Delphi continues to maintain a strong risk management program for the production of both its natural gas and natural gas liquids, primarily condensate produced in the field and extracted at the processing plants, to protect the Company’s cash flow. In the current low pricing environment, protecting the downside risk of volatile changes in the price of the Company’s production provides stability to cash flow and the flexibility of pursuing a minimum level of capital spending directed at the Montney in East Bigstone.
During 2014, Delphi increased the borrowing base of its credit facilities by $50 million to $190 million, providing the flexibility, in combination with a 67 percent growth in cash flow and additional proceeds of dispositions, to pursue a continuous drilling program throughout the entire year. While credit facilities are challenged in a lower commodity price environment, the production growth and strong operating netbacks of the Montney and the Company’s significant risk management program provide a solid foundation for the Company’s lenders.
recycle ratio (P+P)
Delphi’s capital efficiencies were excellent in 2014 as a result of significant growth in reserves and production on a capital program directed at development of the Montney at Bigstone. Annualized production increased by 28 percent to 10,549 boe/d in 2014, up from 8,241 in 2013 on the drilling of only eight wells during the year. Growth in reserves reflects the growth in production. Total proved reserves increased by 19 percent to 42.9 million boe and total proved plus probable reserves grew by 21 percent to 74.4 million boe compared to the previous year. The growth in total proved plus probable reserves resulted in a production replacement ratio of 4.3 times (including technical revisions and economic factors) on reserve additions of 16.6 million boe.
Finding, development and acquisition costs (“FD&A”), including changes in FDC, in 2014 were $12.12 per boe for total proved reserves and $10.35 per boe for total proved plus probable reserves. With an operating netback of $20.82 per boe in 2014, the Company’s recycle ratios for total proved and total proved plus probable reserves were 1.7 and 2.0, respectively.
Delphi remains well positioned with its Bigstone Montney asset, capable of long term sustainable growth with the large development inventory assembled on 139 sections of Montney lands, together with ownership in strategic infrastructure. The business strategies and initiatives in place serve to both mitigate the impacts of the current commodity price environment and enhance the Company’s long term growth plans.
The Bigstone Montney well performance over time and the resulting top tier capital efficiencies is proving to be a primary differentiating element in successfully navigating through this challenging commodity price cycle. Overall, average well performance continues to be consistent with our type well expectations. The Bigstone Montney play is a top tier play that remains economic in this low commodity price environment.
Efforts to further reduce capital, operating and transportation costs are proceeding and will further enhance the Company’s profitability through this environment. Processing arrangements and firm service transportation contracts undertaken provide certainty to field processing and delivery to sales without onerous future take-or-pay obligations. This has become a critically important strategic element to producer’s full cycle business as significant growth continues in the Deep Basin of northwest Alberta.
The Company remains committed to a conservative approach to its capital spending plans in 2015 to preserve its financial flexibility. Capital spending will be dependent upon realized commodity prices and level of service cost reductions.