Compton Petroleum Corporation Announces its Capital Program and Plans for 2007admin
Compton Expects 2007 Production Growth of 11% to 14% on $375 Million Capital Investment Program
2007 Program Highlights:
”¢ $375 million capital investment program ”¢ 330 well drilling program ”¢ Expected average production of 37,000 to 38,000 boe/d ”¢ Projected operating cash flow of $310 to $320 million
”¢ Emphasis on organic growth and disciplined capital spending
Building on Success
During 2006, Compton achieved a drilling success rate in excess of 90% and advanced the development of its core properties in all areas of operations. Compton’s objectives for 2007 build upon this success by remaining focused on the development of its unconventional natural gas resource plays and conventional light oil play. Activities for 2007 include a 330 well drilling program and capital spending of $375 million.
”We have been building Compton for the long-term”, said Ernie Sapieha, President and CEO. ”We are committed to our strategy of delivering growth through the drill bit. We have accumulated a very extensive land base and identified four natural gas resource plays on these lands. Over the last few years, our drilling programs have been designed to delineate the extent of these plays, determine their resource potential, and prove our technical models and capital requirements. We have come a long way in this regard and three of these resource plays are now largely defined and understood. Our consistent reserve growth, at competitive costs, clearly demonstrates the value being created through the development of these plays and we believe we are now in position to realize on this value through production growth. Our 2007 plans have been developed with this strategy in mind.
In 2007, Compton will concentrate on development drilling and an acceleration of onstream timing with the view to production growth. At the same time, increased emphasis will be placed on capital discipline. During periods of high industry activity and continued high inflation, Compton believes it is prudent to move forward with a moderate capital spending program while completing its resource delineation phase. This should place the Company in an excellent position to realize on its reserve base in 2008 and beyond through accelerated production.
In response to lower commodity prices and a continuing high cost environment, industry activity in western Canada, and particularly natural gas related activity, has slowed appreciably with a number of companies announcing reduced 2007 capital expenditure programs. Compton expects this reduction in activity will result in lower service costs as the demand for goods and services lessens, particularly subsequent to the 2007 winter drilling season. Compton has budgeted 2007 capital expenditures based upon 2006 historical costs and the Company’s capital program is weighted towards the second half of 2007 to take advantage of expected reduced costs. With an actively managed superior asset base, the Company is in an excellent position to benefit from declining finding and development costs resulting from reduced industry activity. One hundred and ninety wells are planned for the second half of 2007, and 140 are wells planned for the first half.
Compton believes that the significant reduction in natural gas drilling and completions will impact production from the Western Canada Sedimentary Basin. At the same time, the demand for natural gas in Alberta is increasing, largely driven by increased oil sands activity. As a result, Compton expects natural gas prices to strengthen in the second half of 2007. Although the Company is bullish on the longer term outlook for natural gas, the 2007 capital program is based on conservative pricing, while planning for accelerated activity in the latter part of 2007 and beyond.
Positive Regulatory Pronouncements
The Alberta Energy and Utilities Board (EUB), the industry regulatory authority in Alberta, brought forward two important initiatives in 2006 relating to down-spacing and commingling of production from two or more producing zones. These new regulations will be of significant benefit to Compton as they will facilitate a more cost efficient development of the Company’s reserves, particularly its Belly River/Edmonton Horseshoe Canyon shallow gas play in southern Alberta.
2007 Capital and Drilling Program
The Company plans to drill 330 wells during the year, consistent with the number of wells drilled in 2006, notwithstanding that, total 2007 budgeted expenditures of $375 million represent a decrease of approximately $100 million from projected 2006 capital spending The reduction in 2007 spending levels from that of the prior year relate to reduced spending on facilities and equipment and land and seismic. The Company has previously made significant investments in these areas that will benefit results in 2007 and beyond. Drilling and completion costs are budgeted at $242 million, a decrease of approximately $50 million from 2006. The Company plans to drill more lower cost shallow gas wells than last year, and the efficiencies associated with grouped drilling, down-spacing, and reduced exploratory drilling will result in capital spending efficiencies and consistent finding and development costs.
Historically, Compton’s three year average finding, development, and acquisition ( FD&A ) costs, on a proved plus probable basis, including future capital, have been $13.35 per boe ( $2.22 per mcfe). The Company expects the 2007 capital program will result in FD&A costs in the $12.00 to $13.00 per boe range ($2.00 to $2.17 per mcfe).
Compton’s 2007 capital investment program is outlined by category as follows:
2007 Capital Expenditures ($ millions) All currency quoted in Canadian dollars, unless otherwise noted
By Catagory Drilling & Completions: $242 Land & Seismic: 40 Facilities & Equipment: 93
By Area Southern Alberta: $220 Central Alberta: 108 Peace River Arch: 40 Other: 7
Drilling by Area, Gross Well Count Southern Alberta: 236 Central Alberta: 39 Peace River Arch: 21 Other: 34
Compton’s focus properties are all economically sound in today s range of fluctuating commodity prices. Building on drilling success in all core areas, the Company currently plans to focus on its four natural gas resources plays and its conventional light oil play in the Peace River Arch.
In the Plains Belly River/Edmonton group, the Company has budgeted approximately 215 drill wells. In select areas, drilling is planned in groups of 20 to 40 wells to capitalize on down-spacing and associated cost efficiencies. Low pressure gathering and compression facilities are largely in place in the areas and should assist in reduced onstream times. It is the Company s intent that production from these multi-zone wells will be commingled for optimal production results.
Compton is currently planning to drill 19 Basal Quartz wells in the Hooker area during 2007. The majority of these wells are planned for the second half of 2007, on in-fill locations, once down-spacing is approved by the Company s industry partner.
At Callum, we are pursuing an exploratory thrusted Belly River play. Two wells are presently budgeted for 2007. Activities in the area will be increased once regulatory well licensing issues are resolved.
Drill results during 2006 in the Niton area in central Alberta have largely exceeded expectations and the Company plans to drill 39 wells in the area, all primarily targeting deep basin gas.
In the Peace River Arch, where Compton has a conventional light oil play, the Company plans to accelerate its horizontal drilling program, particularly in the first quarter of 2007. Approximately 21 wells are planned at Cecil and Worsley in 2007.
Production, Cash Flow, and Pricing
Average production for 2007 is expected to be in the range of 37,000 to 38,000 boe/d, an increase of 11% to 14% over estimated average 2006 production levels. Operating cash flow is projected to be in the range of $310 to $320 million, based on budgeted average realized natural gas prices of $7.50/mcf and realized crude oil prices of $60.00/bbl.