Highlights and Outlook 2018-11-15T17:50:03+00:00

HIGHLIGHTS & OUTLOOK

2018 Third Quarter Highlights

  • Production increased by 35% on a per-share basis from the prior year to a record 20,455 Boe per day which was consistent with guidance (19,500 to 20,500 Boe per day).
  • Liquids production (field condensate plus gas plant NGL) grew by 24% year over year with liquids representing 17% of total production and 41% of production revenue. Condensate increased by 29% while NGL increased by 17% as a result of lower NGL recoveries at the McMahon Gas Plant.
  • Growth over the last 12 months has been achieved while investing less than funds flow (debt reduced by $17 million).
  • At the end of the quarter, there was an inventory of six Montney horizontal wells (5.5 net) at Umbach that had not started producing which included four completed wells. One horizontal well (1.0 net) started production at the end of the quarter.
  • As a result of the continuing improvement in horizontal well performance at Umbach, the internal type curve used by management to forecast production from new wells is being increased to 11 Bcf raw from 9 Bcf raw which is based on the performance of wells completed in 2017 and 2018 that have higher rates and shallower declines than previously forecast.
  • At the Nig land block, three wells completed in 2018 are exceeding expectations and have averaged 8.2 Mmcf per day raw gas over the first 120 calendar days plus 225 barrels per day of field condensate (average of 1,600 Boe per day sales with 23% liquids including NGL recovered at the gas plant). The field condensate-gas ratio is approximately 50% higher than the average well at Umbach.
  • Diversified sales resulted in the natural gas price net of transportation being $2.13 per Mcf which was materially higher than Western Canadian pricing (AECO was $1.13 per GJ while Station 2 was $1.24 per GJ).
  • Production costs, cash G&A and interest expense on a per-Boe basis declined by 11% year over year.
  • Funds flow was $22.2 million, or $0.18 per share, a 64% increase on a per-share basis from last year which was largely from higher production volumes and higher liquids prices.
  • Net income for the year to date is $13.3 million or $0.11 per share which is a decrease from $31.1 million last year as a result of non-cash unrealized gains or losses on hedging which reduced the year to date by $18.1 million while adding $25.4 million in the previous year.
  • Capital investment was $21.8 million which included five horizontal well completions, installing additional compression at Umbach and twinning part of a field gathering pipeline to Nig.
  • The balance sheet remains strong with debt including the working capital deficiency being $84.6 million which represents 1.0 times annualized quarterly funds flow and 47% of the bank credit facility ($180 million).
  • Commodity price hedges continue to be added and currently protect approximately 42% of forecast production for 2019.

For the fourth quarter of 2018, production is forecast to be 19,000 to 21,000 Boe per day with production to date averaging 19,300 Boe per day based on field estimates which includes three days with no production due to outages at the McMahon Gas Plant and the Enbridge T-south pipeline failure on October 9th.  The effect of the pipeline failure on the Station 2 price is uncertain at this time due to varying restrictions on flow rates for repairs as well as the timing for storage withdrawals from the Aitken Creek storage facility (some production will be shut in as receipts and deliveries at Station 2 must be equal).  To date in the fourth quarter, the Station 2 price has averaged $0.72 per GJ which has resulted in Storm’s production being restricted to minimize sales at Station 2.  The lower Station 2 price is not expected to have a material effect on Storm’s fourth quarter financial results since it is largely mitigated by diversified natural gas sales (less than 15% of sales are at Station 2), existing hedges at Station 2 (5.6 Mmcf per day), unhedged volumes sold at a much higher Sumas price (2.3 Mmcf per day), and the ability to divert some production onto the Alliance Pipeline to the higher priced Chicago market (up to 14 Mmcf per day).

Updated guidance for 2018 is provided below.  Capital investment is increasing to $85 million (was $80 million) as the completion of a standing horizontal well at Fireweed was advanced into 2018 from 2019 and the estimated drilling and completion cost for a horizontal well was increased to $5.8 million (was $5.0 million) to reflect increased length with more frac stages (2,400 metres with 40 to 46 frac stages).  With the increased length and frac stages, the type curve used by Storm management to forecast production from new wells has been increased to 11 Bcf raw gas (was 9 Bcf raw gas).  This is supported by the performance to date of the wells completed in 2017 and 2018.  Fourth quarter capital investment is expected to be $37 million which includes $11 million for the Nig Gas Plant.  Forecast commodity prices reflect pricing to date and the approximate forward strip for the remainder of the year.  Notably, the mid-point of forecast annual funds flow is approximately 15% higher than initial guidance provided in November 2017.

2018 Guidance
Previous

August 14, 2018

Current

November 13, 2018

Cdn$/US$ exchange rate 0.78 0.77
Chicago daily natural gas – US$/Mmbtu $2.70 $2.90
Sumas monthly natural gas – US$/Mmbtu $2.05 $3.25
AECO daily natural gas – Cdn$/GJ $1.45 $1.50
Station 2 daily natural gas – Cdn$/GJ $1.35 $1.30
WTI – US$/Bbl $66.00 $66.00
Edmonton condensate diff – US$/Bbl -$3.10
Est revenue net of transport (excluding hedges) – $/Boe $20.50 – $21.50 $23.00 – $23.50
Est operating costs – $/Boe $5.75 $5.50 – $5.75
Est royalty rate (% revenue before hedging) 5% – 7% 4% – 6%
Est capital investment (excluding A&D) – $ million $80.0 $85.0
Est cash G&A  – $ million $6.0 – $7.0 $6.0 – $6.5
                         – $/Boe $0.78 – $0.95 $0.80 – $0.91
Est interest expense – $ million $4.0 $4.0
Forecast fourth quarter production – Boe/d

% liquids

20,000 – 21,000

18%

19,000 – 21,000

18%

Forecast annual production – Boe/d

% liquids

20,000 – 20,500

18%

19,500 – 20,500

18%

Est annual funds flow – $ million $85.0 – $90.0 $90.0 – $96.0(1)
Umbach horizontal wells drilled – gross

Umbach horizontal wells completed – gross

Umbach horizontal wells connected – gross

5 (5.0 net)

10 (10.0 net)

8 (8.0 net)

5 (5.0 net)

11 (10.5 net)

7 (7.0 net)

  • Based on mid-point field operating netback of $16.45 per Boe.

 Guidance History

  Chicago

Daily

(US$/Mmbtu)

Station 2

Daily

(Cdn$/GJ)

WTI

(US$/bbl)

Estimated Operations

Capital

($ million)

Forecast

Annual

Funds Flow

($ million)

Forecast Annual

Production

(Boe/d)

Nov 14, 2017 $2.80 $1.30 – $1.70 $52.00 $55.0 – $90.0 $73.0 – $90.0 20,000 – 23,000
Mar 1, 2018 $2.60 $1.05 $56.00 $55.0 – $90.0 $70.0 – $78.0 20,000 – 23,000
May 15, 2018 $2.60 $1.20 $64.00 $55.0 – $65.0 $76.0 – $80.0 20,000 – 21,000
Aug 14, 2018 $2.70 $1.35 $66.00 $80.0 $85.0 – $90.0 20,000 – 20,500
Nov 13, 2018 $2.90 $1.30 $66.00 $85.0 $90.0 – $96.0 19,500 – 20,500

Guidance for 2019 is summarized below and includes capital investment of $128 million which includes $68 million for the sour gas plant at Nig and $14 million at Fireweed.  Approximately 40% of capital investment will be in the first half of 2019.  Drilling plans include five horizontal wells (5.0 net) at Nig including an acid gas disposal well, and three wells (1.5 net) at Fireweed.  The estimated cost to drill and complete a horizontal well is $5.8 million for 2,400 metres of length with 40 to 46 frac stages. Capital investment is supported by commodity price hedges which protect approximately 42% of forecast production.  The production forecast assumes an 11 Bcf raw gas type curve (internal estimate) for new horizontal wells.  If required, capital investment and production growth can be reduced to ensure total debt is maintained at an appropriate level.

2019 Guidance
November 13, 2018
Cdn$/US$ exchange rate 0.78
Chicago daily natural gas – US$/Mmbtu $2.50
Sumas monthly natural gas – US$/Mmbtu $2.50
AECO daily natural gas – Cdn$/GJ $1.50
Station 2 daily natural gas – Cdn$/GJ $1.25
WTI – US$/Bbl $60.00
Edmonton condensate diff – US$/Bbl -$8.00
Est revenue net of transport (excluding hedges) – $/Boe $17.50 – $18.00
Est operating costs – $/Boe $5.50 – $5.75
Est royalty rate (% revenue before hedging) 5% – 7%
Est capital investment (excluding A&D) – $ million $128.0
Est cash G&A  – $ million $6.0 – $7.0
                         – $/Boe $0.66 – $0.91
Est interest expense – $ million $5.5 – $6.5
Forecast fourth quarter production – Boe/d

% liquids

23,000 – 25,000

18%

Forecast annual production – Boe/d

% liquids

21,000 – 24,000

18%

Est annual funds flow – $ million $72.0 – $88.0(1)
Umbach horizontal wells drilled – gross

Umbach horizontal wells completed – gross

Umbach horizontal wells connected – gross

8 (6.5 net)

11 (9.5 net)

11 (11.0 net)

  • Based on mid-point field operating netback of $11.05 per Boe.

For the nine months to date in 2018, financial results have improved materially when compared to last year which has further strengthened Storm’s balance sheet.  Funds flow is up 62% year over year as a result of 29% production growth with diversified natural gas sales mitigating the decline in Western Canadian natural gas prices (decline of 36% at AECO and 24% at Station 2) and growing liquids production benefitting from the 35% increase in the WTI price.  In addition, the significant improvement in horizontal well results has reduced capital investment required to grow production.  As a result, total debt has decreased by $17 million over the last 12 months.

Storm’s improving financial position will be used to self-fund planned growth from Nig (2019 – 2020), Fireweed (2020) and Umbach (contingent on the Station 2 price).  This includes a large capital investment to expand infrastructure by constructing a sour gas plant at Nig and constructing a new field compression facility at Fireweed. The upfront investment in infrastructure is large but will provide a significant long-term benefit.  Production is expected to increase to 25,000 Boe per day by the end of 2019 and to 30,000 Boe per day by the end of 2020 while increasing liquids as a proportion of total production and reducing operating costs which reduces exposure to current low Western Canadian natural gas prices.

With a large, multi-year drilling inventory in the Montney in an area that is liquids-rich and higher quality, Storm is well positioned to continue growing asset value per share over the next three years by advancing development at both Nig and Fireweed.

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