Crocotta Energy Inc. (TO: CTA) provided an update on its operations.
CORPORATE PRODUCTION AND GUIDANCE
Crocotta's corporate production averaged over 8,500 barrels of oil equivalent per day (BOE/d) for 3Q 2013 and is estimated to average 9,500 BOE/d for 4Q 2013. Crocotta is currently drilling at both Edson in West Central Alberta as well as at Dawson in Northeast British Columbia and is on target to meet exit guidance of 10,500 BOE/d.
EXPANDED CARDIUM OPPORTUNITY BASE AT EDSON
Crocotta has increased its Cardium development inventory at Edson to over 60 net current undrilled development locations as a result of successful step-out drilling combined with farm-ins and land purchases from 20 net locations at the beginning of 2012. The expansion of the opportunity base is even more significant after giving consideration to the fact that Crocotta has already drilled over 20 Cardium horizontal wells in the area which have de-risked the play and provided valuable technical and economic data.
Using a 20 well type curve, Crocotta has generated a production curve and corresponding economics for an average well using current forward curves for commodity prices. This curve generates a return of over 100% with an average well payback period of less than 1 year based on capital costs of $3.35 million per well. The average IP30 is 520 BOE/d with expected year one average production at 225 BOE/d. Cardium in the area is characterized as high GOR oil wells whereby the production will start at about 60% oil and NGLs in early months and then stabilize at 35% to 40% oil and NGLs. Crocotta's extensive infrastructure including owned and operated gas plants contribute to the exceptional returns by providing top decile operating costs of $5.50 per BOE.
In 2013, Crocotta has drilled 12 (10.6 net) Cardium wells and anticipates to have another two (1.75 net) drilled before year-end. For 2014, Crocotta plans to further delineate the Cardium while also blending in Bluesky horizontals that also have returns of 100% and payback of one year.
MONTNEY AT DAWSON-SUNRISE AREA IN NORTHEAST BRITISH COLUMBIA
Crocotta has recently commissioned its sweet gas facility at Dawson which is connected to the Alliance Pipeline system. All of Crocotta's Sunrise production will receive the benefits of increasing liquids yield to an estimated 25 bbl/MMcf from about nil. The Crocotta owned facility will also allow Crocotta to significantly reduce its Sunrise operating costs from $12 per BOE to $6 per BOE.
In 3Q 2013, Crocotta drilled and tested two Upper Montney wells - one at Sunrise and one at Doe just north of Dawson. The Sunrise well was put on-stream in September and produced on Crocotta's type curve which has an IP30 of 900 BOE/d and a one year estimated average production of 600 BOE/d. Based on the forward curve for commodity prices, the Sunrise Montney wells will have a rate of return of 100% and a one year payback.
The Doe well was tested with similar results but is slightly sour and cannot be produced through the Crocotta facility until such time as the facility is expanded to handle the sour content. Crocotta has initiated plans to expand the facility which it estimates will be operational by early 2015. Crocotta will start producing the well in November but will not receive the benefits of reduced operating costs or increased liquids yield.
Crocotta estimates it has proven up 40 to 50 development locations for the Upper Montney in the immediate area.
Crocotta is also currently drilling a Lower Montney test well at Doe which will be completed and on-stream in the next few months. If successful, Crocotta's inventory of Montney in the immediate area would double.
OIL EXPLORATION PROJECTS
Crocotta has accumulated various land holdings and allocated capital in the budget to test certain early concept oil prospects. Crocotta has over 40 sections of land targeting resource style light oil in NEBC and over 20 sections of land targeting conventional light oil at Red Earth, Alberta. Crocotta has drilled one well into the NEBC lands which is currently being evaluated and intends to drill one well at Red Earth in Q114.
Crocotta's use of early concept oil exploration is to augment the current visible growth profile of Crocotta that is provided by the Edson and Dawson development inventory.
Crocotta estimates current net debt at $105 million and year-end net debt at approximately $115 million. Year-end net debt would be 80% of the bank credit facility of $145 million or 1.3 times its exit run rate cash flow based on 10,500 BOE/d and forward curves for commodity prices.
Based on our capital efficiency ratios achieved to date, Crocotta can maintain its current growth rate using estimated funds flow from operations.
Crocotta is well positioned to continue to show material growth through the exploitation of its large proven resource base at Edson and in the Montney and has significant financial flexibility to react to opportunities as they arise.
Crocotta Energy Inc. is an independent energy company engaged in the acquisition, exploration, development, and production of oil and natural gas reserves in Western Canada. The company is headquartered in Calgary.