Bronco Underscores Canadian Operations, Issues Liquidity Update
Bronco Energy has provided the following operational and corporate updates.
In spite of the lower production that resulted from extreme cold weather limitations during the last two weeks of December 2008, management is pleased to report that sales volumes were 30% higher on a boepd basis in December 2008 than for November 2008. For January 2009, average sales volumes were slightly off the level achieved in December 2008 as a result of reduced production from January 13 to 16, when the Free Water Knockout ("FWKO") was taken out of service for preventative maintenance. For the 14 day period after the FWKO was returned to full operation, sales volumes averaged 1905 boepd. Management expects continued growth in production, with only maintenance capital expenditures, for the remainder of the first quarter 2009.
We have 68 horizontal wells, of which 58 are ready for production and 46 are currently producing. The ten wells that are not yet tied-in have been completed and equipped with production equipment and surface facilities, but still require additional electrical expenditures, to make these wells ready for production. In order to preserve capital, we have deferred expenditures to tie-in these ten wells until our facility has the capacity to accept additional production.
Of the 46 wells that are currently producing, a majority of the oil is being produced by 23 wells. These 23 wells have transitioned, or are in the process of transitioning, from higher to lower water cuts and have current oil test rates ranging from 30 bopd to 250 bopd. Based on management's experience to-date, we still expect average single well production to be approximately 100 bopd for the first year after transitioning from higher to lower water cuts.
Our current fluid handling constraint is water disposal facilities. This is expected to affect us most significantly during the current time when a majority of our producing wells have not transitioned from higher to lower water cuts. As the wells transition from higher to lower water cuts, the total water drawn from the wells will reduce, freeing water handling capacity and permitting additional wells that are already tied-in to be put on production with little or no additional capital expenditure.
During the fourth quarter of 2008, lower than anticipated commodity prices, combined with higher than expected heavy oil differentials as well as operating and capital costs incurred, have cumulatively resulted in an estimated unaudited working capital deficit of $16.5 million as of December 31, 2008, which includes $6 million drawn on our $20 million credit facility. As of the date of this news release, $10 million has been drawn on our credit facility. In addition, there is a $2 million letter of credit against our credit facility.
Although improvements were realized through escalating production volumes that provided lower per unit operating costs, the significant erosion in commodity prices resulted in negative operating netbacks during the fourth quarter of 2008. Condensate blending volumes were also reduced in the fourth quarter, and currently comprise approximately 25% of blended sales oil. Bronco's realized weighted average blend price was Cdn $37.30 per barrel in the fourth quarter of 2008. The current WTI forward curve indicates higher commodity prices during the second half of 2009. This, in combination with narrower heavy oil differentials that traditionally occur during the summer paving season, is expected to result in a higher per unit price for our oil. With the expected gradual increases in production volumes, our fixed costs per unit of production are expected to continue to fall. The combination of these expected movements in production volumes and achieved prices is expected to move our netbacks toward positive levels. Bronco Drilling Rig #1 has been working for a third party since January 3, 2009 and is generating positive net working capital.
We have suspended all capital expenditures related to drilling, the second treater, additional tie-ins, and the polymer enhanced recovery project until such expenditures can be supported by a combination of production, commodity price levels and available financial resources. Bronco's planned capital expenditures for the first half of 2009 consist primarily of well workovers and pump changes that may be required to maintain and optimize production from currently producing and additional tied-in wells. Although the second treater installation has been suspended, an additional construction amount of approximately $0.4 million will come due in the first quarter of 2009. We have no current financial commitments related to the polymer project.
Management is working diligently to improve Bronco's financial flexibility in order to weather the current low commodity price environment. Based on the operating deficits and capital requirements indicated above, Bronco will require additional working capital beyond its current $20 million credit facility. Management is working to generate additional near term working capital through the potential liquidation of its recently restructured Asset Backed Commercial Paper ("ABCP") and the sale of certain other non-core assets. Additional financial flexibility will also be sought through a possible increase in our lending facility based on the upcoming 2008 year-end reserve report.
Bronco advises that the restructuring plan affecting its ABCP that has been frozen since August 2007 has been implemented, and Bronco has received its restructured notes along with an arrears interest payment of $245,991. Bronco's ABCP investment had a face value of $6.94 million, and had an estimated fair value of $3.3 million based on assumptions outlined in the notes to our 2008 third quarter financial statements.
Bronco President & CEO, Mr. Brian Alford, commented, "While operating in this low commodity price environment, our current strategy is to improve our financial flexibility. To achieve this goal, we plan to increase production through well optimizations, lower per unit operating costs, limit capital spending, monetize certain non-core assets and to maximize available credit capacity with lending institutions. The majority of Bronco's 2008 capital program was spent on developing the East portion of the Bigstone Cree Nation Reserve oilfield. Bronco is unique from its peers in that it has the opportunity to grow its production base from existing unoptimized wells with modest capital expenditures."
- Bronco Underscores Canadian Operations, Issues Liquidity Update (Feb 05)
- Bronco Cites Significant Increases in Wabiskaw Heavy Oil Production (Dec 01)
- Bronco Energy's Production Bucks Higher in August (Aug 14)