Continued innovation of our well design, driving costs lower, while maintaining full ownership and control of our infrastructure are both paramount in our continued effort toward top decile capital and cash generating efficiencies.


The commodity price environment continues to be very challenging with West Texas Intermediate (“WTI”) crude oil prices averaging US $42.17 per barrel during the fourth quarter of 2015, down 42 percent from the comparative quarter of the previous year. Average WTI crude oil prices for the year were down 48 percent compared to the previous year. NYMEX natural gas prices averaged US $2.24 per mmbtu in the fourth quarter, down 42 percent from the comparative quarter of 2014. NYMEX natural gas prices averaged US $2.63 per mmbtu in 2015, down 38 percent from the previous year.

Delphi’s commodity price risk management program continues to be an integral part of its financial strategy to protect funds from operations during periods of price volatility. Despite the drop in crude oil prices, the Company received $65.06 per barrel for its condensate production in the fourth quarter of 2015, including a realized risk management gain of $18.01 per barrel for maturing contracts in the period. Delphi’s realized natural gas price for the fourth quarter of 2015 was $5.60 per mcf, an increase of 51 percent from the comparative period of 2014. The Company’s realized natural gas price was positively influenced by its risk management program and includes a gain of $0.91 per mcf for maturing contracts in the period and $1.85 per mcf on the unwinding of certain natural gas risk management contracts for the period January 1, 2017 to December 31, 2019.

Production volumes in the fourth quarter of 2015 averaged 8,814 boe/d, a 27 percent decrease over the comparative quarter in 2014. Production volumes primarily decreased due to the disposition of the Company’s Wapiti assets in the third quarter of 2015 and the disposition of its Greater Hythe assets in the fourth quarter of 2015. Delphi commenced shipping the majority of its natural gas production into the Chicago market, effective December 1, 2015, through its Alliance pipeline full path firm service agreement. Natural declines and disposition volumes were partially offset by the start-up of two gross (1.8 net) Montney wells which were brought on production in the fourth quarter.

Delphi’s field condensate weighting as a percentage of fourth quarter of 2015 production volumes increased to 18 percent, up 29 percent, from 14 percent in the comparative quarter of 2014. The Company’s Montney natural gas liquids and field condensate yields increased to 97 barrels per million cubic feet in 2015, up from 95 bbls/mmcf in 2014. Field and plant condensate yield averaged 65 bbls/mmcf or 67 percent of the total 97 bbls/mmcf.

Funds from operations in the fourth quarter of 2015 were $13.3 million or $0.09 per basic and diluted share, compared to $15.9 million or $0.10 per basic and diluted share in the comparative quarter of 2014. The decrease in funds from operations in the fourth quarter of 2015 as compared to the same quarter in 2014 is primarily due to lower production volumes partially offset by a higher cash netback for the quarter. Delphi’s cash netback increased 15 percent in the fourth quarter of 2015, to $16.41 per boe versus $14.33 per boe in the comparative quarter of 2014. The increase in the cash netback is due to higher realized revenue of $3.34 per boe (a ten percent increase) from the gains on the realization of risk management contracts and lower operating costs of $1.78 per boe (19 percent decrease) partially offset by higher costs for G&A of $1.44 per boe (203 percent increase), which includes $1.07 per boe for termination costs related to staff reductions and transportation costs of $1.65 per boe (50 percent increase). The reduction in operating costs is largely as a result of the major property dispositions completed during 2015. The increase in transportation costs is partially due to the shipping of the Company’s natural gas production through the Alliance pipeline to Chicago, effective December 1.

During the fourth quarter of 2015, Delphi invested $16.2 million primarily on drilling and completions. Delphi drilled two gross (1.7 net) wells and performed completion operations on two gross (1.8 net) wells in its Bigstone area. The Company also completed its water disposal facility which was commissioned in October. In the fourth quarter, the Company closed the disposition of its Greater Hythe assets for net proceeds of $11.4 million. In addition, Delphi received proceeds of $4.6 million in exchange for a gross overriding royalty on two gross wells completed during the quarter as part of its latest five well gross overriding royalty arrangement.

At December 31, 2015, the Company had $94.2 million outstanding in the form of bankers’ acceptances under its senior credit facility, $14.0 million outstanding under its subordinated credit facility and a working capital deficiency of $13.5 million for net debt of $121.7 million and was in compliance with all covenants of the credit facilities. Total net debt has decreased by $52.0 million from $173.7 million at the end of the previous year, primarily from the disposition of the Company’s Wapiti and Greater Hythe assets for net proceeds of $60.2 million. At December 31, 2015, the Company’s net debt to funds from operations ratio was 2.3:1.

On December 1, 2015, Delphi began delivering the majority of its natural gas production on its Alliance pipeline firm capacity into the Chicago market rather than the AECO market. Well in advance of commencement of these deliveries, the Company continued execution of its successful risk management strategy to protect its revenue stream into the Chicago market through NYMEX, Chicago basis and Cdn/US foreign exchange rate contracts. As a result, the Company is protected through 2016 with approximately 75 percent of its natural gas production hedged at an average price of Cdn. $4.43 per mcf (excluding transportation costs). For 2017, the Company has approximately 50 percent of its natural gas production contracted at an average price of Cdn $4.24 per mcf (excluding transportation costs). Delphi also has approximately 43 percent of its condensate volumes contracted at a floor price of $76.49 per barrel.

Delphi continues to navigate this very challenging low commodity price environment with a singular focus on its core Bigstone Montney asset. This focused effort is successfully improving foundational cash generating efficiencies that will be more fully recognized as the rate of capitalization and production growth accelerates into the recovery phase of this commodity price cycle.

The Company continues to manage its production volumes in the context of its risk management program, contracted processing and transportation arrangements and new well “slow-back” production practices. Delphi expects the first quarter 2016 production to average approximately 8,400 boe/d (65 percent natural gas), with current production capability estimated at approximately 9,300 boe/d.

Continued innovation of our well design, driving costs lower, while maintaining full ownership and control of our infrastructure are both paramount in our continued effort toward top decile capital and cash generating efficiencies. Generating margin growth trumps production growth in the current environment. The Company’s significant risk management position through 2016 and 2017, protects both the equity account and the balance sheet, while contributing to a meaningful capital program of four to five wells in 2016. Delphi’s significant drilling inventory is immediately accessible to deliver production growth into a strengthening commodity price environment.

On behalf of the Board of Directors and all the employees of Delphi, we would like to thank our shareholders for their continued support.

David J. Reid,
President and Chief Executive Officer
March 15, 2016