Toronto Stock Exchange: SCS
Common Shares: 83,989,631
CALGARY, May 8, 2012 /CNW/ - Second Wave Petroleum Inc. ("Second Wave" or the "Company") announced today the conclusion of its strategic alternatives review process, a new $15 million development drilling facility with its major shareholder, Brookfield Bridge Lending Fund Inc., and a general operations update on its Beaverhill Lake light oil drilling program in Judy Creek, Alberta.
Strategic Alternatives Review Process
Second Wave's Board of Directors have elected to terminate the corporate strategic alternatives review process, announced on February 28, 2012, as the process did not result in a proposal that reflects the long-term value of Second Wave's Pekisko and Beaverhill Lake oil assets. Since announcement of the Company's process, the equity markets have weakened substantially, while the Company's recent drilling success on its Beaverhill Lake light oil play in Judy Creek has exceeded expectations, as outlined below, and has added considerable long-term value for its shareholders. In the Company's view, this combination of factors has made a transaction that properly reflects the underlying value of the Company's assets currently unavailable.
Second Wave is in the unique position of assembling two distinct significant oil resource plays in Judy Creek, Alberta. The Beaverhill Lake and Pekisko formations combined represent a total unrisked drilling inventory exceeding 700 net wells. Corporate production rates in May have reached 3,500 boe/d (80% oil and natural gas liquids) based on field estimates and recent test results in the Company's southeast land block have exceeded expectations with peak daily gross rates ranging from 2,400 to 5,400 boe/d and ten-day average gross test rates in excess of 1,000 boe/d. In light of these results the Company has agreed to a $15 million secured development drilling facility with its major shareholder, Brookfield Bridge Lending Fund Inc., to maintain, and potentially accommodate an acceleration of its Beaverhill Lake light oil drilling program later in 2012. Closing of the new facility is subject to customary conditions and definitive documentation. The development facility, together with the Company's current $90 million bank line, positions Second Wave to execute on its current development plans with a view to growing shareholder value.
Second Wave continued its positive momentum in its Judy Creek Beaverhill Lake light oil drilling program while successfully delineating its land block in the area. The Company has now spud its 36th gross (16.8 net) Beaverhill Lake light oil well and completed 30 gross (14.4 net) wells, of which 28 gross (13.6 net) are currently set up to produce using pumpjacks and two wells (0.8 net) are currently flowing during their initial test period. The Company currently has five gross wells that either reside outside of its Judy Creek core area or were completed using acid squeeze techniques instead of acid fracture techniques. Excluding these wells the average Beaverhill Lake light oil well has now produced for 140 days with cumulative light oil production and a current production rate of approximately 32,000 bbls and 165 bbl/d, respectively. Average initial 30-day production rates for these wells have exceeded 600 boe/d.
A summary of the most recent initial test results as of May 8, 2012 have been presented in the table below.
|Status|| Peak Daily
| Days on
|100/04-34-064-09W5||40%||Waiting on Completion|
|100/02-21-063-09W5||40%||Waiting on Completion|
|100/03-31-062-09W5||40%||Waiting on Completion|
|100/03-20-063-09W5||40%||Waiting on Completion|
*Wells producing at MRL restricted rates
In total the Company now has approximately 2,800 boe/d of net Beaverhill Lake production comprised of 1,900 boe/d associated with post flush production attributed to 28 gross pumping oil wells and an additional 900 boe/d associated with two wells in their initial inline test periods. An additional two to three completions are scheduled in May with completions for the remainder of the year planned at three per month.
The Company expects its stable pumping volumes to increase over the remainder of the year with its flowing volumes fluctuating depending on completion timing and individual well results. Total current corporate production for May has reached 3,500 boe/d (80% oil and natural gas liquids) based on field estimates with the non Beaverhill Lake volumes totalling approximately 700 boe/d.
The Company cautions that test results are not necessarily indicative of long-term performance or ultimate recovery.
In January 2012 the Company received direction from the Alberta Energy Resources Conservation Board that its Judy Creek Beaverhill Lake drilling program had progressed to a lower risk development project from a higher risk exploration project. The shift from an exploration program to a development program resulted in the Company having to complete all of its post-fracture stimulation flow testing inline after expiry of an initial 72-hour test period whereas previously the Company had flared the gas from its delineation wells for extended test periods ranging from 5 to 60 days post-completion. The shift to inline testing from single well battery testing and flaring truncated and delayed the Company's Beaverhill Lake testing program in January and early February as the Company moved to complete the facilities (field compression, separation, pumpjacks, etc.) and pipelines necessary to flow test wells inline or to convert flowing wells to pumping wells to comply with these testing constraints. This shift in well testing requirements and the resulting timelines to complete the associated facility and operational projects significantly contributed to a drop in corporate Beaverhill Lake production rates of approximately 900 boe/d month-over-month in January with additional downtime or delays experienced in early February. Short term corporate production rates were negatively impacted by these testing requirements with January, February and March production rates of 1,517, 2,346 and 2,530 boe/d, respectively. Production for the month of April is estimated at 3,000 boe/d with current production rates in May estimated at 3,500 boe/d.
Year to date the Company has drilled and rig released 15 gross (7.2 net) wells with an additional 2 gross (0.8 net) wells currently drilling. The Company has continued to optimize its drilling techniques and has been able to significantly reduce the time and costs over the last 12 months. The Company has reduced its average drilling cycle time on its last ten Beaverhill Lake horizontal wells to 23 days from spud to rig release from the previous average cycle time of 28 days. This reduction in drilling cycle times has resulted in a natural acceleration of the Company's drilling program as it was able to drill and complete approximately 3.9 gross Beaverhill Lake wells per month for the first four months of 2012 versus its budgeted pace of 3.0 gross wells per month. The Company had drilled and cased 10 gross wells in the first quarter of 2012 and rig released an additional 3 gross wells during the first week of April for a total of 13 gross (6.4 net) wells being drilled in the first 14 weeks of the year. As a result of improved drilling cycle times going forward the Company and its Beaverhill Lake joint venture partners have chosen to reduce its drilling program in Judy Creek down to two rigs with an ability to increase its rig count at a later date if needed. The Company expects that an additional three joint venture earning wells will be drilled by its partners in 2012 with Second Wave contributing 15% of the drilling and completions capital to retain a 40% residual working interest in the wells and the associated earning land blocks. The Company's joint venture partner, Crescent Point Energy Corp., initiated operatorship of the capital drilling and completion program in the second quarter of 2012.
Exiting the first quarter the Company has witnessed a reduction in the level of industry activity in north western Alberta, which it anticipates may create potential downward pressure on service costs for the remainder of 2012. In particular, a substantial amount of the Company's capital is spent on its completion operations with acid and the associated pumping services having historically been secured at a premium. As the greater Judy Creek Beaverhill Lake development unfolds, however, the Company has noticed an increase in both the availability of acid in the area as well as the number of service providers competing for this work. These industry dynamics coupled with Crescent Point's purchasing power relative to Second Wave's are expected to result in further increased capital efficiencies in 2012.
Results from the Company's Beaverhill Lake play continue to deliver strong production growth for the Company with corporate production from this asset increasing from zero in the first quarter of 2011 to approximately 2,800 boe/d (90% light oil) currently based on field estimates. The directors, management and staff of Second Wave remain committed to further developing its two oil resource plays in the Beaverhill Lake and Pekisko formations in Judy Creek. The Company anticipates that it will report its first quarter financial information on May 15, 2012 with additional operational updates to follow in the second quarter as results dictate.
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: future growth in shareholder value generally; closing of the $15 million development drilling credit facility with Brookfield Bridge Lending Fund Inc.; the potential for accelerating the Beaverhill Lake drilling program; the scheduled number and pace of completions this month and for the remainder of 2012; expected increases in stable pumping volumes during 2012; the ability to increase rig count in the future; expectations regarding downward pressure on service costs for the remainder of 2012; the availability of acid and number of competing service providers in the Judy Creek area; expected increase in capital efficiencies in 2012. 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
Second Wave Petroleum Inc.
Calgary, Alberta, Canada
Telephone: (403) 451-0165
Email: [email protected]