On Aug. 14 Spartan Energy Corp. released its second quarter results, showing an active quarter of operations due to a shortened break-up period in southeast Saskatchewan. The company recommenced its drilling program in May, drilling 19 (16.7 net) wells in the quarter and completing and bringing on production an additional 16 (13.3 net) wells that were drilled in the first quarter. It brought a total of 23 (20.9 net) wells on production in the quarter, consisting of eight (7.1 net) open-hole wells, five (5.0 net) frac Midale wells, two (0.8) Torquay wells and eight (8.0 net) Viking wells, with 10 (7.2 net) wells drilled but not on production at the end of the quarter. Total capital expenditures (excluding acquisitions, land, seismic and waterflood) were $27.3 million in the second quarter, bringing their total to $69.7 million in the first half of 2017.
Spartan’s first half 2017 drilling program was focused on open-hole wells drilled across its southeast Saskatchewan asset base and frac Midale wells drilled primarily on its core Alameda property. They continue to operate three rigs in southeast Saskatchewan drilling open-hole and frac Midale wells. In addition, in the third quarter the company drilled its first operated well on its recently acquired Torquay acreage and have commenced drilling open-hole Frobisher and Ratcliffe wells on properties acquired from Arc in late 2016.
The company’s first half drilling program yielded “exceptional results,” Spartan said in a release, with average rates from open-hole and frac Midale wells continuing to outperform internal type curves. The success of its drilling program resulted in production of 22,061 barrels of oil equivalent (boepd) in the quarter, up from 21,455 boepd in the first quarter despite the impacts of spring break-up. The combined impact of the outperformance of its drilling program and the accretive acquisitions completed by Spartan in 2016 resulted in second quarter production per share increasing by 42 per cent over the second quarter of 2016.
In addition to its successful drilling program, Spartan executed on its business plan of deploying a portion of its excess cash flow to strategic future investments, spending approximately $6.4 million on tuck-in acquisitions, land additions and waterflood infrastructure in the second quarter. Reservoir modelling is ongoing on waterflood initiatives at Spartan’s core Oungre, Winmore and Alameda properties, and the company anticipates increased capital spending on waterflood projects in the second half of the year.
Spartan said it continues to focus on cost savings to improve netbacks. Net G&A expenses were $1.13 per barrel of oil equivalent (boe) in the second quarter, a reduction of 49 per cent from the second quarter of 2016. Production costs in the quarter were $18.47 per boe, up from $17.56 in the first quarter of 2017. Scheduled turnarounds on acquired facilities, an increase in rental payments made to surface land owners due to a large number of leases that came due in the second quarter and an increase in power costs in southeast Saskatchewan contributed to the increase in production costs in the quarter. Spartan said it will continue to work diligently to reduce production costs through the balance of 2017.
Outlook
Spartan remains focused on delivering long term organic production growth within cash flow while preserving our strong financial position. Due to the outperformance of our drilling program, Spartan is increasing its 2017 annual production guidance to 21,600 boepd from 21,080 boepd, representing annual production per share growth of 14 per cent. It is maintaining our 2017 drilling and maintenance capital budget of $145 million, of which approximately $70 million was spent in the first and second quarters with $75 million remaining for the second half of the year. The company’s capital plan will remain flexible going forward as we monitor production levels and commodity prices.
“In the first half of 2017, Spartan has executed on our business plan of delivering production growth within a subset of cash flow, while using excess cash flow to fund strategic future investments. We increased corporate production from our 2016 exit rate of 20,800 boepd to 22,061 boepd in the second quarter, while delivering excess cash flow of approximately $25.5 million. We invested approximately $14 million of our excess cash flow in tuck-in acquisitions, strategic land purchases and waterflood initiatives, with an additional $11.5 million available to be deployed in the second half of the year.” the release stated.
“At current commodity prices, we forecast that we will generate excess cash flow of approximately $10 to $15 million in the second half of 2017, bringing total 2017 unallocated excess cash flow to $21.5 to $26.5 million. We intend to allocate up to $10 million to advance waterflood projects and will strategically invest remaining excess cash flow in asset acquisitions, land and seismic purchases or share buybacks to further enhance shareholder value.”
