Madalena Announces its 2013 Year End Financial Results and Highlights, Provides an Operational Outlook
TSX - Toronto Stock Exchange
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TSXV Trading Symbol: MVN
CALGARY, April 29, 2014/CNW/ - Madalena Energy Inc. (TSXV: MVN) (the "Company" or "Madalena") is pleased to provide selected financial and operational information for the three months and year ended December 31, 2013and the Company's 2013 year end reserves.
Copies of the Company's consolidated financial statements for the year ended December 31, 2013, the related management's discussion and analysis and the Annual Information Form (the "AIF") of the Company for the year ended December 31, 2013have been filed with Canadian securities regulatory authorities and will be made available under the Company's profile at www.sedar.comand on the Company's website at www.madalenaenergy.com.
2013 HIGHLIGHTS and OUTLOOK
Established and integrated an experienced, full-cycle operating team capable of executing both internationally and domestically.
Repositioned Madalena for flexibility with respect to its Neuquén basin assets with the signing of three revised block contracts (new contractual amendments and/or extensions) at each of the Company's Coiron Amargo, Curamhuele and Cortadera blocks in Argentina.
Conducted an extensive technical review of the Company's unconventional shale resources on its three land blocks within the Neuquén basin. Ryder Scott Company evaluated the Vaca Muerta shale, Lower Agrio shaleand Basal Quintucoformation throughout the Coiron Amargo, Curamhuele and Cortadera blocks and prepared a comprehensive resource report which was released on April 30, 2013and effective December 31, 2012.
Highlights of the independent resource evaluation are as follows: Increased proved plus probable reserves ("P+P") by 19% to 4.648 MMboe, which is primarily supported by the Company's conventional assets. Net present value of these P+P reserves before tax, discounted at 10%, increased 49% to $50.2 million_(see Summary of 2013 Year-end Reserves below)._
A large inventory of horizontal locations on Madalena's western Canadian and Argentinean lands remains unbooked.
Q4 - 2013 production averaged 1,271 boe/d (56% oil and liquids), an increase of 101% from Q4 - 2012.
Madalena has been successfully recapitalized through raising a total of $19.5 millionin 2013 and an additional $23 millionin February, 2014.
Maintained a strong balance sheet with zero debt and approximately $8.0 millionin positive working capital at the end of 2013. With the subsequent $23 millionraised in February 2014, unutilized credit facilities of $13 millionand funds from operations throughout 2014, Madalena is well positioned to meet its commitments and execute its 2014 business plan.
In late 2013, Madalena successfully implemented its first use of North American based horizontal drilling technology on its international assets focused initially at its Coiron Amargo block in the Neuquen basin. Horizontal technology was applied to the Sierras Blancas formation which is a conventional light oil reservoir sourced from the Vaca Muerta shale across the Coiron Amargo block. The CAN.xr-2(h) well was re-entered and drilled horizontally and has produced approximately 63,000 barrels of oil in the first three months of 2014. The results to date on the CAN.xr-2(h) horizontal have exceeded management's expectations and as a result, Madalena has commenced a multi-well horizontal drilling program in Sierras Blancas for 2014. To kick-off 2014, the CAN-15(h) well was recently drilled horizontally and during testing operations the highest rates were achieved on a 12 mm choke setting, when the well flowed at a rate of 1,393 bbls/d of oil with 3,301 mcf/d of associated natural gas for a total of 1,943 Boe/d (72% oil)over a 5 hour period. _(see International Operations below). _The next Sierras Blancas horizontal in the multi-well program for 2014 is expected to commence drilling in Q2-2014. Madalena has a 35% working interest in the Coiron Amargo block.
Madalena has established a 2014 capital budget of $48 million, $37 millionof which is allocated to Argentina. The 2014 budget is focused on a combination of high impact horizontal wells targeting the Sierras Blancas light oil play in addition to unconventional shale and tight sand delineation wells, re-entries and 3D seismic shooting on the Company's international assets in Argentina. Operations in Canadawill focus on horizontal wells targeting the Ostracod and other emerging resource plays in the greater Paddle River area.
Ongoing drilling and completions operations will continue across Madalena's international assets in Q2 through to year end 2014 and drilling operations are expected to recommence in Canadapost spring break-up.
SUMMARY FINANCIAL AND OPERATIONAL RESULTS
| | | | | | | | Three months ended December 31 | Year ended December 31 | | | | | 2013 | 2012 | 2013 | 2012 | | Financial - Canadian $000s, except per share amounts | | | | | | Oil and gas revenue | 5,633 | 3,012 | 17,960 | 5,545 | | Net loss | (20,527) | (4,934) | (23,285) | (8,865) | | Per share - basic and diluted | (0.06) | (0.02) | (0.07) | (0.03) | | Business combinations | - | 16,090 | - | 16,090 | | Capital expenditures | 13,121 | 6,310 | 43,296 | 22,851 | | Working capital | 8,016 | 30,025 | 8,016 | 30,025 | | Equity outstanding - 000s | | | | | | Common shares | 364,029 | 314,307 | 364,029 | 314,307 | | Stock options | 19,530 | 22,334 | 19,530 | 22,334 | | Operating | | | | | | Average Daily Production | | | | | | Crude oil and condensate - Bbls/d | 551 | 327 | 392 | 173 | | Natural gas - Mcf/d | 3,366 | 1,377 | 3,346 | 369 | | NGLs - Bbls/d | 160 | 78 | 137 | 20 | | Total - boe /d(1) | 1,271 | 634 | 1,086 | 254 | | Average Sales Prices | | | | | | Crude oil and condensate - $/Bbl | 73.71 | 74.75 | 79.69 | 75.23 | | Natural gas - $/Mcf | 3.52 | 3.35 | 3.18 | 3.41 | | NGLs - $/Bbl | 54.99 | 48.04 | 53.61 | 48.04 | | Total - $/boe(1) | 48.16 | 51.66 | 45.28 | 59.86 | | _Operating Netbacks_(2)_- $/boe_(1) | 16.82 | 13.49 | 15.25 | 18.18 |
| (1) | Refer to - "Oil, Natural Gas Liquids and Natural Gas Conversions to boe" in Advisory. | | (2) | Operating netback is a non-GAAP measure calculated as the average per boe of the Company's oil and gas sales, less royalties, operating and transportation expenses. |
SUMMARY OF ARGENTINEAN UNCONVENTIONAL RESOURCES _(as prepared by Ryder Scott Petroleum Consultants Ltd. ("Ryder Scott") in accordance with National Instrument 51- 101 - Standards for Disclosure for Oil and Gas Activities of the Canadian Securities Administrators ("NI 51-101") (see separate press release dated April 30, 2013))_
Highlights of the independent resource evaluation are as follows:
Best Estimate P50 total PIIP of 34.8 billion boe (51 % crude oil and NGLs) net to Madalena, comprised of: Best Estimate P50 contingent and prospective resourcesnet to Madalena as follows: A further breakdown (by block) of the petroleum initially in place and resources aggregating such totals are shown below in a series of tables in the advisory section of this document.
SUMMARY OF 2013 YEAR-END RESERVES _(as of December 31, 2013- all amounts are in Canadian dollars and net to Madalena's interest unless otherwise stated.)_
Total Company proved plus probable ("P+P") reservesof 4.648 MMboe(51% crude oil and natural gas liquids vs 46% at year-end 2012) representing a 19% increase from Madalena's 2012 year end P+P reserves;
58% of P+P reserves are categorized as proved reserves;
A P+P reserve life indexof 10.0 yearsand a proven reserve life index of 5.8 years, based on Q4 - 2013 actual production of 1,271 boe/d;
Reserve net present value of P+P reserves before tax (discounted at 10%) of $50.2 millionrepresenting a 49% increase from Madalena's 2012 year end P+P reserves; and
Disclosure of Reserves Data
All of Madalena's international reserves were evaluated by Ryder ScottCompany and all of Madalena's domestic reserves were evaluated by McDaniel & Associates Consultants Ltd. in separate reports dated effective December 31, 2013(collectively, the "Reserve Reports"). The Reserve Reports were prepared in accordance with NI 51-101 and the standards contained in the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook"). The reserves data provided in this news release ("Reserves Data") summarizes the oil, liquids and natural gas reserves associated with Madalena's assets and properties and the net present values of future net revenue for these reserves using forecast prices and costs as at December 31, 2013.The Reserves Data represents only a portion of the disclosure required under NI 51-101. All of the required information is in the AIF, which has been filed with Canadian securities regulatory authorities and will be made available under the Company's profile at www.sedar.comand on the Company's website at www.madalenaenergy.com.
INTERNATIONAL OPERATIONS - Neuquén Basin, Argentina
Coiron Amargo Block
Industry activity in and around Madalena's Coiron Amargo block (approximately 35,000 net acres) including developments in the greater Loma La Lata and Loma Campanaareas has seen a significant step change from initial exploration and appraisal drilling in 2012 to an accelerated exploitation / development phase in the unconventional Vaca Muerta shalethrough 2013 and into 2014. Over 150 Vaca Muerta shale wells have been drilled in and around this area and a number of significant joint ventures (or other transactions) over the last 14 months have been announced. These largely involve large integrated exploration and production companies such as YPF, Chevron, Shell, Total SA, Wintershall, Petrobras and others. YPF and Chevron have announced a 140 well drilling program in 2014 targeting the Vaca Muerta shale to the west of Madalena's acreage and they expect to increase production from the Vaca Muerta shale to approximately 80,000 bbls/d by 2017 in this area. Madalena's Coiron Amargo block is strategically positioned within this area of intense Vaca Muerta shale resource development and Madalena continues to execute its business plan in this area.
The Coiron Amargo block is divided into a North and South region with active drill programs being executed in both areas. Coiron Amargo Notre (the northern portion of the block) is currently under a 25 year exploitation (development) concession. The southern portion of the block, Coiron Amargo Sur, is currently under an exploration contract which was extended until November 8, 2014by way of an official decree signed by the Province of Neuquén in Argentinaon November 12, 2013. Subsequent to November 8, 2014, Madalena has the ability to extend Coiron Amargo Sur through further exploration, evaluation and/or exploitation (development) phases.
The focus of Madalena's business plan for the Coiron Amargo block includes:
| | | | | | | | | | i) | Continue to advance the Company's Vaca Muerta shale activities with a combination of new delineation wells and completion techniques (stimulations and/or multi-stage fracs); | | | | | | | | | | | ii) | Drill, complete, test and tie-in a number of high impact horizontal wells targeting Vaca Muerta sourced light oil from the Sierras Blancas reservoir; and | | | | | | | | | | | iii) | Technically assess deep gas potential on the block in response to offsetting industry activity. |
Recently, the Company has intensified its focus on the Vaca Muerta shale given the unconventional prize across the Coiron Amargo block. The block is strategically positioned within the Neuquén basin in the shallower portion of the Vaca Muerta oil window and in an area where over 150 Vaca Muerta shale wells have been drilled over the last 12 to 14 months. Industry activity continues to increase offsetting the Coiron Amargo block where Madalena drilled the CAS.x-14 and the CAS.x-15 vertical wells in Coiron Amargo Sur for the Vaca Muerta shale in 2013. The CAS.x-14 and CAS.x-15 wells were drilled and cased encountering approximately 105 and 114 meters respectively of Vaca Muerta shale on logs. Completion (stimulation work and/or multi-stage frac) activities on these wells are expected to commence in Q2 - 2014.
Madalena has implemented a balanced business strategy between unconventional shale delineationand high impact horizontal drilling. Accordingly, Madalena successfully implemented North American based horizontal technology and experience on the Coiron Amargo block. As the first implementation of horizontal technology internationally, the CAN.xr-2(h) well was re-entered, drilled and completed horizontally in the Sierras Blancas light oil reservoir which is a high deliverability conventional reservoir which is sourced from the Vaca Muerta shale. The CAN.xr-2(h) well has now been producing since late 2013 and has exceeded management's expectations. The well has been producing oil at restricted rates for most of Q1 - 2014. Cumulative oil production for Q1-2014, based on field estimates, was approximately 63,000 barrels of oil plus associated solution gas. Average daily production was approximately 700 bbls/d and 1,560 mcf/d of associated solution gas for a total of 978 boe/d (72% oil) over a three month period in Q1-2014. The well has been recently tied into a permanent pipeline system to the central plant and gas dehydration and compressor facility and, accordingly, associated solution gas volumes will be realized as sales in future quarters. Madalena has a 35% working interest in the CAN.xr-2(h) well.
Encouraged by the results of the CAN.xr-2(h) horizontal, Madalena has commenced a multi-well horizontal drilling program for 2014. The CAN-15(h) well, in which the Company has a 35% working interest, was recently drilled horizontally in the Sierras Blancas light oil reservoir in the Coiron Amargo block to a total measured depth of 3,750 metres with a horizontal lateral section of approximately 692 metres in length. This well is the second horizontal well drilled into the Sierras Blancas which is a conventional light oil reservoir sourced from the Vaca Muerta shale across the Coiron Amargo block. The well was subsequently cased and completed with a 3.5" slotted liner and a multi-rate production test was carried out through temporary production facilities. Throughout the multi-rate production test, the CAN-15(h) well flowed without artificial lift equipment and was tested for approximately 75 hours at various choke settings ranging from 6 mm to 12 mm in size with the following flow rates observed during the test:
| | | | | | | | | | i) | With the production test only being carried out on a portion of the horizontal lateral section as planned, the highest rates were achieved on a 12 mm choke setting, when the CAN-15(h) well was flowed at a rate of 1,393 bbls/d of oil with 3,301 mcf/d of associated natural gas for a total of 1,943 Boe/d (72% oil)over a 5 hour period and at an average flowing pressure of approximately 1,263 psi. | | | | | | | | | | | ii) | On an 8mm choke setting, the CAN-15(h) well was flowed at a rate of 745 bbls/d of oil with 1,990 mcf/d of associated natural gas for a total of 1,077 Boe/d (69% oil)over a 29 hour period and at an average flowing pressure of approximately 1,629 psi. | | | | | | | | | | | iii) | During the test period of 75 hours, the total gross produced cumulative volumes were approximately 2,553 barrels of oil and approximately 7,210 mcf of natural gas, for a total of approximately 3,754 barrels of oil equivalent (68% oil) gross. No significant flowing pressure declines were observed throughout the testing period and water cuts ranged from 0% to 3% throughout the test period. | | | | | | | | | | | | |
Operationally, Madalena and its partners currently have a completion rig running on the Coiron Amargo block with another drilling rig scheduled to mobilize to the block in Q2 to continue drilling a combination of high impact horizontals and Vaca Muerta shale delineation wells.
Two 3D seismic programs were shot at Coiron Amargo Sur during the second quarter of 2013 and were subsequently processed in the third quarter. The Coiron Amargo block (both north and south regions) is now almost entirely covered with 3D seismic.
Curamhuele Block
The greater El Trapial / Curamhuele region is an evolving area within the Neuquén basin which is seeing increased exploration and appraisal activity for unconventional shale plays and tight sand reservoirs. Chevron has recently announced that a second focus area for Chevron in the Vaca Muerta shales is the El Trapial block which is adjacent and to the east of Madalena's 90% working interest Curamhuele block. At El Trapial, Chevron is drilling and testing four exploration wells in 2014 to further assess the unconventional shale potential. Others, such as YPF are also drilling on lands offsetting Madalena's Curamhuele block for unconventional shale and tight sand plays.
The primary zones of interest across the Curamhuele block are the unconventional Vaca Muerta shale, Lower Agrio shaleand liquids rich Mulichincosands. The block is also prospective for other conventional reservoirs.
To satisfy a portion of the 2014 block commitments, Madalena has recently shot an approximately 75 square kilometer 3D seismic survey at Curamhuele. Processing of this data is currently underway. The Company plans to merge this newly acquired data with the existing 125 square kilometer 3D survey on the block. This will provide 3D seismic coverage on the entire northern portion of the Curamhuele block.
To satisfy the remaining 2014 block commitments, Madalena plans to execute two high impact re-entries of the Yp.x-1001 and Ch.x-1 wellbores. Through these re-entries, Madalena plans to test an estimated 200 meter thick tight Mulichinco sand liquids-rich gas play and an estimated 225 meter thick oil zone in the Lower Agrio shale (which is a second emerging unconventional shale play in Argentina). In response to offsetting industry activity, Madalena is also evaluating the Vaca Muerta shale across the block.
To accelerate exploration and development activities on the block, the Company continues to assess different opportunities with RBC Capital Markets ("RBC"), Madalena's exclusive advisor related to its Neuquén basin assets, in respect of a possible joint venture partnership or other transaction.
Cortadera Block
On January 15, 2014, the Corporation announced that, on the Cortadera Block, the joint venture partnership consisting of Apache Corporation, Gas y Petroleo del Neuquén SA and Madalena had signed an amended contract agreement to formalize a multi-year extension of the initial exploration period and inclusion of subsequent exploration periods. Subsequent to that agreement and following an application and approval process, the first exploration period for Cortadera was extended by way of an official decree which was signed by the Province of Neuquén in Argentina. This extension provides the partnership until October 26, 2014to satisfy the remaining work commitments on the block, which involves an upcoming re-entry of the CorS.x-1 well. Under the amended agreement, and subsequent to conducting the upcoming re-entry work, the partnership at Cortadera has the option to enter into a second exploration period extending to October 25, 2018and a third exploration period extending to October 25, 2021, or extend the Cortadera Block through potential further evaluation and/or exploitation phases.
Madalena and its new block partner YPF S.A. (acquired through YPF's recent purchase of the Apache subsidiary in Argentina) plan to re-enter the previously drilled CorS.x-1 Vaca Muerta test well to evaluate the uphole Mulichinco tight sand play (or other zone of interest). Madalena expects that its share of any costs for the work performed will not be significant due to YPF's continued earning obligations which include carrying Madalena for the majority of the anticipated costs.
DOMESTIC OPERATIONS - _Greater Paddle River Area, Alberta,__Canada_
Domestically, Madalena's core area of operations is located in the greater Paddle River area, where the Company holds approximately 196 gross (154 net) sections of land (approximately 78% average working interest) in west-central Albertathat support light oil and liquids-rich gas resource plays. Madalena entered the domestic E&P space in November, 2012 and executed horizontal drilling activity in 2013 with a focus of bringing increased production and cash flow into the company.