coiron Amargo block of 91.5 MMBOE (152.4 MMBOE Unrisked);

  • Best Estimate Contingent Resources on the Valle Morado block of 75.3 Bcf (Unrisked 117.1 Bcf);

  • On the Curamhuele block, Lower Agrio shale Best Estimate Risked Prospective Resources of 99.4 MMBOE (Unrisked 365.4 MMBOE);

  • Also on the Curamhuele block, Vaca Muerta shale Best Estimate Risked Prospective Resources of 92.6 MMBOE (Unrisked 1,157.1 MMBOE);

  • Madalena's Total Contingent Resources are 105.2 MMBOE (172.7 MMBOE Unrisked); and

  • Madalena's Total Prospective Resources are 192.0 MMBoe (1,522.5 MMBOE Unrisked).

The resource reports were prepared by Ryder Scott Company L.P. and GLJ Petroleum Consultants, independent qualified reserves evaluators, with an effective date of September 30, 2015 and in accordance with the National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook"). Readers are directed to the November 4, 2015 news release for additional details on the resource reports, including, without limitation, classifications of the most specific category of resources other than reserves in accordance with NI 51-101 and for the definitions of the various resource categories used herein.

The December 31, 2015 reserve report now includes 0.8 MMBOE of tight oil Probable Reserves related to the Vaca Muerta at Coiron Amargo.

There are no Proven or Probable reserves assigned to the Company's February 16, 2016 announced sweet light oil Lower Agrio shale discovery at Curamhuele.

The reserve reports were prepared in accordance with the definitions, standards and procedures contained in NI 51-101 and the COGE Handbook by McDaniel & Associates Consultants Ltd. ("McDaniel Report") for Canada and GLJ Petroleum Consultants ("GLJ Report") for Argentina.  The McDaniel Report and GLJ Report contain several cautionary statements that are required by NI 51-101 and the reserves information presented is subject to the contents of the full reports. Additional information on the Company's reserves, as required by NI 51-101, will be filed prior to April 30, 2016 on SEDAR (www.sedar.com). The following tables summarize the Company's reserve information as set out in the McDaniel Report and the GLJ Report:

Reserves Summary – Company working interest before royalties using forecasted prices as at December 31, 2015.


Light and





Medium Oil

NGL's

Gas

BOE 6:1


Mbbl

Mbbl

MMcf

Mboe

CANADA





Proven Developed Producing

113

17

344

187

Proven Developed Non Producing

120

53

1,311

391

Total Proven Developed

232

70

1,655

578

Proven Undeveloped

-

-

-

-

Total Proved

232

70

1,655

578

Probable

325

248

6,485

1,654

Total Proved + Probable

557

318

8,140

2,232






ARGENTINA





Proven Developed Producing

2,867

47

2,301

3,298

Proven Developed Non Producing

525

1

186

557

Total Proven Developed

3,392

48

2,487

3,855

Proven Undeveloped

1,448

3

716

1,570

Total Proved

4,840

51

3,203

5,425

Probable

3,082

39

3,528

3,709






Total Proved + Probable

7,922

90

6,731

9,134






CONSOLIDATED





Proven Developed Producing

2,980

64

2,645

3,485

Proven Developed Non Producing

645

54

1,497

948

Total Proven Developed

3,625

118

4,142

4,433

Proven Undeveloped

1,448

3

716

1,570

Total Proved

5,073

121

4,858

6,003

Probable

3,407

287

10,013

5,363

Total Proved + Probable

8,480

408

14,871

11,366

Strong growth in Argentina reserves was offset by a reduction in Canadian reserves due primarily to economic factors. 

The majority of the Proven Undeveloped reserves in Argentina are attributed to two (0.7 net) Sierras Blancas (light oil) conventional horizontal wells at Coiron Amargo and six (100% working interest) horizontal multi frac wells in the Loma Montosa resource play (light oil) at Puesto Morales. The remaining Proven Undeveloped and Proven Developed Non-producing reserves are from various recompletion projects at Coiron Amargo, Puesto Morales and Surubi in Argentina. 

Probable reserves are attributed to six additional (100% working interest) horizontal multi frac wells at Puesto Morales in the Loma Montosa resource play (light oil) and three (1.05 net) wells at Coiron Amargo for Vaca Muerta shale (oil) horizontal multi frac re-entries.  The Company and its partners intend to drill and complete a Vaca Muerta horizontal multi frac well at Coiron Amargo in 2016.

Summary of Net Present Values of Future Net Revenue(1)
Forecasted Prices and Costs(2)
Before Income Taxes, Discounted at (%/year)


As at December 31, 2015


0%

10%

15%


M$

M$

M$

CANADA




Proven Developed Producing

236

424

446

Proven Developed Non Producing

1,983

1,525

1,318

Total Proven Developed

2,219

1,949

1,764

Proven Undeveloped

-

-

-

Total Proved

2,219

1,949

1,764

Probable

8,523

2,450

796

Total Proved + Probable

10,742

4,399

2,560





ARGENTINA




Proven Developed Producing

78,651

68,264

63,304

Proven Developed Non Producing

23,229

15,567

13,049

Total Proven Developed

101,880

83,831

76,353

Proven Undeveloped

40,353

17,696

11,147

Total Proved

142,233

101,527

87,500

Probable

134,159

70,054

52,984

Total Proved + Probable

276,392

171,581

140,484





CONSOLIDATED




Proven Developed Producing

78,887

68,688

63,750

Proven Developed Non Producing

25,212

17,092

14,367

Total Proven Developed

104,099

85,780

78,117

Proven Undeveloped

40,353

17,696

11,147

Total Proved

144,452

103,476

89,264

Probable

142,682

72,503

53,780

Total Proved + Probable

287,134

175,980

143,044



1)

It should not be assumed that the present value of estimated future net cash flows shown above are representative of the fair market value of the reserves.

2)

Based on McDaniel's forecasted prices for Canada and GLJ's forecasted prices for Argentina as of January 1, 2016. 

3)

GLJ Report for Argentina was completed in US$ and has been converted to Canadian dollars based on the December 31, 2015 exchange rate of 1 CDN: 0.7225 US.

4)

Tables may not add due to rounding.

The Argentina 2P NPV 10% declined slightly (7%) from last year's 185 MM$ due to limited new drilling activity and a 13% decline in forecasted future oil prices in Argentina.  The positive results from the wells drilled in Argentina in 2015 was the main factor for the increase in 2P reserves which offset most of the decline in forecasted future oil prices.  Approximately 66% of the 1P NPV 10% is Developed Producing.  Total Proved represents 59% of the 2P NPV 10%. 

Summary of Forecasted Prices

The following table summarizes the forecasted benchmark prices for the McDaniel Report (Edmonton Light and Alberta AECO) and GLJ Report (Brent, Argentina crude and gas) as at December 31, 2015. 


Edmonton

Alberta

Brent

Argentina

Argentina


Light

AECO CDN$

Crude

Crude

Gas US$


CDN$/bbl

per mmbtu

US$/bbl

US$/bbl

per mmbtu







2016

56.60

2.70

45.00

67.50

4.50

2017

66.40

3.20

54.00

67.50

4.50

2018

72.80

3.55

61.00

67.50

4.59

2019

80.90

3.85

67.00

67.50

4.68

2020

83.20

3.95

73.00

67.50

4.78

2021

88.20

4.20

78.00

69.10

4.87

2022

93.30

4.45

83.00

73.85

4.97

2023

98.70

4.70

88.00

78.60

5.07

2024

100.70

4.80

91.39

81.82

5.17

2025

102.60

4.90

93.22

83.56

5.27

2026

104.70

5.00

95.08

85.23

5.38

thereafter

+ 2%/yr

+ 2%/yr

+ 2%/yr

+ 2%/yr

+ 2%/yr

Summary of Reserves and Resources

Proved plus Probable reserves, Best Estimate Contingent Resources and Best Estimate Prospective Resources, as set out in the independent evaluations described herein and in the Company's November 4, 2015 news release, expressed in MMBoe are illustrated here.

Please see the Company's November 4, 2016 news release for additional important information related to its resources.

Argentina Reserves Reconciliation


Proved

Proved + Probable


Mstb

MMcf

MBOE

Mstb

MMcf

MBOE








Opening Reserves

4,463

4,131

5,152

7,071

8,459

8,480

Production

(1,003)

(1,415)

(1,239)

(1,003)

(1,415)

(1,240)

Acquisition

-

-

-

-

-

-

Additions

800

189

832

1,817

258

1,860

Revisions

631

298

681

129

(570)

34

Closing

4,891

3,203

5,425

8,013

6,732

9,134

Reserve Replacement Ratio


122%



153%



1)

Tables may not add due to rounding.

2)

Reserve Replacement Ratio is calculated as total reserve additions net of revisions (including acquisitions net of dispositions) divided by annual production. Madalena's Argentina production averaged 3,394 Boe/d in 2015.

Positive revisions (13%) on the Proved reserves were the result of better performance on the Surubi property and higher per well reserve bookings for the Loma Montosa undeveloped wells at Puesto Morales, partially offset by minor negative revisions at Coiron Amargo.  Proved plus Probable reserve revisions were less than 0.5% as negative gas revisions at Puesto Morales due to high fuel gas usage was offset by positive oil revisions on other properties.  In 2015, the Company participated in four wells (2.7 net) at 100% success rate.  Reserve additions come primarily from new wells at Puesto Morales and Vaca Muerta shale horizontals at Coiron Amargo.  Although the Curamhuele well was drilled in 2015 and the capital was spent in 2015, there were no reserves assigned in the reserve report for the Lower Agrio shale since the well test, on the recently announced oil exploration discovery, occurred after December 31, 2015.

Future Development Capital and Drilling Inventory

The following table summarizes the Future Development Capital ("FDC") and the year over year change in the FDC for the Company's Argentina properties for the 1P and 2P reserves in the GLJ Report:


Proved US MM$

Proved plus Probable US MM$


Undiscounted

Discounted 10%

Undiscounted

Discounted 10%






2014

32.4

26.9

69.0

61.7

2015

43.2

37.7

92.7

79.4

Change

10.8

10.8

23.7

17.7

The Company anticipates it can lower the FDC per well for all of its operations in Argentina as the country has recently reduced import restrictions allowing for better and more competitive access to services and due to economies of scale as the operation shifts to development drilling.  Madalena will continue to implement North American drilling and completion techniques which are also expected to result in improved efficiency and reduced costs.

Given the nature of the resource plays (conventional and unconventional), the Company has a large inventory of drilling locations.  The following table summarizes the drilling inventory that is contemplated in the GLJ Report as well as the Company's current unbooked locations for select Argentina properties:


Proved

Proved + Probable

Unbooked

Unbooked


Net Wells

Net Wells

Gross Wells

Net Wells






Coiron Seirras Blancas

0.7

0.7

4

1

Coiron Vaca Muerta


1.1

514

180

Puesto Morales

6.0

12.0

36

36

Other


0.9

6

6

Curamhuele Lower Agrio



570

513

Curamhuele Vaca Muerta



150

135

Total

6.7

14.7

1,280

871



1)

See Reader Advisory at the end of this release for a discussion on Unbooked locations.

2)

Unbooked locations for Coiron Amargo Vaca Muerta are based on the GLJ Resource Report effective September 30, 2015 and represent four Hz multi frac wells every 640 acres in the mapped area.

3)

Unbooked locations for Curamhuele Lower Agrio are based on the GLJ Resource Report effective September 30, 2015 and represent eight Hz multi frac wells every 640 acres in the mapped area.

4)

Unbooked locations for Curamhuele Vaca Muerta are based on the Ryder Scott Resource Report effective September 30, 2015 and are based on an initial scoping study of 150 Hz multi frac wells.

5)

Unbooked locations for Puesto Morales are based on Madalena's management mapped primary targets reflecting four Hz multi frac wells every 160 acres.

Oil and Gas Pricing Update

Oil prices in the regulated domestic market in Argentina remain strong and above the Brent oil benchmark price. The Medanito posted price for the Company's Argentina oil production is currently US$ 67.50/Bbl. 

Natural Gas is also contracted until April 30 (end of Argentina summer) at US$ 4.20/MMbtu. The Company anticipates entering into a winter contract (May to October) in Argentina at a price of US$ 5.20/MMbtu or higher based on last year's winter gas contract.

Health, Safety, Environment ("HSE") and Corporate Social Responsibility ("CSR")

Madalena has a comprehensive HSE management plan for its employees and all contractors.  In 2015 the Company continued to see major improvements in its key performance benchmarking indicators.  For the 625,000+ person hours worked, there was only one lost time incident for a contractor involved in a service rig operation.  Also, in 2015 the Company recorded only one minor spill by a contractor trucking fluid on behalf of Madalena.  The spill was promptly cleaned up with new contractor procedures implemented to prevent similar incidents from taking place in the future.

The Company is most proud of its CSR initiatives in Argentina.  The Company is actively involved in supporting the communities in which it operates, through a number of initiatives including local employment programs, access to health care and improvement in the quality of services, education, water quality and technical assistance on sustainable agricultural production.  In 2015 the Company was asked by the local authorities to share its CSR plans and help other area operators achieve similar results.

Conference Call for Interested Parties

Madalena will host a conference call to discuss the updated reserves report on Tuesday February 23, 2016 at 9:00 am MST (11:00 am EST).  To participate in the conference call, please call:

1-888-390-0546 (toll free North America)

1-416-764-8688 (Toronto & International)

Conference ID: 19277837

An updated corporate presentation will be placed on the Company's website.

About Madalena Energy
Madalena is an independent, Argentina focused, upstream oil and gas company.

Madalena holds over 950,000 net acres in four provinces of Argentina where it is focused on the delineation of large shale and unconventional resources in the Vaca Muerta shale, Lower Agrio shale, Loma Montosa oil play and the Mulichinco liquids-rich gas play. The Company is implementing horizontal drilling and completions technology to develop both its conventional and resource plays.

Madalena trades on the TSX Venture Exchange under the symbol MVN and on the OTCQX under the symbol MDLNF.

Reader Advisories

Forward Looking Information

The information in this news release contains certain forward-looking statements. These statements relate to future events or our future performance, and disclosure with respect to reserves or resources is deemed to be forward-looking statements. 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", "approximate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar expressions. In particular, this news release contains forward-looking statements pertaining to operational activities to be conducted by the Company and the expected characteristics of such properties, including, without limitation, the reserves associated therewith. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits the Company will derive from them. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The forward-looking statements in this news release are expressly qualified in their entirety by this cautionary statement. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements. Investors are encouraged to review and consider the additional risk factors set forth in the Company's Annual Information Form, which is available on SEDAR at www.sedar.com.

Meaning of Boe

The term "boe" or barrels of oil equivalent may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, 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 ratio of 6:1 may be misleading as an indication of value.

Analogous Information

Certain information in this news release may constitute "analogous information" as defined in National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101"), including, but not limited to, information relating to areas, assets, wells and/or operations that are in geographical proximity to or believed to be on-trend with lands held by Madalena. Such information has been obtained from public sources, government sources, regulatory agencies or other industry participants. Management of Madalena believes the information may be relevant to help define the reservoir characteristics within lands on which Madalena holds an interest and such information has been presented to help demonstrate the basis for Madalena's business plans and strategies. However, management cannot confirm whether such analogous information has been prepared in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook and Madalena is unable to confirm that the analogous information was prepared by a qualified reserves evaluator or auditor. Madalena has no way of verifying the accuracy of such information. There is no certainty that the results of the analogous information or inferred thereby will be achieved by Madalena and such information should not be construed as an estimate of future production levels or the actual characteristics and quality Madalena's assets. Such information is also not an estimate of the reserves or resources attributable to lands held or to be held by Madalena and there is no certainty that such information will prove to be analogous in the future. The reader is cautioned that the data relied upon by Madalena may be in error and/or may not be analogous to such lands to be held by Madalena.

Notes to Disclosure of Resources and Reserves

Volumes of reserves and resources have been presented based on a company interest basis which includes Madalena's royalty interests without deducting royalties payable by the Company. Certain volumes are arithmetic sums of multiple estimates of Contingent and Prospective Resources, which statistical principles indicate may be misleading as to volumes that may actually be recovered. Readers should give attention to the estimates of individual classes of resources and appreciate the differing probabilities of recovery associated with each class as explained herein. The estimates of reserves and resources for individual properties may not reflect the same confidence level as estimates of reserves and resources for all properties, due to the effects of aggregation.

Unbooked Drilling Locations

Unbooked locations as disclosed herein have been identified by for the purposes of estimating Contingent Resources and have been identified based on evaluation of applicable geologic, seismic and engineering information. There is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves or production. The drilling locations on which the Company actually drill wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors.

Definitions




"Contingent Resources"

Definition: Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage.



"Prospective Resources"

Definition: Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development.

For complete list of risks and contingencies associated with the contingent and prospective resources, refer to the Company's November 4, 2015 news release for the results of its independent resource reports effective as at September 30, 2015 and the associated reader advisories and definitions.

Neither the TSX Venture Exchange nor its Regulation Service Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Madalena Energy Inc.

For further information: Kevin Shaw, P.Eng, MBA, President and Chief Executive Officer, Madalena Energy Inc., Phone: (403) 262-1901 (Ext. 230), kdshaw@madalenaenergy.com; Thomas Love, CA, VP, Finance and Chief Financial Officer, Madalena Energy Inc., Phone: (403) 262-1901 (Ext. 227), tlove@madalenaenergy.com

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http://www.madalena-ventures.com/

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