TIDMEDG
RNS Number : 3161D
Edge Resources Inc.
28 January 2015
FOR IMMEDIATE RELEASE
TSX Venture Exchange Symbol: EDE
AIM Exchange Symbol: EDG January 28, 2015
EDGE RESOURCES INC. Calgary, Alberta
Edge Resources Inc. Announces Completion of New Facility and
Provides Operational Update
Edge Resources Inc. ("Edge" or the "Company") is pleased to
announce that it has completed its 100% owned and operated water
and natural gas handling facility and 6,000 meters of natural gas
and water pipelines in Eye Hill East (the "Facility").
Additionally, the Company wishes to provide a financial and
operational commentary, within the context of current market
conditions.
Eye Hill Facility
In Eye Hill, the Company has drilled a water disposal well and
constructed a 6,000 meter network of natural gas and water
gathering pipelines, which transport produced water to a central
water disposal facility and natural gas to a sales meter. The
Facility will allow the Company to (i) drastically reduce the cost
of trucking and disposing of produced water, (ii) produce, capture
and sell associated natural gas from the existing and future Eye
Hill wells and (iii) fully optimise the producing wells, which have
been producing at reduced rates since they were drilled.
The completion of the Facility is expected to add at least $1.1
million in cash flow in the first year, which is expected to
increase in the future with additional drilling.
Altogether, these benefits are expected to see the capital
invested in the Facility pay-out in approximately one year, with an
estimated five-year IRR of 127% and NPV(10%) of over $11 million,
without considering any of the benefits of additional drilling at
Eye Hill. More importantly, the economic benefits are independent
of the oil price, as they affect operating costs as opposed to the
product price.
The corrosion-resistant pipeline for the Facility was designed
and completed using Core Liner, a new pre-lined steel technology
from Core Linepipe Inc. Core Liner utilizes an innovative
mechanical joining system called ClickWeld, which entirely replaces
the traditional welding and x-raying processes. The combination of
Core Liner and ClickWeld allowed the pipeline to be installed in
approximately 50% of the time and at more than a 30% cost discount
to traditional methods.
Monty McNeil, Edge's Vice President of Operations, commented,
"We chose Core Linepipe's new technology not just because of the
significant time and cost savings but also because of the long-term
integrity benefits. In this environment when pipelines are coming
under increased public and regulatory scrutiny, we wanted a system
that we wouldn't have to even think about for generations. The new
Core Liner and ClickWeld technologies provided that solution at a
discount to what we would have had to pay for older technologies.
Given the benefits, we would not hesitate to use this technology on
any pipelines we construct in the future."
The water injection well was drilled in the middle of the Eye
Hill pool and was expected to be able to dispose of approximately
1,000 barrels of water per day ("bwpd"); however, because of
management's innovative approach to the drilling of the well, the
actual injection rate achieved was 2,500 bwpd - without requiring
any stimulation, which could be performed in the future to improve
on the already exceptional rate. The benefits of the
higher-than-expected injection rate are twofold: (i) the higher
capacity means the Company can significantly delay the capital
expenditure on additional facilities that may have been required to
handle larger volumes in the future and (ii) in the near-term, the
additional capacity could be used to dispose of 3(rd) party water
and generate an additional revenue stream for the Company.
The Facility is expected to improve near-term cash flow and
significantly improve the economics of future drilling programs in
Eye Hill. Comparative estimates of Eye Hill single well economics
are provided below:
US$90 WTI, US$90 WTI, US$50 WTI,
Pre-Facility WITH new Facility WITH new Facility
--------------------- -------------- -------------------- --------------------
Capital to drill, $650,000 (not $700,000 (tied $700,000 (tied
complete, equip tied into into new Facility) into new Facility)
and tie-into the facility)
Facility
--------------------- -------------- -------------------- --------------------
Total Fixed and $40,000 per $29,000 per $27,000 per
Variable Operating month month month
Cost (including
royalties)
--------------------- -------------- -------------------- --------------------
Capital Payback 7 months 5 months 13 months
Period
--------------------- -------------- -------------------- --------------------
5-year NPV (10%) $1,300,000 $2,200,000 $518,000
--------------------- -------------- -------------------- --------------------
5-year IRR 147% 206% 64%
--------------------- -------------- -------------------- --------------------
Macroeconomic View and Outlook
Management and the Board of Edge have agreed to take a
conservative view with regards to capital expenditure over the next
6 months due to unexpectedly high volatility in world oil
prices.
Prices have dropped from US$105 WTI per barrel in June 2014 to
below US$48 WTI per barrel in January 2015, despite data that shows
a relatively balanced supply/demand environment. The IEA estimates
world oil consumption will reach record levels of 93.3 million
barrels per day in 2015 and will still grow by 900,000 barrels per
day over 2014 consumption.
OPEC supply is near maximum capacity at 30 million barrels per
day and several sources note that excess global supply is estimated
to be less than 2 million barrels per day. Furthermore, the
significant US production growth from unconventional assets such as
the Eagleford, Permian and Bakken basins is often quoted as
requiring US$75 WTI per barrel to make economic returns and wells
drilled in these basins often have very high capital costs and
exceptionally high initial decline rates. Reports of declining rig
counts and reduced capital programs imply that operators are
already reducing their pursuit of additional reserves and
production in these - and almost all other - basins around the
world.
With this backdrop of growing demand and expected future
weakening supply the Company is hopeful for a price recovery and
more price stability in 2015; however, with a conservative mind-set
in hand, the Company is planning for an extended low-priced and
destabilised environment. The Board and management of Edge will
aggressively protect its balance sheet and take steps to become
more efficient operators, which should result in a stronger and
leaner Company in the near and long term.
Operational and Financial Update
Given the macroeconomic view, it is obvious that any previously
published guidance is no longer in-line with expectations. The
unavoidable truth is that revenues and projected cash flows for the
majority of the world's E&P companies will decrease if world
oil prices remain at current levels, which may lead to lower
reserve values; and thus, lower lending values across the
industry.
Early indications from conventional E&P lenders indicate
that lending values may generally decrease by 30-50%. However,
given the significant unused room in Edge's current facility, the
Company does not anticipate that it will be facing a shortfall or
be required to cover an overextended line of credit. The Company's
credit facilities are not subject to review until July 2015 but
several encouraging conversations have taken place with Edge's
lenders whom have expressed their continued support for the Company
and its strategy.
With the benefits of lower operational costs associated with the
Facility, Edge expects that Eye Hill's break-even operating profit
price is equivalent to US$30 WTI per barrel. Company-wide estimates
demonstrate that Edge should be able to maintain positive cash flow
from operations at or above approximately US$32 WTI per barrel.
Below is a more detailed breakdown of the key metrics monitored
by the Company:
Production: Current production is approximately 650 boe/day (65%
oil), with an additional 100 boe/day temporarily shut-in, which the
Company can restart at any time. Eye Hill production has increased
51% compared to this time last year, without additional drilling,
partially reflecting the Cold Heavy Oil Production with Sand
("CHOPS") production regime, whereby production typically increases
in the first year, as opposed to production declines typically seen
in unconventional, high-decline wells. Natural gas production from
Gilby is experiencing its usual year-on-year decrease, due to
natural declines.
Revenue: The decline in US$WTI prices has been partially offset
by (i) a significantly weaker Canadian dollar and (ii) much
improved heavy oil differentials but, as expected, the Company's
revenues are trending lower. A year-on-year comparison for the
month of January 2014/2015 shows that although US$WTI has fallen by
over US$47 per barrel, Edge's "wellhead price" (the CDN$ per barrel
price received for its oil) has only fallen by CDN$34 per barrel.
Additionally, the near-term (February and March) forward contracts
for the heavy oil differential and the US$ to CDN$ exchange rate
are both improving, in favour of Canadian heavy oil producers.
Expenses: In the first of half Edge's financial year (ended
September 30, 2014), the Company achieved a 9% decrease in G&A
expenses. The trend has continued and is expected to be augmented
by additional cost cutting measures such as head-count reductions,
salary reductions and vendor/supplier cost reductions. In Gilby,
the Company recently made some piping modifications, which allowed
it to remove a large compressor and associated equipment, resulting
in cost savings of more than $200,000 per year. Also included in
"expenses" are government production royalties, which are
calculated partially based on oil prices; and so, royalty expenses
are also expected to decrease with the oil price decrease.
Cash Flow: Current cash flow is expected to be lower than the
previously reported quarter due to revenues decreasing faster than
expenses. However, Edge will benefit from higher production, a
lower Canadian versus US dollar, an improved heavy oil
differential, lower G&A, lower operating costs and lower
royalties. The Company will continue to focus its efforts on all
opportunities to enhance cash flow.
Brad Nichol, President & CEO of Edge, commented, "Our
industry is facing an enormously challenging macroeconomic
environment but we started making the right moves months ago; and
thus, we are in a better position than most to capitalize on
opportunities that coincide with all major macroeconomic events
such as this. I'm referring to our expectation of seeing quality
assets coming to the market in stressed situations and we hope to
take advantage of those situations as best we can. As demonstrated
in the table above, our Eye Hill asset has great economics at
$90/bbl, $70/bbl and even $50/bbl, and we will continue to pursue
the growth of that asset. However, this is the market in which
strong companies should look to acquire heavily discounted assets
versus drilling up their inventory." Nichol added, "The colossal
decrease in world oil prices will hurt all oil and gas companies.
Those that are prepared for the outcomes, as we believe Edge is,
should benefit enormously and emerge from this downturn bigger,
stronger and more efficient than ever before."
For more information, visit the company website: www.edgeres.com
or contact:
Brad Nichol, President and CEO Phone: +1 403 767 9905
Sanlam Securities UK Limited (Joint Broker and NOMAD) Phone: +44
(0)20 7628 2200
Simon Clements / James Thomas / Max Bascombe
SP Angel Corporate Finance LLP (Joint Broker) Phone: +44 (0)20
3463 2260
John MacKay / Richard Hail
About Edge Resources Inc.
Edge Resources is focused on developing a balanced portfolio of
oil and natural gas assets from properties in Alberta and
Saskatchewan, Canada. Management has consistently focused on:
1. Shallow, vertical, conventional programs with reduced
capital, operational and geological risks
2. Very high or 100% working interests and fully operated assets
3. Pools and horizons with exceptionally high reserves in place
The management team's very high drilling success rate is based
on the safe, efficient deployment of capital and a proven ability
to efficiently execute in shallow formations, which gives Edge
Resources a sustainable, low-cost, competitive advantage.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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