HIGHLIGHTS & OUTLOOK

 

HIGHLIGHTS – FIRST QUARTER 2015

 

  • Operational success at Umbach continued in the first quarter with horizontal well performance continuing to improve and with the expansion of the second Umbach field compression facility being completed on time and on budget.
  • Production averaged 9,776 Boe per day (19% oil plus NGL), an increase of 91% on a per-share basis from the previous year. The increase was the result of growth at Umbach where first quarter production was 8,579 Boe per day, a year-over-year increase of 141%.
  • NGL production was 1,493 barrels per day, an increase of 106% from the previous year which was the result of production growth from the liquids-rich Montney formation at Umbach where NGL recovery was 33 barrels per Mmcf sales in the quarter. With approximately 60% of the NGL mix being condensate plus pentanes, the NGL price of $37.10 per barrel was 71% of the average Edmonton light oil price.
  • Activity in the quarter was focused at Umbach, where six Montney horizontal wells (6.0 net) were drilled, two horizontal wells (2.0 net) were completed, three horizontal wells (3.0 net) began producing, a 15-kilometre pipeline connecting the first field compression facility to the Stoddart Gas Plant was completed, and the second field compression facility was expanded from 27 to 54 Mmcf per day raw gas.   
  • Horizontal well performance at Umbach continues to improve. The first 2015 horizontal well having enough production history averaged 5.6 Mmcf per day gross raw gas over the first 90 calendar days, an improvement of 19% from the average 2014 horizontal well.  Field condensate from this well averaged 32 barrels per Mmcf raw gas over the same period, an increase of 60% from the average of all horizontal wells drilled to date (an additional 18 to 42 barrels of NGL per Mmcf sales is also recovered after processing at a gas plant).
  • There is currently an inventory of 10 horizontal wells (10.0 net), which includes one completed horizontal well, that have not started producing at Umbach.
  • Funds from operations was $13.7 million, or $0.12 per basic share, which is an increase of 33% from the prior year.
  • The funds from operations netback was $15.57 per Boe, a year-over-year decrease of 18% which was primarily the result of revenue per Boe declining by $24.58 per Boe, or 54%. This was partially offset by a hedging gain of $8.36 per Boe and by controllable cash costs declining by 17%, or $2.68 per Boe.  Controllable cash costs includes operating, transportation, interest and cash general and administrative costs.
  • Net loss was $3.6 million, or $0.03 per share, compared to net income of $0.2 million in the previous year. The net loss was caused in part by the reversal of prior period unrealized hedging gains amounting to $6.8 million (the realized hedging gain of $7.4 million in the first quarter reduced the prior period unrealized hedging gain).
  • Capital investment was focused on the Umbach area and totaled $35.7 million which included $15.4 million for infrastructure and $19.1 million for drilling and completions.
  • For the remainder of 2015, Storm has hedged approximately 40% of forecast natural gas production at an AECO price of $4.17 per Mcf ($3.33 per GJ).
  • Debt plus working capital deficiency was $85.1 million which is 1.6 times annualized first quarter cash flow. In April 2015, Storm’s bank credit line was increased to $150.0 million from $130.0 million.

 

 HEDGING UPDATE

 For April to December of 2015, 23,900 Mcf per day (29,900 GJ per day) of natural gas is hedged at an average AECO price of approximately $4.17 per Mcf (AECO monthly index $3.33 per GJ).

 During January 2015, Storm’s oil hedges for 2015 were unwound for net proceeds of $5.1 million.

 For 2016, 8,000 Mcf per day (10,000 GJ per day) of natural gas is hedged at an average AECO price of approximately $3.75 per Mcf (AECO monthly index $3.00 per GJ).  Storm plans to continue adding to the 2016 hedge position during the remainder of 2015.

 The purpose of Storm’s commodity price hedges is to reduce the effect of commodity price fluctuations on capital investment and growth over the next 12 months.  A maximum of 50% of current production (most recent monthly or quarterly average), before royalties, will be hedged; anticipated production growth is not hedged.

OUTLOOK

Production in April 2015 averaged 11,900 Boe per day based on field estimates and production in the second quarter of 2015 is forecast to be 10,000 to 10,500 Boe per day which includes the effect of a 21-day maintenance turnaround at the McMahon Gas Plant in June which is expected to reduce second quarter production by 1,700 Boe per day.  Capital investment in the second quarter is expected to total $9.0 to $11.5 million which includes completing one horizontal well (1.0 net) and $6.4 million to add equipment at the second field compression facility at Umbach.

 Guidance for 2015 remains unchanged from that provided on February 26, 2015.

2015 Guidance

November 13, 2014

 Original Guidance

February 26, 2015

Revised Guidance

AECO natural gas price

$3.25 per GJ

$2.35 - $2.90 per GJ

BC STN 2 natural gas price

$3.00 per GJ

$2.05 - $2.60 per GJ

Edmonton light oil price

Cdn$83 per Bbl

Cdn$53 - $62 per Bbl

Estimated average operating costs

$7.50 - $8.00 per Boe

$8.00 - $8.50 per Boe

Estimated average royalty rate

(on production revenue before hedging)

12% - 14%

6% - 10%

Estimated operations capital

(excluding acquisitions & dispositions)

$110.0 million

$80.0 million

 

   

Estimated cash G&A net of recoveries

$5.3 million

$5.3 million

Forecast fourth quarter production

14,000 – 14,500 Boe/d

(18% oil + NGL)

14,000 – 14,500 Boe/d

(19% oil + NGL)

Forecast annual production

11,500 – 12,700 Boe/d

(19% oil + NGL)

11,000 – 12,000 Boe/d

(20% oil + NGL)

Umbach horizontal wells drilled

Umbach horizontal wells completed

Umbach horizontal wells starting production

9 gross (9.0 net)

14 gross (14.0 net)

16 gross (16.0 net)

6 gross (6.0 net)

11 gross (11.0 net)

14 gross (14.0 net)

 

Capital investment for 2015 includes:

  • $47.8 million at Umbach for drilling and completions; and
  • $23.4 million to expand infrastructure at Umbach, including expansion of the second field compression facility from 27 Mmcf per day to 55 Mmcf per day in the first quarter, plus $4.0 million to order major equipment for a third field compression facility.

 

Total debt at the end of 2015 is forecast to be $91.0 million assuming average 2015 pricing of AECO Cdn$2.58 per GJ and Edmonton light oil Cdn$61.50 per barrel which represent actual prices to date plus current forward strip pricing for the remainder of 2015.  This would be approximately 1.6 times annualized funds from operations in the fourth quarter of 2015.

If the natural gas price increases from current levels during 2015 and provides an incentive for doing so, Storm can accelerate the timing for completing the nine standing horizontal wells which would increase production in the second half of 2015.  There is currently approximately 16 Mmcf per day of unused raw gas compression capacity at Umbach.   

With approximately 35% of Storm’s first quarter revenue coming from oil and NGL sales (excluding hedging gains), the recent improvement in the price of oil will also increase Storm’s revenue and cash flow.  The Edmonton light oil price is currently approximately Cdn$66.00 per barrel (WTI US$58 per barrel) which is $14.00 per barrel higher than the price in the first quarter and would increase Storm’s first quarter oil price by approximately 33% and the NGL price by approximately 23% which adds $1.50 per Boe to the operations netback.

The corporate operating cost is expected to decline from $8.67 per Boe in the first quarter to below $7.50 per Boe in the fourth quarter as a result of operating costs at Umbach declining below $6.75 per Boe in the fourth quarter of 2015.

At Umbach, Montney horizontal wells continue to offer attractive rates of return at current forward strip pricing for oil and natural gas given that NGL recovery increases revenue while the relatively shallow depth of the Montney (1,400 to 1,600 metres) results in a lower drilling and completion cost.  With a strong balance sheet, an evolving plan to expand infrastructure at Umbach, and improving capital efficiencies, Storm expects to meet or exceed 2015 production guidance and remains well positioned for continued rapid growth into 2016. 

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