Torc Oil & Gas Ltd. executed at $129.4 million capital expenditure program in 2017, and is aiming for a $165 million program for 2018.
That’s according to the company’s fourth quarter 2017 results, released on Feb. 28
Through the execution of a $129.4 million capital expenditure program in 2017, Torc successfully achieved several strategic operational objectives, including maintaining production levels and maximizing free cash flow from the company’s conventional southeast Saskatchewan assets.
It did so while growing and further delineating the company’s unconventional assets in Saskatchewan. In central Alberta, the company continued consolidating the Cardium play which remains a core asset built to generate free cash flow.
Torc said its focus on high quality, light oil weighted assets, along with disciplined financial management continued to be rewarded in 2017. During the year, free cash flow generated from the company’s core business was used to execute on several strategic tuck-in acquisitions to further enhance the company’s asset base. The strategic acquisitions included approximately 1,850 barrels of oil equivalent (boepd) (greater than 90 per cent light oil) of operated, low decline, high netback light oil producing assets, adding to the company’s position in southeast Saskatchewan and central Alberta.
The identified locations from these strategic acquisitions more than replaced the capital program of wells drilled by the company in 2017. In aggregate, these strategic transactions improved the company’s decline profile, strengthened Torc’s operating netback and added high quality light oil drilling inventory, according to Brett Herman, president and CEO.
The integrated approach of organic growth complemented by strategic lower decline acquisitions drove the company’s growth in reserves, production and cash flow above original guidance while maintaining a decline profile of less than 25 per cent.
Torc achieved record production of 21,886 boepd in the fourth quarter of 2017, a 12 per cent increase (seven per cent per share) from 19,621 boepd in the fourth quarter of 2016. Their average production increased to 20,871 boepd in 2017, up from 18,654 boepd in 2016.
Production growth was achieved while maintaining the company’s decline rate at approximately 23 per cent. They successfully drilled 15 (12.8 net) wells in the fourth quarter. In 2017, the company drilled 63 (47.4 net) successful wells.
Torc increased its high quality light oil development drilling inventory through organic delineation and strategic acquisitions. It increased its light oil asset base through value accretive strategic acquisitions adding over 1,850 boepd (greater than 90 per cent light oil), improving the corporate decline profile, operating netbacks and light oil drilling inventory.
It said it demonstrated cost effective reserves growth while focusing on a combination of development drilling along with the continued strategic delineation of the company’s asset base. In 2017, Torc’s capital spending was focused on development operations in the southeast Saskatchewan conventional core area while also further delineating and developing the Torquay/Three Forks resource play in southeast Saskatchewan and the Cardium play in Alberta.
Southeast Saskatchewan
Torc said its southeast Saskatchewan conventional assets are characterized by their lower risk nature and high rates of return driven by lower capital costs, high operating netbacks and an attractive royalty regime in Saskatchewan. With a long term production decline profile of less than 20 per cent and high operating netbacks, the southeast Saskatchewan conventional assets yield significant free cash flow in the current commodity price environment.
Torc drilled 31 (22.3 net) southeast Saskatchewan conventional wells in 2017, with 13 (10.8 net) wells drilled in the fourth quarter. In 2017, TORC was successful in maintaining a low cost structure in drilling, completion and equipping costs on conventional wells through both operational efficiencies and managing oilfield service costs. In addition to effective cost management, outperformance of wells relative to expectations further enhanced the already attractive capital efficiencies and economics.
Torc continues to identify more than 400 net undrilled conventional locations in southeast Saskatchewan providing numerous years of high quality drilling inventory. In 2018, Torc plans to drill 44 (37.2 net) conventional wells. The focus on Torc’s southeast Saskatchewan conventional properties is to generally maintain a flat production profile and maximize free cash flow from the assets.
On the company’s unconventional asset base in southeast Saskatchewan, Torc has been active on the Torquay/Three Forks light oil resource play. During 2017, Torc executed on a development program drilling 13 gross (10.0 net) successful wells in the play. Based on the company’s results from this program, Torc will continue to increase capital allocated to this resource play with plans to drill 17 gross (13.5 net) wells during 2018, including 6 gross (4.0 net) wells in the first quarter. Torc has currently identified more than 150 net undrilled locations for future growth.
Torc has established prospective land positions in a number of areas that have the potential for unconventional Midale exploitation. Torc has been active on the emerging unconventional Midale light oil resource play drilling six gross (4.7 net) wells in the fourth quarter of 2017 and an additional 5 (3.3 net) wells in the first quarter of 2018. To date the company has been very encouraged with the initial results from this delineation activity. Torc plans to drill 12 gross (11.0 net) wells spread across the company’s land position for both the development and further delineation of this play in 2018.
Together, the conventional and unconventional southeast Saskatchewan capital allocation represents approximately 77 per cent of the overall drilling, completion and tie-in capital budget during 2018. The remainder of it program is dedicated to the company’s Cardium play, where it drilled a total of 11 (9.7 net) Cardium wells which includes drilling 2 (2.0 net) Cardium wells in the fourth quarter. In 2018, TORC plans to drill 12 gross (10.5 net) wells across the company’s land position in the Cardium.
