Maintains 2014 production guidance of 101,000 - 106,000 boe
per day
CALGARY,
July 29, 2014 /CNW/ - 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