TORC Oil & Gas Ltd. announced on Dec. 12 the company’s board of directors has approved a 2018 capital budget of $165 million.
TORC’s capital program in 2018 is focused on light oil development projects, with the majority of the capital directed to drilling, completions and tie-ins (over 80 per cent), and the remainder allocated to operational and facility optimization to maximize production efficiency. The capital program is concentrated on the company’s primary core areas in southeast Saskatchewan, focused on both conventional and unconventional opportunities, along with the Cardium play in central Alberta.
TORC’s asset base in southeast Saskatchewan is comprised of both conventional assets and unconventional light oil resource plays. TORC’s primary focus on the conventional asset base is to maintain production and maximize free cash flow through the efficient exploitation of identified conventional light oil pools. TORC’s unconventional light oil resource plays provide current and future organic growth opportunities for the company.
In 2018, TORC plans to drill 44 gross (37.2 net) conventional wells. With more than 400 net undrilled conventional locations identified, the 2018 budget represents less than 10 per cent of TORC’s conventional development locations. These locations are characterized by their lower risk nature and high rates of return driven by their lower capital costs, high netbacks and the attractive royalty regime in Saskatchewan. Southeast Saskatchewan conventional activity will comprise approximately 30 per cent of the company’s 2018 drilling, completion and tie-in capital budget.
On the company’s unconventional asset base in southeast Saskatchewan, TORC has been active on the Torquay/Three Forks light oil resource play. During 2017, TORC executed on a development program drilling 13 gross (10.0 net) successful wells in the play. Based on the company’s results from this program, TORC will continue to increase capital allocated to this resource play with plans to drill 17 gross (13.5 net) wells during 2018 representing less than 10 per cent of the 150 net identified Torquay/Three Forks development locations on the Company’s land base. The Torquay/Three Forks activity in southeast Saskatchewan will comprise approximately 30 per cent of the 2018 drilling, completion and tie-in capital budget.
TORC has also established prospective land positions in a number of areas that have the potential for unconventional Midale exploitation. Based on detailed technical analysis, as well as competitor offset well results, TORC has been active on the emerging unconventional Midale light oil resource play in the fourth quarter of 2017 drilling six gross (4.6 net) wells. TORC plans to increase capital allocated to this light oil resource play in 2018 with plans to drill 12 gross (11.0 net) wells spread across the company’s land position for both the development and further delineation of this play.
Together, the conventional and unconventional southeast Saskatchewan capital allocation represents approximately 77 per cent of the overall drilling, completion and tie-in capital budget during 2018.
In 2018, TORC plans to drill 12 gross (10.5 net) wells across the company’s land position in the Cardium to maintain production. With a decline profile of less than 25 per cent, the Cardium play continues to generate substantial free flow in the current commodity price environment supporting the sustainability and repeatability of the company’s business objectives.
TORC has currently identified over 290 net light oil focused development locations on the company’s asset base for future growth. TORC’s development plans for the Cardium represents approximately 23 per cent of the drilling, completion and tie-in activity in 2018.
During the fourth quarter of 2017, TORC completed three asset acquisitions along with two minor non-core asset dispositions. The net production addition was 900 barrels of oil equivalent per day (boepd) (greater than 90 per cent light oil and liquids) for aggregate consideration comprised of the issuance of 5.8 million TORC common shares and $25 million in cash.
The majority of the acquired assets are located in TORC’s core operating area in southeast Saskatchewan and include high quality inventory of both conventional (26 net) and unconventional (32 net) locations. The acquired assets also included a strategic top-up acquisition in the Cardium play. Year to date, TORC has replaced more than 100 per cent of the 2017 drill program in both southeast Saskatchewan and in the Cardium play through strategic acquisitions.
With TORC’s strong performance of the Company’s underlying production base, continued drilling success along with the recent net acquisition activity, TORC is increasing 2017 average production guidance to 20,800 boepd (88 per cent light oil & liquids) from 20,600 boepd and exit guidance to 22,500 boepd (87 per cent light oil & liquids) from 21,500 boepd.
TORC anticipates that the $165 million 2018 capital budget will result in 2018 average production of 23,000 boepd (87 per cent light oil & liquids) and exit production of 23,800 boepd (87 per cent light oil and liquids) while continuing to maintain a decline profile below 25 per cent.