/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR DISSEMINATION
IN THE UNITED STATES/
CALGARY, Nov. 5 /CNW/ - West Energy Ltd.("West" or the "Company") (TSX: WTL) announces that it has entered into an agreement to purchase from a major company significant oil properties in the Warburg area of Alberta for $147 million. These properties include 7.0 million Barrels of Oil Equivalent ("Boe") of proven plus probable reserves which are producing 1,450 Boe per day of predominately light oil. With 57,000 gross acres and extensive infrastructure, the Warburg acquisition moves West into a major position within the Pembina multi-zone light oil fairway. This acquisition provides 40 Cardium horizontal drilling locations (Avg. W.I. 80%) and over 100 recompletion opportunities in upper zones for which no reserves have yet been assigned. This acquisition is being financed with available cash on hand and credit facilities. The Warburg acquisition results in a major diversification of the Company's reserves, and adds significant drilling inventory while maintaining a focus on light oil opportunities in western Canada. The company expects to exit 2009 at over 5,000 Boe per day with a netback of $30 per Boe at current prices.
Transaction Summary - effective date November 1, 2009
Reserves - GLJ Petroleum Consultants have assigned reserves comprising 84% light oil utilizing NI 51-101 reserve definitions effective November 1, 2009, prepared November 3, 2009 as follows:
Proved Developed Producing: 6.092 MMboe
Total Proven Reserves: 6.092 MMboe
Proven + Probable Reserves: 7.031 MMboe
Current Daily Production: 1,200 Barrels of light oil per day and 1.5 MMCF per day of gas (combined 1,450 Boe per day) all operated.
Lands: 57,000 gross acres including 32,097 gross undeveloped, 24,971 net undeveloped.
Reserve life index: Proven - 11.5 years
Proven + Probable - 13.3 years
Owned and operated major oil battery, gas plant and extensive
Estimated full year 2009 Processing Revenue of $2.0 million
8,720 net acres of fee simple title lands acquired
Tax pools comprise Canadian Oil and Gas Property Expenditure (COGPE)
$118 million, tangible assets $29 million.
This acquisition leverages the Company into a long reserve life and high netback light oil reserve base with significant development upside. The Warburg assets with its large oil resource base provide numerous opportunities to reinvest the Company's cash flow to achieve high recycle ratios. Diversification away from the Company's historical Nisku play with its licensing timeline challenges will provide consistent and predictable activity with resulting production growth. The Warburg assets are also in close proximity to the Company's core assets at Crossfire and West will realize benefits combining the field operations and developing the properties.
With this transaction, West will continue to be a light oil focused company with a significantly larger and more diversified drilling portfolio which can be exploited from its existing cash flow. The Warburg acquisition is a key platform for future growth.
Key Acquisition Benefits
Drilling Inventory - The acquired undeveloped lands will double West's Cardium horizontal oil well drilling inventory to 80 locations (Avg. W.I. 75%). In addition, the company believes that infill Belly River horizontal well drilling within and along the edges of the existing Belly River waterfloods will also improve oil recovery factors. The Company has also identified over 100 well recompletions, mainly for shallow gas in the Belly River formation.
Reservoir Optimization - The Warburg assets include over an 80% operated interest in 600 million barrels of original light oil in place within the Cardium and Belly River zones which have been subject to waterflood. An analysis by the Company of current production practices estimates that 18% of the original oil in place will be recovered compared to the Company's theoretical estimates of over 30%. Each 1% improvement in the oil recovery factor would, if achieved, double the current proved developed oil reserves assigned. In 2010 the Company plans to build simulation models of the waterfloods to determine specific opportunities to improve pool recovery factors.
Field Operations - The majority of the Warburg oil pools are unitized and under waterflood. The operations are contiguous to the Company operated Crossfire property. The central oil battery and gas plant are key facilities for Cardium horizontal oil well drilling programs being undertaken by West and other third party operators. With year round surface access and sweet solution gas operations, the Company expects to execute a large and continuous development program.
Financial - West's average corporate netback per Boe of production is anticipated to improve due to lower royalties (approximately 10%) associated with the Warburg assets. The high percentage of proven reserves and longer reserve life will reduce current corporate depletion and depreciation rates resulting in improved earnings. Warburg expands West's development drilling inventory which can take advantage of the large drilling credit the Company has available under the Alberta Drilling Royalty Credit program. The resulting new wells will benefit from the reduced royalty rates available under the same incentive program.
West has estimated the value of the Warburg assets as follows:
Oil and Gas Reserves: $120 million
Other Assets: $27 million
This valuation implies acquisition metrics as follows:
Reserves: Total Proven - $19.70 per Boe, Proven plus Probable -
$17.07 per Boe. No future development capital is required to access
the proven or probable reserves.
Production: $82,759 per flowing Boe
West has entered into a purchase and sale agreement subject to certain due diligence conditions including title and environmental review and competition act approval. The final purchase price will be subject to normal closing adjustments. West will be hiring personnel associated with operating the Warburg assets. The Company anticipates closing the acquisition by December 15, 2009. CIBC World Markets provided financial advice to the vendor in this transaction.
After the close of this acquisition, corporate daily production is estimated at 5,000 Boe per day (77 % light oil and liquids) with a current corporate netback (after G&A and interest) of approximately $30 per BOE (based on US$78.50 per barrel pricing and AECO-C gas prices of $5.00 per GJ). The Company's reserve life index on a proven plus probable basis will rise from 5.8 years to 8.0 years. West will also hold approximately 115,000 net acres (average 68% W.I.) of undeveloped lands and have a large operated interest in the proven Cardium horizontal oil resource play and the emerging large Montney light oil resource at Two Rivers in British Columbia in addition to its high quality Nisku exploration drilling portfolio. The Company will control and operate oil pools containing over 600 million barrels of original light oil in place where additional recovery techniques can be implemented.
West has entered into discussions with its banker to create a syndicated credit facility in conjunction with the Warburg acquisition. This credit facility will replace West's existing general operating credit facilities and will provide undrawn credit facilities of approximately $50 million. This new credit facility, coupled with projected annual cashflows, provide the Company with flexibility to undertake a capital program large enough to grow our production and reserve base.
West anticipates its 2010 capital budget will exceed $60 million. The major capital focus will be to drill 24 Cardium horizontal wells and all Nisku licenses received.
An updated corporate presentation will be posted on the corporate website after the release of the third quarter financial results. A map showing the Warburg assets and their relationship to West's Crossfire assets can be found on the Company's website.
Certain information regarding West Energy Ltd. in this news release including management's assessment of reserves and resources attributed to the Warburg area assets and the Company's other asset, 2009 exit production, 2009 processing revenue, the development upside potential for the Warburg area assets and the Company's other assets, synergistic benefits resulting from the acquisition, the improvement of oil recovery factors for the Warburg assets and the resulting increase in proved developed reserve, the improvement of average corporate netbacks, the reduction in corporate depletion and depreciation rates, the value attributed by the Compan to the Warburg area assets, the closing date of the acquisition, the expansion of the Company's credit facilities, the Company's 2010 capital budget as well as the Company's future plans and operations and their timing may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, changes to royalty regimes, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information and that could cause actual results to differ materially from those anticipated in the forward-looking statements are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Company's website (www.westenergy.ca). Furthermore, the forward-looking statements contained in this news release are made as of the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Disclosure provided herein in respect of barrel(s) of oil equivalent (Boe) may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 mcf:1 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. There is no certainty that it will be economically viable to produce any portion of the resources referred to above.
SOURCE WEST ENERGY LTD.
For further information: For further information: Ken McCagherty, President and Chief Executive Officer, Email: firstname.lastname@example.org, Direct Phone: (403) 716-3458; Scott Bridge, Vice President Finance and Chief Financial Officer, Email: email@example.com, Direct Phone: (403) 716-3457