Toronto Stock Exchange: SCS
83,986,964 Common Shares
CALGARY, Feb. 28, 2012 /CNW/ - Second Wave Petroleum Inc. (TSX: SCS) ("Second Wave" or the "Company") is pleased to announce the results of its independent reserves evaluation as of December 31, 2011 and the initiation of a strategic alternatives review process with a view of enhancing shareholder value due to unsolicited expressions of interest.
In this news release, unless otherwise stated, all reserves are expressed on a company gross basis before deduction of royalties, and all estimates of net present value are based on forecast prices and costs and discounted at 10%.
- The Company increased its proved plus probable ("P+P") reserves by 87% year-over-year to 10,950 mboe (approximately 72% oil and natural gas liquids). Estimated net present value of P+P reserves increased by 112% year-over-year to $192.9 mm.
- P+P reserves associated with the Beaverhill Lake formation in Judy Creek increased to 4,127 mboe (approximately 90% oil and natural gas liquids) with an estimated net present value of $114.9 mm at year end 2011. No reserves were assigned to the Beaverhill Lake play at year end 2010.
- By year end 2011 the Company had drilled or was drilling 21.0 gross (10.8 net) Beaverhill Lake horizontal light oil wells with P+P reserves assigned to a total of 50.0 gross (22.4 net) wells, representing 16% of the Company's net unrisked Beaverhill Lake drilling inventory of 144 drilling locations in Judy Creek.
- Average P+P reserves assigned per horizontal Beaverhill Lake well, including 2011 production, was approximately 190 mboe with an estimated net present value of $5.7 mm per well. No reserves have been attributed to secondary or tertiary recovery in the Beaverhill Lake formation.
- Finding and development ("F&D") costs in 2011 were $27.80 per boe of P+P reserves and $43.80 per boe of proved reserves on capital spending of $45.2 mm, excluding land and seismic but including changes to estimated future development costs. A recycle ratio of 1.8:1 was achieved based on P+P reserves and using estimated fourth quarter corporate operating netbacks of $49.00 per boe. The Company spent $12.1 mm in 2011 on its gas plant, oil batteries and gathering systems in Judy Creek with a view to the development of its currently-booked reserves and the potential for future development of additional resources.
- In response to certain expressions of interest the Company's board of directors has initiated a process to identify, examine and consider strategic alternatives available to the Company with a view to enhancing shareholder value. Second Wave has engaged RBC Capital Markets as its financial advisor to assist in this process.
2011 Year End Reserves Summary
Following is a summary of certain information contained in the Company's reserves evaluation report for the year ended December 31, 2011 prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") by InSite Petroleum Consultants Ltd., independent reserves evaluators. Further information regarding the Company's reserves data and other oil and gas information will be contained in the Annual Information Form of Second Wave for the year ended December 31, 2011, which will be filed on or before March 31, 2012.
|Total Proved||Total Probable|| Total Proved
|Net After Royalty||1,470||3,890||2,456||6,346|
|Natural Gas (MMcf)|
|Net After Royalty||4,763||9,525||6,749||16,274|
|Natural Gas Liquids (Mbbl)|
|Net After Royalty||99||183||131||314|
|Oil Equivalent (Mboe)|
|Net After Royalty||2,363||5,660||3,712||9,373|
|Before Tax Present Value ($000) - Company Interest|
|(1)||As used in the preceding table, "company interest" refers to the Company's gross reserves, being the Company's working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the Company.|
|(2)||As used in the preceding table, "net after royalty" refers to the Company's working interest (operating or non-operating) share after deduction of royalty obligations, plus the Company's royalty interests in reserves.|
2011 Operational and Year End Reserves Overview
The Company focused its capital program in 2011 solely on its Beaverhill Lake light oil development at Judy Creek where the Company holds 60,000 gross acres (30,000 net acres) of undeveloped land in the Beaverhill Lake formation. On February 22, 2011, the Company announced its joint venture and farm out agreement in Judy Creek involving 50,000 gross acres (20,000 net acres) of Beaverhill Lake rights with Crescent Point Energy Corp. The first joint venture horizontal oil well at 15-36-063-10W5 ("15-36") was completed and brought on production in April 2011 and had initial production rates of 1,000 bbl/d of light oil over the first 30-day test period. By year end 2011, the 15-36 well had produced a total of approximately 78,828 bbl of light oil with a December 2011 monthly production rate of approximately 220 bbl/d. Following up its success at 15-36 the Company and its partners initiated a full delineation drilling program in Judy Creek with a total of 21.0 gross (10.8 net) horizontal Beaverhill Lake oil wells drilled or drilling by year end 2011. The Company has now spud its 28th gross (13.6 net) horizontal Beaverhill Lake oil well with 21.0 gross (10.8 net) wells producing, 4.0 gross (1.6 net) wells waiting on completion and 3.0 gross (1.2 net) wells currently drilling. The Company currently anticipates having a total of 57.0 gross (25.2 net) horizontal Beaverhill Lake light oil wells drilled, completed and on production by year end 2012.
To date the well results on its Beaverhill Lake light oil play have met the Company's expectations with initial production rates exceeding 600 bbl/d over test periods ranging from two to sixty days. In 2011 the Company has built up its Beaverhill Lake production from nothing in the first quarter to 2011 fourth quarter and annual average production rates of 1,250 boe/d (96% oil and natural gas liquids) and 482 boe/d (95% oil and natural gas liquids), respectively. Current net production rates from the Beaverhill Lake formation exceed 2,000 boe/d (95% oil and natural gas liquids). The Company is forecasting its Beaverhill Lake production base to continue to increase in 2012 to approximately 4,000 boe/d (90% oil and natural gas liquids) by year end 2012.
P+P reserves associated with the Beaverhill Lake formation in Judy Creek increased to 4,127 mboe (approximately 90% oil and natural gas liquids) with an estimated net present value of $114.9 mm at year end 2011. No reserves were assigned to the Beaverhill Lake play at year end 2010. P+P reserves have been assigned to a total of 50.0 gross (22.4 net) Beaverhill Lake horizontal developed and undeveloped drilling locations, with 1.4 undeveloped locations booked per developed location, at year end 2011. Average P+P reserves assigned to each horizontal Beaverhill Lake well, including 2011 production was approximately 190 mboe (90% oil and natural gas liquids) with an estimated net present value of approximately $5.7 mm on forecast capital expenditures of $5.3 mm per well. In Judy Creek the Company currently has a total of 144 net unrisked Beaverhill Lake drilling locations assuming three wells per section on its 48 net sections of land. Approximately 16% of these unrisked locations were assigned reserves at year end 2011. The booked undeveloped Beaverhill Lake locations within the Company's 2011 year end reserves report represent less than one year of drilling inventory using the Company's anticipated three rig drilling program in 2012. Using a three rig drilling program the Company has over nine years of unrisked Beaverhill Lake drilling inventory at year end 2011.
No reserves have been attributed to secondary or tertiary recovery in the Beaverhill Lake formation under the Company's lands at Judy Creek. Off-setting operators have, however, successfully applied both secondary and tertiary recovery methods in this formation and the Company expects that these recovery methods may be applicable to the Beaverhill Lake formation on its land base. The Company anticipates initiating secondary recovery methods as its land base approaches a full developmental well density.
As a result of its focus on the Beaverhill Lake development the Company did not drill any Pekisko horizontal oil wells in Judy Creek in 2011 and had 20.0 gross (20.0 net) horizontal Pekisko wells producing at year end. P+P reserves have been assigned at year end 2011 to 20.0 gross (20.0 net) developed Pekisko locations and 34.0 gross (34.0 net) undeveloped Pekisko locations, or 1.7 undeveloped location per developed producing location. A total of 5,424 mboe (64% oil and natural gas liquids) of P+P reserves were assigned to the Pekisko formation in Judy Creek with an estimated net present value at a 10% discount of approximately $58.3 mm. Average reserves assigned to each undeveloped location were approximately 110 mboe (65% oil and natural gas liquids) with a net present value of approximately $750,000 on forecast capital expenditures of $2.2 mm per well. In Judy Creek, the Company currently has a total of 720 net unrisked Pekisko drilling locations assuming ten wells per section on its 72 net sections of land in the pool. Approximately 8% of these unrisked locations were assigned reserves at year end 2011.
The Company experienced modest production declines in 2011 on those of its Pekisko oil wells in Judy Creek that have been fracture stimulated due to surface pumping capacity constraints. To improve initial production rates and capital efficiencies the Company initiated a pilot project in June 2010 to develop an appropriate electric submersible pump ("ESP") design for the Pekisko formation in Judy Creek. Deploying ESPs on the Pekisko play was determined to be the most economically feasible means of increasing production rates on fracture stimulated wells. The pilot project has been operating for 20 months without any material operational issues and management anticipates using its proprietary pumping ESP design on future Pekisko wells. The Company's current reserves bookings are not based on, and do not give effect to, any increase in production and acceleration in recovery from future Pekisko oil wells through the use of ESPs.
No reserves have been attributed to secondary or tertiary recovery in the Pekisko formation under the Company's lands at Judy Creek. Analog data implies that the Company's Pekisko oil pool is a suitable candidate for both secondary and tertiary recovery and the Company has initiated a waterflood within the Pekisko pool with first injection occurring late in 2010. No reserves bookings associated with the waterflood were made at year end 2011 as there has not been a defined pressure and production response in the project area since water injection was initiated.
Corporately, the Company increased its P+P reserves by 87% year-over-year to 10,950 mboe at year end 2011, with approximately 72% of total P+P reserves evaluated as oil and natural gas liquids. The Company replaced its production of 615 mboe in 2011 by 9.3 times with reserve additions. Estimated net present value of P+P reserves increased by 112% year-over-year to $192.9 mm at year end 2011. Total discounted future development capital increased year-over-year by $113.3mm to $136.7 mm. Future development capital represents 1.8 times the Company's forecast net operating cash flow in 2012 as forecast by its independent reserve evaluators.
The Company expended $48.8 mm of net capital in 2011, including $3.6 mm on land and seismic. Excluding land and seismic expenditures but including changes to estimated future development costs, the Company's F&D costs in 2011 were $27.80 per boe of P+P reserves and $42.60 per boe of proved reserves. A recycle ratio of 1.8:1 was achieved based on P+P reserves and using estimated fourth quarter corporate operating netbacks of $49.00 per boe. Including land and seismic expenditures, F&D costs in 2011 were $28.40 per boe of P+P reserves and $43.80 per boe of proved reserves.
The Company spent $12.1 mm in 2011 in Judy Creek on its operated gas plant, three Beaverhill Lake oil batteries, gathering systems and other infrastructure with a view to the development of its currently booked reserves and the potential for future development of additional resources.
Strategic Alternatives Process
In response to certain unsolicited expressions of interest the Company's Board of Directors believe it is in the best interest of the shareholders to initiate a process to identify, examine and consider strategic alternatives available to the Company with a view to enhancing shareholder value. Such alternatives may include, but are not limited to, a sale of all or a material portion of Second Wave's assets, whether in one transaction or a series of transactions, a sale of the Company, or a merger or other strategic transaction involving Second Wave and a third party, and will include continued execution of the Company's business plan.
Second Wave has engaged RBC Capital Markets as its financial advisor to assist in this process.
Second Wave does not intend to disclose developments with respect to its strategic alternatives review process unless its board of directors approves a specific transaction or otherwise determines that disclosure is necessary in accordance with applicable regulations. The Company cautions that there are no assurances that the process will result in a transaction or, if a transaction is undertaken, its terms or timing.
Barrels of Oil Equivalent (BOEs). The term BOE refers to barrel of oil equivalent, with natural gas converted to crude oil equivalent at a ratio of six thousand cubic feet to one barrel. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of six mcf (six thousand cubic feet) to one bbl (one barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Forward-Looking Statements. This news release contains forward-looking statements as to the Company's internal projections, expectations and beliefs relating to future events or circumstances. Forward-looking statements are typically (but not necessarily) identified by words such as "anticipate", "believe", "budget", "estimate", "expect", "plan", "intend", "potential", "may", "will", "should" or similar words suggesting future outcomes. Although the Company believes that these forward-looking statements are reasonable, undue reliance should not be placed on them as they are subject to known and unknown risks and uncertainties, many of which are beyond the Company's control. Forward-looking statements are not guarantees of future outcomes. There can be no assurance that the plans, intentions or expectations contained in the forward-looking statements or upon which they are based will in fact occur or be realized, and actual results may differ from those expressed or implied in the forward-looking statements. The difference may be material.
Second Wave is subject to the inherent risks associated with the exploration, development, exploitation and production of oil and gas. More particularly, material risk factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in this news release include: adverse changes in commodity prices, interest rates or currency exchange rates; accessibility of capital when required and on acceptable terms; lower than expected production of crude oil and natural gas; production delays; lower than expected reserve volumes on the Company's properties; increased operating costs; ability to attract and retain qualified personnel or to secure drilling rigs and other services on acceptable terms; competition for labour, equipment and materials necessary to advance the Company's projects; unforeseen engineering, environmental or geological problems; ability to obtain all required regulatory approvals on a timely basis and on satisfactory terms; and changes in laws and governmental regulations (including with respect to taxes and royalties). This list is not exhaustive. Readers should also review the risk factors described in other documents filed by the Company from time to time with securities regulatory authorities in Canada, including its most recent annual information form, copies of which are available electronically at www.sedar.com and at www.secondwavepetroleum.com.
Specific forward-looking statements contained in this news release include statements regarding: the number of Beaverhill Lake wells anticipated to be drilled, completed and on production by year end 2012; forecast Beaverhill Lake production by year end 2012 (and the expected mix of production types); the future application of secondary and tertiary recovery methods in the Beaverhill Lake and Pekisko formations; the potential for increased production rates and accelerated recovery from future Pekisko oil wells through installation of ESPs; and the application of existing infrastructure to the development of additional resources beyond currently-booked reserves. In making such forward-looking statements, Second Wave has made various assumptions regarding, among other things: the accuracy of geological and geophysical data and interpretations of that data; future oil and natural gas prices; future capital requirements; future exchange rates; the accessibility and cost of capital (including credit); the Company's ability to economically produce oil and gas from its properties and the timing and cost to do so; and its ability to obtain qualified staff, equipment and supplies in a timely and cost-efficient manner.
The forward-looking statements included herein are made as of the date of this news release and Second Wave undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by securities laws.
For further information:
Colin B. Witwer, President and CEO
Randy Denecky, VP, Finance and CFO