Maintains 2014 production guidance of 101,000 - 106,000 boe per day
CALGARY, July 29, 2014 /PRNewswire/ - PENN WEST PETROLEUM LTD. (TSX: PWT) (NYSE: PWE)("Penn West", "we", "our", "us" or the "Company") today reported second quarter 2014 average production of 108,130
barrels of oil equivalent ("boe") per day (64 percent oil and liquids)
and maintained 2014 production guidance of 101,000 - 106,000 boe per
day. Penn West also reported other key operating results for the second
quarter of 2014 and provided a preliminary report on third quarter 2014
operated development activity.
"Our solid second quarter production reflects a significant improvement
in the reliability of our base volumes and continued strong development
in our core light oil areas," said Dave Roberts, President and CEO. "We
remain confident that we are on track to deliver on 2014 production
guidance and we continue to build on the substantial operational and
structural improvements we have made to the business in the past year."
In a separate news release today, Penn West announced that the Audit
Committee of the Company's Board of Directors is conducting a
voluntary, internal review of certain of its accounting practices and
that the Board of Directors of Penn West, acting on the recommendation
of the Audit Committee, has concluded that certain of the Company's
historical financial statements must be restated.
Although the review is not yet complete, Penn West wishes to emphasize
that the review does not affect previously disclosed cash and debt
balances or previously released 2014 production guidance. Neither does
the review affect operations, strategy and anticipated growth going
forward. Operationally, the enterprise continues to improve and we
remain on track to deliver on our strategic long-term plan. In
accordance with the Company's customary practice, we will be hosting a
conference call and webcast presentation to discuss our second quarter
results following the filing of our second quarter financial statements
and management's discussion and analysis.
PROGRESS AGAINST OUR LONG-TERM PLAN
Demonstrating the substantial progress we have made with respect to the
key elements of our long-term plan and achievements over the past year,
we have:
- Focused the Portfolio
-
Reduced our core areas of development from as many as eight down to
three - Cardium, Slave Point and Viking
-
Focused on conventional light oil
-
Allocated over 80 percent of our development capital to our three core
light oil areas
-
Through non-core dispositions, reduced our net wellbore count by
approximately 3,500 wells (approximately 20 percent of total
wellbores), of which approximately 1/3 were non-producing
- Improved Capital Efficiency
-
We believe focusing on fewer core areas has allowed us to become
best-in-class operators in the Cardium, Slave Point and Viking
-
Achieved the following drilling cycle-time improvements:
-
Cardium - from 22 days to 8 days on average
-
Viking - from 8 days to 2 days on average
-
Slave Point - pacesetter well drilled in just under 14 days
-
Focused on operational consistency and stability in 2014 across all
business areas which has led to improved efficiency and greater
reliability in our production performance
- Improved Costs & Netbacks
-
Significantly reduced costs in the business
-
Reduced enterprise headcount by over 1,000 personnel (approx. 46
percent) from our peak in the fall of 2012, significantly reducing
general and administrative expenses
-
Strategic focus on conventional light oil expected to lead to improved
netbacks
-
Initiated cultural change - the enterprise is now aligned in improving
the cash generating power of every barrel we produce
- Focus on the Balance Sheet
-
Completed approximately $700 million in divestitures, of which, the
majority of proceeds have been applied to debt repayment, increasing
our financial flexibility
"Improving cycle times and increasing pace in our core areas remain our
key focus for the remainder of 2014," said Mr. Roberts. "Looking beyond
2014, we continue to create processes that streamline our drilling
inventory build-out - from idea generation to ready-to-drill. We now
have our 2015 development plan largely in place and expect to have our
2016 drilling inventory plans completed by year-end 2014."
OPERATED DEVELOPMENT ACTIVITY
Operations were limited during the second quarter of 2014 due to spring
break-up, allowing us to further assess performance from our first
quarter drilling program and evaluate additional opportunities to
continue reductions in our cost structures and cycle times. In the
second quarter, Penn West drilled 10 (10 net) light oil wells with a
success rate of 100 percent, eight (8.0 net) wells were drilled in the
Viking and one each was drilled in the Cardium (1.0 net) and the Slave
Point (1.0 net).
Taking advantage of favourable weather conditions in the field, we
kicked-off our second half 2014 development program early in July with
eight rigs currently operating in our light oil areas. We remain on
track to complete the planned 210 well development program for 2014.
The table below summarizes the second quarter drilling, completions and
tie-in activity:
Table 1: Second Quarter 2014 Light Oil Development Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Wells
|
|
|
|
|
|
Drilled
|
Completed
|
On production
|
Business Unit
|
|
|
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
Cardium
|
|
|
|
1.0
|
1.0
|
8.0
|
8.0
|
10.0
|
8.5
|
Viking
|
|
|
|
8.0
|
8.0
|
-
|
-
|
-
|
-
|
Slave Point
|
|
|
|
1.0
|
1.0
|
4.0
|
4.0
|
4.0
|
4.0
|
Total
|
|
|
|
10.0
|
10.0
|
12.0
|
12.0
|
14.0
|
12.5
|
CARDIUM
In the Cardium we have reduced the number of days to drill a well from
22 days to eight days on average, which we believe is best amongst our
competitors in the play. With limited activity in the quarter, drilling
and completion costs remain unchanged and we believe we continue to set
the industry benchmark in the play. The drilling program in the second
half of 2014 will feature more multi-well pads that will provide cost
efficiencies and drive incremental cost savings.
Importantly, during the second quarter of 2014, we secured operatorship
of the Pembina Cardium Unit #11 ("PCU #11") in the Pembina field which
we believe has significant potential for us. This is a substantial
field in the Cardium that has not had any meaningful capital investment
over the past several years. We are currently in the process of
completing a technical evaluation of PCU #11 and expect to have an
initial six well development program commencing in 2015.
In July 2014, we commenced our 30 well program in the Willesden Green
area and currently have three drilling rigs operating. Our development
plan for the second half of 2014 adds a fourth drilling rig in August
and a fifth rig in October to complete all drilling activity for the
year.
In the Pembina area, second half 2014 activities are planned in the
Lodgepole and Pembina Cardium Unit #9 ("PCU #9") areas. Drilling
activity began on a seven well program in Lodgepole with one rig in
July. Once completed, that rig is scheduled to move to PCU #9 to begin
a nine well program later in the year.
During our second half 2014 program, water flood activities are
scheduled to continue in Willesden Green and Pembina as we continue to
assess expansion of our water flood program in 2015. Generally, our
waterflood programs throughout the Cardium area are proceeding,
consistent with our long-term plan, and are performing in-line with
expectations. Over time, we expect that these programs will have the
potential to mitigate natural declines and increase the ultimate
recovery of light oil resource in our Cardium areas.
VIKING
During the second quarter of 2014, we drilled eight wells in the Viking
as we continued to benefit from what we believe is our industry leading
operational results in the area. Our second half 2014 program is
significant with 100 wells planned and approximately 75 wells scheduled
to be on production by the end of the year. In southwestern
Saskatchewan, recent wet weather has caused a minor delay in our Viking
program where we have two rigs currently operating to execute our
development program in the second half of 2014.
Leveraging off the positive results of our 16 wells-per-section
down-spacing program earlier in the year, we will continue to test
down-spacing programs across the play. As the largest acreage holder in
the core of the Viking play, an expanded down spacing program would
significantly increase the existing 400-500 drilling locations we have
estimated. In our second half program we also plan to reduce our cost
per well to below $800,000 from what we believe to already be a
best-in-class cost of $840,000.
SLAVE POINT
We continue to test various drilling and completions techniques in the
Slave Point Carbonates, as we focus on optimizing production
performance, recoveries, cycle-times and per well costs. Throughout the
second quarter of 2014, we continued to monitor the results of our
drilling program from earlier in the year.
In Otter, production performance on our first long-reach (3,200 meter)
lateral wells is in-line with expectations. We are now monitoring these
wells for longer-term performance before broader implementation of this
design. In the Red Earth area the two wells we drilled in the first
quarter of 2014 continue to perform above our expectations. In Sawn,
the results of our first nitrogen fracture wells experienced average
30-day initial production rates that significantly exceeded our type
curve. As in Otter, we are now monitoring these wells for longer-term
performance.
Our second half 2014 development activities in the Slave Point include a
selective seven well drilling program which began in July 2014, five of
which are anticipated to be on production by the end of 2014. The goal
of this program is to continue with assessment of each of the areas
within the Slave Point, testing various drilling and completions
techniques. To be competitive internally, per well drilling and
completion costs need to be $4.5 million or lower. Currently, average
per well drilling and completion costs in our Slave Point program are
running in the $5.1 million range. We believe the required 12 percent
reduction in costs is achievable and that the Slave Point will be a
significant component of our development program in future years as
communicated in our long-term plan.
DUVERNAY
Subsequent to the end of the second quarter of 2014, we spudded the 7-16
horizontal well targeting the Duvernay during the first week of July as
planned. We anticipate having the well completed and on production in
late fall of 2014.
THIRD QUARTER ACTIVITY SUMMARY
The third quarter of 2014 represents a significant milestone for Penn
West as we progress toward building the internal capacity to execute on
our strategic long-term plan. Having attained competitive drilling and
completion costs and cycle times in each of our core areas over the
past six months, we must now increase the pace and cadence of these
activities to achieve our goals. The third quarter is the first quarter
in which we plan to increase development activities in the Cardium and
Viking and our goal is to do so while maintaining these competitive
cost and cycle time measures.
In the Cardium, the third quarter operated development plan implies an
average of eight new well spuds per month. As we progress through our
long-term plan, years four and five contemplate us drilling upwards of
200 Cardium wells per year and imply an average of approximately 15-20
new well spuds per month. By design, the strategy contemplates the
gradual and measured internal development of this capability to ensure
success.
Further to the comments above within the play discussions, our
development activities for the third quarter, and in particular our "on
production" activity, is weighted toward September in which 31 of the
52 planned wells are expected to be tied-in. Consequently, our drilling
and completion efforts early in the third quarter will have a greater
impact on fourth quarter production volumes than on third quarter
production volumes.
In the third quarter, we also have regularly scheduled repair and
maintenance turnaround activities which are expected to impact
quarterly average volumes by 2,000 - 3,000 boe per day.
Table 2: Third Quarter 2014 Planned Light Oil Operated Development Summary
Business Unit
|
Development Capital
($MM)
|
Planned Wells Spud
|
Planned Wells On Production
|
Cardium
|
87
|
24
|
7
|
Viking
|
64
|
45
|
40
|
Slave Point
|
44
|
7
|
5
|
Other
|
20
|
8
|
0
|
Total
|
215
|
83
|
52
|
PRODUCTION
Penn West's second quarter 2014 average production of 108,130 boe per
day (64 percent oil and liquids) includes 2,428 boe per day of
adjustments resulting primarily from closing amendments on asset
divestitures completed earlier in the year. Accordingly, second quarter
production performance was 105,702 boe per day net of adjustments.
HEDGING
As of July 1, 2014, we are now participating fully in the currently
strong crude oil price environment with the last of our WTI hedge
positions expiring on June 30, 2014. This allows us to immediately
realize 100 percent of current market pricing which currently exceeds
our 2014 budget assumption by approximately $10 per barrel. Moving
forward, our hedging activities on the crude oil side of the business
will be focused on physical arrangements with end users with a goal to
increase our netbacks and improve profitability.
Oil and Gas Information Advisory
Boe may be misleading, particularly if used in isolation. A boe
conversion ratio of six thousand cubic feet of natural gas to one
barrel of crude oil is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead. 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 conversion ratio of 6:1, we
believe utilizing a conversion on a 6:1 basis is misleading as an
indication of value.
Forward-Looking Statements
Certain statements contained in this document constitute forward-looking
statements or information (collectively "forward-looking statements")
within the meaning of the "safe harbour" provisions of applicable
securities legislation. Forward-looking statements are typically
identified by words suggesting future events or future performance. In
particular, this document contains forward-looking statements
pertaining to, without limitation, the following: our 2014 production
guidance; our belief that we are on track to deliver on 2014 production
guidance and that we can continue to build on the substantial
operational and structural improvements we have made to the business in
the past year; our belief that the internal review does not affect
previously disclosed cash and debt balances, previously released 2014
production guidance, or our operations, strategy and anticipated growth
going forward; our belief that operationally the enterprise continues
to improve and we remain on track to deliver on our strategic long-term
plan; our belief that our strategic focus on conventional light oil
will lead to improved netbacks; our intention that improving cycle
times and increasing pace in our core areas will remain our key focus
for the remainder of 2014; our intention to continue to create
processes that streamline our drilling inventory build-out; our
expectation to have our 2016 drilling inventory plans completed by
year-end 2014; our belief that there are additional opportunities to
continue reductions in our cost structures and cycle times; our belief
that we remain on track to complete the planned well development
program for 2014; our operational plans for the balance of 2014 in the
Cardium, Viking, Slave Point and Duvernay areas, including: in the
Cardium area, our intention that the drilling program in the second
half of 2014 will feature more multi-well pads that will provide cost
efficiencies and drive incremental cost savings, our belief that PCU
#11 in the Pembina field has significant potential for us and our
expectation to have an initial development program on the unit
commencing in 2015, in the Willesden Green area our intention that the
development plan for the second half of 2014 will add another drilling
rig in August and in October to complete all drilling activity for the
year, our intention that in the Pembina area second half 2014
activities will proceed in the Lodgepole and PCU #9 areas and our
intention that a rig will move to PCU #9 to begin a drilling program
later in the year, our intention that during our second half 2014
program water flood activities are scheduled to continue in Willesden
Green and Pembina as we continue to assess expansion of our water flood
program in 2015, and our belief that over time we expect that our water
flood programs will have the potential to mitigate natural declines and
increase the ultimate recovery of light oil resource in our Cardium
areas; in the Viking area, our intention that our second half 2014
program will be significant and the number of wells planned to be
drilled and on production by the end of the year, our intention to
continue to test down-spacing programs across the play and our belief
that an expanded down spacing program would significantly increase the
existing number of drilling locations we have estimated, and our goal
in our second half program to reduce our cost per well and our target;
in the Slave Point area, our intention to continue to test various
drilling and completions techniques in the Slave Point Carbonates as we
focus on optimizing production performance, recoveries, cycle-times and
per well costs, our plan that our second half 2014 development
activities in the Slave Point will include a selective drilling program
and the number of wells to be drilled and on production by the end of
2014, our goal to continue with assessment of each of the areas within
the Slave Point, testing various drilling and completions techniques,
our belief that the required reduction in drilling and completion costs
to make wells competitive internally is achievable and that the Slave
Point will be a significant component of our development program in
future years; in the Duvernay area, our plan to have the recently
spudded well completed and on production in late fall of 2014; our
belief that the third quarter of 2014 represents a significant
milestone for us as we progress toward building the internal capacity
to execute on our strategic long-term plan; our plan in the third
quarter to increase development activities in the Cardium and Viking
and our goal to do so while maintaining our competitive cost and cycle
time measures; in the Cardium, the plan that in the third quarter our
operated development plan will include an average of eight new well
spuds per month, that years four and five of our long-term plan
contemplate us drilling upwards of 200 Cardium wells per year and imply
an average of approximately 15-20 new well spuds per month, and our
intention that this strategy contemplates the gradual and measured
internal development of this capability to ensure success; our plan
that our development activities for the third quarter, and in
particular our "on production" activity, are weighted toward September
in which 31 of the 52 planned wells are expected to be tied-in, and our
belief that our drilling and completion efforts early in the third
quarter will have a greater impact on fourth quarter production volumes
than on third quarter production volumes; our plan in the third quarter
to conduct regularly scheduled repair and maintenance turnaround
activities which are expected to impact quarterly average volumes by
2,000 - 3,000 boe per day; all information in Table 2 titled "Third
Quarter 2014 Planned Light Oil Operated Development Summary"; and our
intention that moving forward our hedging activities on the crude oil
side of the business will be focused on physical arrangements with end
users with a goal to increase our netbacks and improve profitability.
With respect to forward-looking statements contained in this document,
we have made assumptions regarding, among other things: the terms and
timing of asset sales to be completed under our ongoing program to sell
non-core assets; our ability to execute our long-term plan as described
herein and in our other disclosure documents and the impact that the
successful execution of such plan will have on our Company and our
shareholders; the economic returns that we anticipate realizing from
expenditures made on our assets; future crude oil, natural gas liquids
and natural gas prices and differentials between light, medium and
heavy oil prices and Canadian, WTI and world oil and natural gas
prices; future capital expenditure levels; future crude oil, natural
gas liquids and natural gas production levels; drilling results; future
exchange rates and interest rates; the amount of future cash dividends
that we intend to pay and the level of participation in our dividend
reinvestment plan; our ability to execute our capital programs as
planned without significant adverse impacts from various factors beyond
our control, including weather, infrastructure access and delays in
obtaining regulatory approvals and third party consents; our ability to
obtain equipment in a timely manner to carry out development activities
and the costs thereof; our ability to market our oil and natural gas
successfully to current and new customers; our ability to obtain
financing on acceptable terms, including our ability to renew or
replace our credit facility and our ability to finance the repayment of
our senior unsecured notes on maturity; and our ability to add
production and reserves through our development and exploitation
activities. In addition, many of the forward-looking statements
contained in this document are located proximate to assumptions that
are specific to those forward-looking statements, and such assumptions
should be taken into account when reading such forward-looking
statements.
Although we believe that the expectations reflected in the
forward-looking statements contained in this document, and the
assumptions on which such forward-looking statements are made, are
reasonable, there can be no assurance that such expectations will prove
to be correct. Readers are cautioned not to place undue reliance on
forward-looking statements included in this document, as there can be
no assurance that the plans, intentions or expectations upon which the
forward-looking statements are based will occur. By their nature,
forward-looking statements involve numerous assumptions, known and
unknown risks and uncertainties that contribute to the possibility that
the predictions, forecasts, projections and other forward-looking
statements will not occur, which may cause our actual performance and
financial results in future periods to differ materially from any
estimates or projections of future performance or results expressed or
implied by such forward-looking statements. These risks and
uncertainties include, among other things: the possibility that we are
unable to execute some or all of our ongoing non-core asset disposition
program on favourable terms or at all, whether due to the failure to
receive requisite regulatory approvals or satisfy applicable closing
conditions or for other reasons that we cannot anticipate; the
possibility that we will not be able to successfully execute our
long-term plan in part or in full, and the possibility that some or all
of the benefits that we anticipate will accrue to our Company and our
securityholders as a result of the successful execution of such plan do
not materialize; the impact of weather conditions on seasonal demand;
the impact of weather conditions on our ability to execute capital
programs; the risk that we will be unable to execute our capital
programs as planned without significant adverse impacts from various
factors beyond our control, including weather, infrastructure access
and delays in obtaining regulatory approvals and third party consents;
risks inherent in oil and natural gas operations; uncertainties
associated with estimating reserves and resources; competition for,
among other things, capital, acquisitions of reserves, resources,
undeveloped lands and skilled personnel; incorrect assessments of the
value of acquisitions; geological, technical, drilling and processing
problems; general economic and political conditions in Canada, the U.S.
and globally; industry conditions, including fluctuations in the price
of oil and natural gas, price differentials for crude oil and natural
gas produced in Canada as compared to other markets, and transportation
restrictions, including pipeline and railway capacity constraints;
royalties payable in respect of our oil and natural gas production and
changes to government royalty frameworks; changes in government
regulation of the oil and natural gas industry, including environmental
regulation; fluctuations in foreign exchange or interest rates;
unanticipated operating events or environmental events that can reduce
production or cause production to be shut-in or delayed, including
extreme cold during winter months, wild fires and flooding; failure to
obtain regulatory, industry partner and other third-party consents and
approvals when required, including for acquisitions, dispositions and
mergers; failure to realize the anticipated benefits of dispositions,
acquisitions, joint ventures and partnerships, including those
discussed herein; changes in tax and other laws that affect us and our
securityholders; the potential failure of counterparties to honour
their contractual obligations; stock market volatility and market
valuations; OPEC's ability to control production and balance global
supply and demand of crude oil at desired price levels; political
uncertainty, including the risks of hostilities, in the petroleum
producing regions of the world; and the other factors described in our
public filings (including our Annual Information Form) available in
Canada at www.sedar.com and in the United States at www.sec.gov. Readers are cautioned that this list of risk factors should not be
construed as exhaustive.
The forward-looking statements contained in this document speak only as
of the date of this document. Except as expressly required by
applicable securities laws, we do not undertake any obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. The
forward-looking statements contained in this document are expressly
qualified by this cautionary statement.
About Penn West
Penn West is one of the largest conventional oil and natural gas
producers in Canada. Our goal is to be the company that redefines oil &
gas excellence in western Canada. Based in Calgary, Alberta, Penn West
operates a significant portfolio of opportunities with a dominant
position in light oil in Canada on a land base encompassing
approximately five million acres.
Penn West shares are listed on the Toronto Stock Exchange under the
symbol PWT and on the New York Stock Exchange under the symbol PWE.
SOURCE Penn West