Storm Resources Aerial

HIGHLIGHTS & OUTLOOK

 

HIGHLIGHTS – FOURTH QUARTER AND YEAR-END 2013

 

  • Production for the year averaged 3,637 Boe per day (27% oil plus NGL) which represents an increase of 61% from 2012.  Fourth quarter production was 4,773 Boe per day (24% oil plus NGL), a year-over-year increase of 70%.  On a per-share basis, fourth quarter production increased 20% from the previous year while debt decreased by 70%, or $28.3 million.  Increased production was the result of growth at Umbach where production averaged 3,262 Boe per day in the fourth quarter of 2013, a 480% increase from 564 Boe per day in the fourth quarter of 2012.

 

  • NGL production averaged 695 barrels per day in the fourth quarter, an increase of 154% from the fourth quarter of 2012.  NGL production increased as a result of production growth from the liquids-rich Montney formation at Umbach.  With condensate and pentane being approximately 60% of the NGL mix, the fourth quarter NGL price of $70.10 per barrel was 81% of the average Edmonton Par light oil price.

   

  • Activity in 2013 was focused at Umbach where eight Montney horizontal wells (7.6 net) plus one Montney vertical delineation well (1.0 net) were drilled and seven horizontal wells (6.2 net) were completed and pipeline connected.  In the fourth quarter, one Montney horizontal well (1.0 net) was drilled, one Montney horizontal well (1.0 net) was completed and two Montney horizontal wells (2.0 net) were pipeline connected.

 

  • On Storm’s 100% working interest lands at Umbach, five horizontal Montney wells (5.0 net) were drilled with rates over the first 90 operated days (excluding days shut in) averaging 3.7 Mmcf per day gross raw gas which is equivalent to 670 Boe per day sales.  This is an improvement of 70% when compared to earlier horizontal wells drilled in 2010 and 2011.

 

  • Funds from operations for the year totaled $21.9 million, an increase of 64% from the previous year.  Funds from operations in the fourth quarter was $7.5 million or $0.09 per basic share, an increase of 12% from $0.08 per basic share in the prior year.  The increase in funds from operations was the result of significant production growth at Umbach.

 

  • The funds from operations netback was $16.52 per Boe in 2013, an increase of 2% from the previous year.  The funds from operations netback improved to $17.08 per Boe in the fourth quarter.

 

  • The field operating netback excluding hedging gains or losses was $20.43 per Boe for the full year and increased to $20.82 per Boe in the fourth quarter.

 

  • Operating costs improved throughout the year.  The full year operating cost of $10.86 per Boe was 5% lower than the previous year while the fourth quarter operating cost of $9.73 per Boe was 17% lower than the fourth quarter of 2012.  Improving operating costs are the result of production growth at Umbach where operating costs were $8.73 per Boe in 2013 which was lower than the corporate average of $10.86 per Boe.     

 

  • Controllable cash costs (operating, transportation, cash G&A, interest expense) declined to $16.24 per Boe in 2013 from $19.83 per Boe in the prior year.  Controllable cash costs showed further improvement to average $15.38 per Boe in the fourth quarter.  The largest improvement was with cash G&A which decreased $1.52 per Boe to average $2.98 per Boe during 2013.

 

  • Capital investment was $11.4 million in the fourth quarter and $52.4 million for the year, net of dispositions.  Investment in 2013 was focused on exploitation of the Montney formation at Umbach including $14.0 million for infrastructure, $15.0 million to acquire undeveloped land and $36.0 million for drilling and completions.  Dispositions in 2013 totaled $19.5 million from the sale of non-core properties early in 2013.

 

  • Debt plus working capital deficiency, net of investments, ended the year at $12.1 million which is 0.4 times annualized fourth quarter cash flow.  In November 2013, Storm’s bank credit line was increased to $65.0 million from $52.0 million.

 

  • Total proved (“1P”) reserves increased 50% to 20,764 Mboe with the all-in cost for additions being $13.19 per Boe. Total proved plus probable (“2P”) reserves increased 48% to 40,541 Mboe with the all-in cost for additions being $9.79 per Boe.  The increase in 1P and 2P reserves was the result of continued delineation drilling in the upper Montney formation at Umbach.

 

  • Better than expected horizontal well performance resulted in proved developed producing reserves (“PDP”) at Umbach being revised higher by 439 Mboe.

 

  • Additions to 2P reserves replaced 910% of 2013 production.

 

  • Recycle ratio was 2.1 for 2P reserve additions using the all-in cost for reserve additions and the 2013 field operating netback of $20.43 per Boe excluding hedging gains or losses.

 

  • Cost of adding production during 2013 was $17.22 per Boe for PDP on an all-in basis and was approximately $20,000 per Boe per day using 2013 capital investment of $52.4 million and production additions of 2,600 Boe per day (average fourth quarter rate from wells starting production in 2013).

 

  • Subsequent to year end, Storm closed the acquisition of a 100% working interest in 29 sections of land in the Umbach-Nig area, prospective for liquids-rich natural gas from the Montney formation.  The acquisition included two horizontal wells producing 359 Boe net per day (19% NGL) from the Montney formation.  Total cost of $87.9 million consisted of $30.0 million in cash and 13.6 million common shares of Storm with a deemed value of $4.25 per common share (closing price on the TSX Venture Exchange January 30, 2014).  The cash portion was funded with $34.8 million of gross proceeds from a bought deal financing and non-brokered private placement of common shares which closed on February 14, 2014 (8.5 million common shares were issued at a price of $4.10 per common share).

      

 

 

2014 Guidance

Year-end   adjusted debt plus working capital deficiency (1)                      

 

$50.0 million

Average   operating costs

 

$8.00 to $9.00 per Boe

Average   royalty rate (on production revenue before hedging)

 

14% - 15%

Operations capital, excluding acquisitions/dispositions

 

$78.0 million

Acquisitions

 

$87.9 million

Cast G&A, net of recoveries

 

$4.0 million

Forecast exit or fourth quarter average production

 

 7,500 - 7,900 Boe/d

 

 

(20% oil + NGL)

 Forecast average annual production

 

5,500 - 6,500 Boe/d

 

     (21% oil + NGL)

(1)  Includes value of publicly listed securities.

 

Major expenditures included in operations capital investment for 2014 include:

 

  • $47.0 million at Umbach to drill 10 horizontal wells (10.0 net) with 9 horizontal wells (9.0 net) being completed and tied in; and

 

  • $19.0 million to expand infrastructure at Umbach, including a new field compression facility, expandable from initial capacity of 24 Mmcf per day to 48 Mmcf per day (expansion expected to occur in 2015).

 

This level of investment is forecast to increase Storm’s fourth quarter 2014 production to 7,500 to 7,900 Boe per day which represents 60% growth on a year-over-year basis.

Guidance for 2014 assumes an average natural gas price at AECO of $3.75 per GJ and an Edmonton Par oil price of Cdn$90 per barrel.  This reflects estimated first quarter pricing of AECO $5.00 per GJ and Edmonton Par Cdn$98 per barrel.  Adjusted net debt is forecasted to be $50.0 million at the end of 2014 (including public company investments), which would be approximately 1.0 times annualized funds from operations in the fourth quarter of 2014.

At Umbach, Storm is still in the early stages of delineating a large, higher quality, liquids-rich resource in the Montney formation.  NGL recovery increases revenue and the relatively shallow depth (1,400 to 1,600 metres) results in a lower drilling and completion cost with both providing Storm with a competitive advantage.  Significant future reserve growth is expected given 2P reserves have been assigned to the upper Montney on only 8% of Storm’s land position at Umbach.  In addition, showing that the middle and lower Montney are also productive and sustained improvements in horizontal well productivity would also lead to reserve additions.  With a strong balance sheet and a plan in place to further expand owned and operated infrastructure, continued rapid growth is expected from Umbach during 2014 and 2015.  

Storm’s land position in the HRB continues to be a core, long-term asset with significant leverage to higher natural gas prices.

Capital investment will be reviewed mid-year and, should natural gas prices remain elevated and horizontal well performance at Umbach continue to meet or exceed expectations, it is likely that capital investment would be increased in the second half of 2014 and forecast fourth quarter production would also be increased.