CALGARY, June 28 /CNW/ - Compton Petroleum Corporation (TSX - CMT, NYSE -
CMZ) is pleased to provide an update of our operational plans for the second
half of 2006.
During regularly scheduled meetings held late last week, Management and
the Board of Directors reviewed the status of Compton's 2006 capital
expenditure and drilling programs in light of first half 2006 operating
results and current industry and world economic conditions.
On the operational front, Compton achieved considerable success during
the first half. We expect to drill approximately 190 wells during the first
six months of 2006. Our success rate on wells drilled to date is 90%. The
development of our natural gas resource and conventional crude oil plays has
advanced in all areas. Additionally, we are encouraged by recent regulatory
developments that will, when enacted, benefit the future development of our
shallow gas/CBM play. Despite our successes, Compton, and the industry as a
whole, is experiencing a number of challenges. These include:
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- the decline in natural gas prices and uncertainty as to future
prices,
- the current inflationary operating environment in the WCSB,
- industry wide shortage of qualified personnel,
- regulatory issues, and
- uncertainties relating to the direction of global economic
conditions.
>>
Meeting the Challenge
---------------------
Compton is in a strong position to meet these challenges. We have a solid
reserve and production base, an extensive land position, and have developed
our resource plays to the point where the majority are known commodities. They
are lower risk and economically viable at current or even lower commodity
prices. We have the benefit of a Management Team and Board of Directors who
have previously experienced similar conditions.
We have addressed these challenges and modified our short-term plans for
the remainder of 2006, giving full consideration to their impact and
implications for the longer term. Compton is well positioned and has a number
of available options to consider in meeting these challenges. Our corporate
debt is structured to provide Compton with financial flexibility. Seventy
percent of our existing debt is not due until 2013, and an expected additional
$300 million will be available under our soon to be expanded bank credit
facilities. We have a number of very liquid, quality non-core properties, the
capital from which, when sold, will be redeployed to assist in funding the
future development of our resource plays. We are not committed to any
significant long-term capital obligations or land expiry issues that would
prevent the adjustment of our capital programs as might be necessary.
We have revised our 2006 plans in a manner that we believe is prudent and
fiscally responsible while at the same time positioning Compton for the future
with the continued development of our resource plays.
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2006 Operational Plan Objectives
--------------------------------
- The continued efficient development of our resource plays to achieve
reserve and production growth,
- Maintaining a prudent debt level and financial flexibility,
- Maximizing well economics and controlling costs,
- Increased focus on core natural gas resource plays, and
- Positioning Compton for continuing growth in 2007 and beyond.
>>
2006 Revised Capital Program
----------------------------
Our initial 2006 capital program was budgeted at $575 million. We have
now reduced planned 2006 expenditures by approximately $110 million to $465
million, before minor acquisitions and planned dispositions. The majority of
this change results from a reduction in drilling and completion costs relating
to our shallow gas program in Southern Alberta and our crude oil operations at
Worsley. These changes address a number of operational efficiencies in
combination with reduced budgeted cash flow resulting from lower gas prices.
Budgeted facility costs have largely remained unchanged in anticipation of
accelerated drill programs in 2007.
We now plan to drill 360 to 380 wells during 2006. In addition to the
specific considerations outlined below, we have recognized the impact of
current lower commodity prices on overall well economics. This is particularly
relevant to tight gas wells which experience high initial production rates. A
delay in placing such wells on-stream until higher prices are realized
significantly improves their return. A $5.00/mcf difference in realized gas
prices can impact the return on a typical shallow gas well with a cost of
$550,000 by as much as $120,000 during the first six months of production. The
natural gas forward price curve would indicate a return to higher prices by
year end. Future price certainty can be achieved through an expanded hedging
program.
Since our first quarter 2006 report to shareholders in May, we have
entered into hedge contracts for 20,000 gjs/day of natural gas, for the period
from November 1, 2006 to March 31, 2007, on a costless collar basis, with
average floor and ceiling prices of $8.25/gj and $11.00/gj respectively. These
contracts are in addition to those outlined in our first quarter report. We
continue to monitor the market closely for opportunities to expand this
position.
The current operating cost structure in the WCSB has also been recognized
in our revised plans. The industry continues to operate at maximum capacity
with the inherent inefficiencies and cost pressures. The normally expected
reduction in service costs subsequent to the winter drilling season and
break-up has not, as yet, materialized. We expect this situation to improve.
Recently, in reaction to lower gas prices and volatile capital market
conditions, companies have begun to reduce their capital programs. These
factors should begin to reduce industry activity and cost pressures.
Major specific changes to our 2006 drilling programs are outlined below.
Edmonton (Horseshoe Canyon) and Plains Belly River
--------------------------------------------------
During the first half of 2006, the Alberta Energy and Utilities Board
("EUB"), the oil and gas regulatory body in Alberta, brought forward two
important initiatives that are significant developments for the efficient
exploitation of shallow gas, including coal bed methane.
The first initiative, when enacted, will allow for higher baseline well
densities (four wells per section spacing versus the current one well per
section spacing) in the Belly River and Edmonton Groups. This revision will
remove the onerous and time-consuming application process for reduced spacing
over the majority of our Southern Alberta shallow gas land base. Reduced
spacing is critical in the development of tight gas reservoirs that
economically require greater well density. Current expectations are that this
initiative will be in place by early fall.
Secondly, in May, the EUB released a draft initiative for comment
relating to commingling of gas production from sands, silts, shales, and coals
in both the Edmonton and Belly River Groups. Currently, commingled production
from these zones requires a lengthy application process. We are hopeful this
initiative will be in place before year end.
In light of these progressive initiatives by the EUB and other
operational considerations as discussed, we have elected to revise Compton's
shallow gas drilling program to:
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- Defer drilling 70 previously planned Belly River wells until 2007,
when spacing and commingling regulations have been finalized and
will allow for more efficient well bore use without regulatory
delays.
- Increase our Edmonton (Horseshoe Canyon) CBM drilling program by 20
wells in a planned assessment of this important resource that exists
over much of our Southern Alberta acreage. Completion of this
program is designed to further define the potential and allow us to
book reserves to this resource.
>>
The deferment of a portion of our Belly River program will allow us the
time to design focused and efficient development drilling programs for
commingled production from the combined Edmonton and Belly River Groups with
certainty from a regulatory perspective. The combined Edmonton / Belly River
Groups comprise approximately 700 meters of gas charged sands, silts, shales,
and coals. Increasingly this combination is being recognized as a single
resource play with contribution from all zones.
Worsley
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As a result of the successful expansion of our conventional oil play at
Worsley in the Peace River Arch and three successful horizontal test wells
drilled during the first half of 2006, we have revised our planned drilling
program for the area. We have reduced the program by approximately 60 wells
largely as a result of replacing previously planned vertical wells with
horizontal wells in certain areas of the pool. One horizontal well is expected
to replace three vertical wells at a cost saving of $1.2 million.
Callum
------
The Company's 2006 drilling program has now been set at five wells
following a recent positive decision by the EUB on two strategic well license
applications. Additional license applications are now before the EUB. The
drill program on this thrusted Belly River foothills play is designed to
provide significant additional information. We are working with all
stakeholders in the area and remain positive as to the potential of this
unique exploration play.
Niton
-----
Results at Niton in Central Alberta have continued to exceed our
expectations. Following on successful wells drilled during the first six
months of 2006, we now plan to drill a total of 39 wells in the area, an
increase of 7 wells over the number initially planned for 2006.
Plan Highlights
---------------
The revisions to our 2006 operating plans are summarized in the following
schedules and are projected to result in 2005 to 2006 year over year average
production growth of approximately 15% to 19%. Our plans include the
disposition of $100 million of non-core properties. Corporate debt at year-end
is projected to be approximately $660 million resulting in a debt to cash flow
ratio of approximately 2 to 1.
In addition to the $100 million of minor property dispositions planned
during the second half of 2006, given strong crude oil prices, we are
considering the possible sale of certain of our major conventional oil
properties. Any such sale would be in conjunction with a plan to quickly and
efficiently redeploy the capital, from the sale, consistent with our overall
natural gas resource play strategy. Such a redeployment of capital would also
allow us to focus completely on this strategy. Our plans in this regard will
be announced when finalized.
Plan Revisions
--------------
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2006 Original Budget 2006 Revised Budget
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Capital expenditures
($millions) $575 $465
Total planned drill wells 480 360 to 380
Average production, boe/d 37,000 to 38,000 34,000 to 35,000
Cash flow from operations
($millions) $375 to $400 $325 to $345
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The Company's revised projected cash flow from operations is based upon
the following pricing assumptions:
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Benchmark Realized
-------------------------------------------------------------------------
Natural Gas ($/gj) AECO Cdn $7.03 Cdn $6.95
Crude oil ($/bbl) WTI U.S. $69.40 Cdn $66.55
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The Company's cash flow sensitivities for the last six months of the year
are:
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($millions) Change to Operating Cash Flow
-------------------------------------------------------------------------
Change of Cdn $0.10 / Mcf in the benchmark AECO natural gas price $2.2
Change of U.S. $1.00 / barrel in the benchmark WTI oil price $1.5
-------------------------------------------------------------------------
>>
Summary
-------
We expect the second half of 2006 will see the resolution of a number of
factors that are currently affecting the North American energy industry. There
should be some clarification as to the direction of global economies, interest
rates, and the demand side of the natural gas equation in North America.
Certainly the impact of the summer heating and hurricane season on the current
high natural gas storage levels will be known. In western Canada, we believe a
number of the shortages in services will be resolved and proposed regulatory
initiatives will be finalized.
We have adopted a prudent operational plan for the second half of 2006
designed to see us through this period while continuing the development of our
resource plays and positioning Compton for continued future growth. Our plans
will provide us with the degree of financial flexibility necessary to pursue
opportunities in our core areas should they arise. The delay in our shallow
gas drilling program should improve the economics relating to new well
production. This reduced activity will also provide us with the time necessary
to more effectively plan cost efficient and accelerated 2007 programs.
We remain bullish on the longer term outlook for natural gas and the
value and viability of natural gas resource plays. Certainly, the recently
announced Anadarko/Kerr-McGee/Western Gas transaction, among others, would
appear to confirm this outlook. Our goal remains that of building a premier
natural gas focused company that will provide superior returns to our
shareholders. Our operational plans for the remainder of 2006 are consistent
with that goal.
Analysts Day
------------
In an effort to advise and actively engage investors in our future
development plans, we are planning two analyst days, one in Calgary and the
second in New York City, where senior executives will detail the Company's
growth strategy.
Further information will be announced once our plans are finalized.
Conference Call
---------------
Compton will be conducting a conference call and audio webcast Wednesday,
June 28, 2006 at 9:45 a.m. MDT, 11:45 a.m. EDT, to discuss the Company's 2006
revised budget and drilling program. To participate in the conference call,
please contact the Conference Operator at 9:35 a.m. MDT, ten minutes prior to
the call.
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Conference Operator Dial-in Number: Toll-Free 1-800-814-4853
Local Toronto: 1-416-644-3416
Audio webcast URL:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID(equal sign)1519540
>>
The audio replay will be available two hours after the conclusion of the
conference call and will be accessible until July 5, 2006. Callers may dial
toll-free 1-877-289-8525 and enter access code 21194647 (followed by the pound
key).
Forward-Looking Statements
--------------------------
Certain information regarding the Company contained herein constitutes
forward-looking statements under the meaning of applicable securities laws,
including the United States Private Securities Litigation Reform Act of 1995.
Forward-looking statements include estimates, plans, expectations, opinions,
forecasts, projections, guidance, or other statements that are not statements
of fact, including statements regarding (i) capital and operating expenditures
(ii) exploration, drilling, completion, and production matters and (iii) other
risks and uncertainties described from time to time in the reports and filings
made by Compton with securities regulatory authorities. Although Compton
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. There are many factors that could cause forward-looking
statements not to be correct, including risks and uncertainties inherent in
the Company's business. These risks include, but are not limited to: crude oil
and natural gas price volatility, exchange rate fluctuations, availability of
services and supplies, operating hazards, access difficulties and mechanical
failures, weather related issues, uncertainties in the estimates of reserves
and in projection of future rates of production and timing of development
expenditures, general economic conditions, and the actions or inactions of
third-party operators. Compton may, as considered necessary in the
circumstances, update or revise forward-looking information, whether as a
result of new information, future events, or otherwise. The Company's
forward-looking statements are expressly qualified in their entirety by this
cautionary statement.
Compton Petroleum Corporation is a Calgary-based public company actively
engaged in the exploration, development, and production of natural gas,
natural gas liquids, and crude oil in the Western Canada Sedimentary Basin.
Compton's shares are listed on the Toronto Stock Exchange under the symbol CMT
and on the New York Stock Exchange under the symbol CMZ.
%SEDAR: 00003803E %CIK: 0001043572
