HIGHLIGHTS & OUTLOOK

 

HIGHLIGHTS – SECOND QUARTER 2014

  

  • Production was 5,462 Boe per day (22% oil plus NGL), an increase of 58% from the same period last year and 8% from the previous quarter. On a per-share basis, the year-over-year increase was 11% using common shares outstanding at the end of each period.  The increase was due to growth from the Umbach property where production was 3,979 Boe per day in the second quarter which is 122% higher than a year ago and 12% higher than the previous quarter. 

 

  • NGL production was 762 barrels per day, a year-over-year increase of 278 Boe per day, or 57%. Increased NGL production was the result of production growth from the liquids-rich Montney formation at Umbach.  The NGL price of $80.57 per barrel was 76% of the average Edmonton Par light oil price.

 

  • Activity was focused on Storm’s 100% working interest lands at Umbach South where seven Montney horizontal wells (7.0 net) were drilled, six horizontal wells (6.0 net) were completed and major equipment was delivered for the new 24 Mmcf per day field compression facility which is expected to start up in late August.

 

  • Only three horizontal wells (2.6 net) have started production in 2014 (all at Umbach) which has more than offset declines, with corporate production increasing from 5,068 Boe per day in the first quarter to approximately 5,600 Boe per day in July.

 

  • At Umbach, Montney horizontal well performance continues to improve with the first 2014 horizontal well with enough production history averaging 4.8 Mmcf per day gross raw gas (870 Boe per day sales) over the first 90 calendar days, a 30% improvement from the average 2013 horizontal well.

 

  • The corporate field operating netback, excluding hedging gains or losses, was $27.78 per Boe, an increase of $7.62 per Boe, or 38% from the previous year. The year-over-year improvement was due to lower operating costs, lower royalties and an increase in the natural gas price to $5.20 per Mcf from $3.96 per Mcf in the previous year. The operating cost was $9.41 per Boe, a decrease of 15% from the prior year.  Royalties were reduced by a $1.6 million royalty credit ($3.22 per Boe) received through the British Columbia Infrastructure Royalty Credit Program.       

 

  • Funds from operations totaled $11.1 million or $0.10 per basic share, a year-over-year increase of 43% on a per-share basis. The funds from operations netback was $22.27 per Boe, an increase of 38% or $6.15 per Boe from the previous year.  A hedging loss reduced the netback by $3.02 per Boe.  Controllable cash costs (operating, transportation, cash G&A, interest expense) were $13.73 per Boe, a year-over-year decrease of 16%, or $2.65 per Boe.      

 

  • Net income was $6.6 million, or $0.06 per share, a per-share increase of 600% when compared to the previous year.

 

  • Capital investment was $33.6 million with major expenditures being $5.8 million for facilities and pipelines plus $26.4 million for drilling and completions.

 

  • Debt plus working capital deficiency, net of investments, totaled $41.8 million at the end of the quarter which is 0.9 times annualized second quarter cash flow. Storm’s banker, ATB Financial, increased the revolving bank facility to $90.0 million in May 2014 and the facility was syndicated in June by adding two additional banks.

 

 

OUTLOOK

Production in July averaged 5,600 Boe per day based on field estimates, and third quarter production is forecast to be 6,100 to 6,500 Boe per day. Corporate production will increase by approximately 4,100 Boe per day when the new field compression facility is operational at Umbach in late August 2014.

Storm’s 2014 guidance is unchanged from the most recent revision in May 2014 and is set forth below.

 

 

January 23, 2014

 Original Guidance

May 14, 2014

Revised Guidance

AECO natural gas price

$3.35 per GJ

$4.25 per GJ

Edmonton Par light oil price

Cdn $89 per bbl

Cdn $94 per bbl

 

 

 

Estimated average operating costs

$8.00 - $9.00 per Boe

$8.00 - $9.00 per Boe

Estimated average royalty rate (on production revenue before hedging)

14% - 15%

15% - 16%

Estimated operations capital, excluding acquisitions & dispositions

$78.0 million

$97.0 million

Estimated acquisitions

$88.0 million

$88.0 million

Estimated cash G&A net of recoveries

$4.0 million

$4.0 million

Forecast fourth quarter average production

7,500 – 7,900 Boe/d

8,900 – 9,200 Boe/d

 

(20% oil + NGL)

(20% oil + NGL)

Forecast average annual production

5,500 – 6,500 Boe/d

6,000 – 6,700 Boe/d

 

(21% oil + NGL)

(21% oil + NGL)

Umbach horizontal wells drilled

10 gross (10.0 net)

14 gross (14.0 net)

Umbach horizontal wells completed & tied in

9 gross (9.0 net)

13 gross (12.6 net)

 

Adjusted net debt at the end of 2014 is forecast to be $50.0 to $55.0 million which would be approximately 0.9 times annualized funds from operations in the fourth quarter of 2014 (assuming commodity prices in the third and fourth quarters of 2014 are AECO $3.75 per GJ and Edmonton Par Cdn $94.00 per barrel).

 

At Umbach, drilling and completion operations continued through spring break-up and there are currently six Montney horizontal wells (6.0 net) that have been completed and pipeline connected that will begin producing in September 2014 when the new 24 Mmcf per day field compression facility is operational. An additional six Montney horizontal wells have been drilled and will be completed and tied in as facility capacity becomes available. As a result of improving horizontal well performance, timing to expand the new facility is being accelerated with capacity increasing to 36 Mmcf per day at the end of the first quarter of 2015 and to 48 Mmcf per day early in the third quarter of 2015. With increasing confidence in the repeatability and improved productivity of horizontal wells at Umbach plus a strong balance sheet (year-end debt is forecast to be less than one times cash flow), acceleration of development activities is likely in 2015 if the natural gas price is equal to or greater than $3.50 per GJ at AECO.

 

Approximately one-third of Storm’s land position at Umbach (47.6 net sections) has been delineated with 24.4 net horizontal wells leaving 165.6 net horizontal locations remaining to drill in the upper Montney interval (assuming four horizontal wells per section). The remaining two-thirds of Storm’s land position has not yet been tested but remains highly prospective given results from horizontal wells drilled by other operators on offsetting acreage.

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