The following is a summary of Trilogy’s 2015 year end reserves and reserves value, as evaluated and reported by the independent engineering firm McDaniel & Associates Consultants. The reserves report has been prepared in accordance with National Instrument 51-101 definitions, standards and procedures.
Below are some highlights:
- Total proved reserves and total proved plus probable reserves at the end of 2015 were 94.9 MMBoe and 157.9 MMBoe, respectively (December 31, 2014 – 95.6 MMBoe and 139.8 MMBoe).
- Before tax NPV10 for total proved reserves and for total proved plus probable reserves at the end of 2015 were $779 million and $1,311 billion respectively based on McDaniel Associates & Consultants December 31, 2015 pricing forecast.
- Finding and development costs including future development capital were $20.13/Boe for total proved reserves and $14.09/Boe for total proved plus probable reserves.
- Reserves life index increased to 15.6 years for total proved plus probable reserves in 2015 as compared to 10.9 years in 2014.
- Replaced 144 percent of 2015 produced reserves when compared to total proved reserves additions and 370 percent when compared to total proved plus probable reserves addition.
Trilogy has dedicated substantial resources and capital to further its knowledge base in the Montney and Duvernay plays over the past number of years. Over the past year, industry has made significant progress improving drilling and completion techniques and reducing the associated costs. These advancements have enabled Trilogy the opportunity to generate and refine several production type curves for its land base, as well as other estimates including estimates for recoverable reserves, liquid ratios, infrastructure requirements and operating costs related to these plays. Accordingly, the continued advancements of Trilogy’s Montney and Duvernay resource plays has contributed to further derisking the plays and has afforded Trilogy the opportunity to book additional proved and probable undeveloped reserves in the Kaybob area.
The results of the 2015 year end reserves report is summarized in the table below (working interest reserves before royalty deductions):
(i) Reserve values were determined by McDaniel as of December 31, 2015, using the forward-pricing assumptions in effect by the firm for that date.
(ii) McDaniel evaluated 100 percent of Trilogy’s reserves.
(iii) No value has been assigned to tangible assets other than those associated with proved producing reserves.
Full commercial potential of the Duvernay shale is still considered by some to be in the preliminary stage in the Kaybob area, however, it is Trilogy’s belief that the de-risking of the Duvernay play in Kaybob South and Smoky River areas has progressed to the point that an initial development plan for the area was required.
It should be noted that while the proved undeveloped and the probable undeveloped reserves are planned to be exploited over the next five years, the fruition of such plans depends heavily on numerous factors, many of which may be outside the control of Trilogy, one important factor is the fluctuation of commodity prices which can affect the funding for these projects, causing them to be accelerated, deferred or cancelled. Changing technical and production factors can also affect the timely development of these projects.
The following table summarizes the future development capital Trilogy has included in the 2015 reserves evaluation for the next 5 years.
For 2015, total proved reserves and total proved plus probable reserves were revised upward by 1.3 MMBoe and downward 4.0 MMBoe respectively. The majority of the negative technical revision, approximately 2.9 MMBoe, was due to the termination of the Aux Sable Natural Gas Liquids Recovery Agreement as of November 30, 2015 and the current depressed liquids commodity price environment that did not permit the economics to enter into a similar arrangement thereafter.
Through 2015 Trilogy disposed of certain Dunvegan and Duvernay properties in the Kaybob area, accounting for a decrease of approximately 5.1 MMBoe of proved reserves and 9.2 MMBoe of proved plus probable reserves and 9 undeveloped net land sections for approximately $160.5 million.
Lower commodity prices at the end of 2015 resulted in negative adjustments to the reserve base of 5.7 MMBoe of proved reserves and 5.1 MMBoe of proved plus probable reserves.
The following table below summarizes the reserves reconciliation for 2015.
(i) Columns and rows may not add due to rounding
In the 2015 year end reserves, McDaniel used the following price forecast for the evaluation which was developed by them.
Finding and Development Costs
Since inception, Trilogy has successfully exploited many of the opportunities afforded by its land base. Its success rate reflects the high quality of the Company’s prospect inventory, its undeveloped land base and its producing asset base as well as the technical expertise of Trilogy’s staff. The reserve potential of these lands, both developed and undeveloped, is expected to continue to provide Trilogy with low cost reserve additions in the future.
For the year 2015, Trilogy spent approximately $75.7 million, net of $5.4 million in capital related to projects that were not evaluated as they were disposed of prior to year-end. Trilogy booked approximately 3.6 MMBoe and 4.8 MMBoe for total proved and for total proved plus probable reserves respectively. Based on the related capital spent during the year, Trilogy’s finding and development costs for the total proved reserves is $21.03/Boe and for the total proved plus probable reserves is $15.77/Boe.
Finding and development costs including future development capital for 2015 are reported to be $20.13/Boe for total proved reserves and $14.09/Boe for total proved plus probable reserves. Inclusive in the calculation of F&D is the increase in future development capital over the prior year ($218.2 and $452.1 million on a proved and proved plus probable basis respectively).
Finding and development costs for the past 3 years are shown in the table below.
When calculated over the three-year period ended December 31, 2015, F&D costs were $22.76/Boe for proven reserves and $18.17/Boe for proven plus probable reserves. Calculating finding and development costs over a longer period reduces the effect of spending capital in one year and booking reserves in the following year and reduces the impact of technical revisions.