Business Description
New Standard’s December quarter activities were focused on the management of its commitments in a declining oil price environment, while judiciously advancing the Company’s development and production portfolio in its Atascosa Project. A targeted two well drilling campaign was successfully completed ahead of schedule and within budget expectations. Hydraulic fracturing of the two wells is planned to commence late in the first quarter of 2015. Hydraulic fracturing operations are being delayed as far as possible to minimise new production in the current low oil price environment and to manage New Standard’s capital commitments, while protecting our leases in line with minimum commitment requirements. The Company has been focused on the ongoing prudent management of its capital and has executed a range of internal initiatives to retain a sound financial position with a continued focus on overhead and cost reduction.
Portfolio and activities overview
Atascosa Project, Eagle Ford, Texas, USA The Company’s Atascosa Project has continued to be the focus for its operational activity during the quarter. New Standard added to its existing Eagle Ford well portfolio with an additional two wells, Peeler Ranch-7H and Lagunillas Camp-3H, taking the total wells on the acreage to nine (seven are in production). Production from the seven wells averaged 400 Boepd during the quarter with a significant proportion of that hedged at prices well above the current market price. Peeler Ranch-7H was completed on 12 November and reached a total depth (TD) of 4,603 metres with a total vertical depth (TVD) of 2,950 metres. Lagunillas Camp-3H was completed on Wednesday 10 December reaching a TD of 4,312 metres with TVD of 2,593 metres. The laterals for both wells were successfully drilled centrally within the target zones. The wells were drilled much quicker than planned which resulted in actual costs being lower than planned. Both wells were drilled and designed to be completed as Type III wells, which are based on attractive offset wells by other operators that use longer laterals and higher proppant concentrations during hydraulic fracture stimulation to target significant increases in Initial Production rates and Estimated Ultimate Recovery. At this stage, preliminary plans indicate the Peeler Ranch-7H will undergo 21-22 frac stages while the Lagunillas Camp-3H will undergo 23-24 frac stages. As previously advised, in response to the decline in global oil prices hydraulic fracturing operations have been intentionally delayed, and are now scheduled to commence late in first quarter 2015. Hydraulic fracturing and completion costs for wells have fallen dramatically over recent months and continue to fall, with reductions as much as 25-40 per cent, and where possible the Company will be taking advantage of these reductions. Discussions and negotiations with lease holders remain ongoing as part of the Company’s focus of deferring and managing work commitments where appropriate. PEL 570 Project, Cooper Basin, South Australia During the quarter, New Standard reached agreement to divest a portion of its interest in PEL 570 to Santos and successfully closed the transaction. The divestment significantly reduces the Company’s exploration expenditure commitments while retaining exposure to the development of the large and prospective permit. New Standard retained a 17.5 per cent working interest in PEL 570 in return for the cash consideration of $7.5 million, with Santos committing to 75 per cent of the remaining New Standard earn-in obligations of $42.2 million. This left New Standard with an effective net commitment, allowing for the cash consideration received, of around $3.05 million, while retaining a meaningful 17.5 per cent working interest in this highly prospective permit.
The transaction completed during the period having met all statutory and regulatory government approvals and the following permit interests are now held in PEL 570.
Interests in ASX and NYSE Stocks:
New Standard has an 11.8% equity interest in ASX listed Elixir Petroleum (ASX: EXR) and has formed a strategic alliance with Magnum Hunter Resources Corporation (NYSE: MHR) to deliver expertise and corporate growth. New Standard is also continuing to actively asses other opportunities to complement and expand its exploration portfolio. New Standard benefits from a strategic alliance with its major shareholder, the US-based Magnum Hunter Resources Corporation (NYSE: MHR), to efficiently develop the Atascosa Project in the Eagle Ford; to develop the Cooper Basin; and to explore in the Canning and Carnarvon Basins.
The Company’s portfolio includes:
Atascosa Project, Texas, US
? Production for the quarter averaged 400 barrels of oil equivalent per day (Boepd) across seven wells
? Limiting impact of recent declines in global oil prices through capital management and hedging
program
o Put options cover 80 per cent of current production until November 2016 and provide a
weighted average minimum price of US$78/barrel.
? Completed drilling activities at Peeler Ranch-7H and Lagunillas Camp-3H on time and within budget
o Wells currently awaiting hydraulic fracture stimulation
? Working with landowners to restructure retention commitments to defer operations where possible
Cooper Basin (PEL 570), South Australia
? Secured Santos Ltd (Santos) as joint venture partner alongside Drillsearch Energy Ltd (Drillsearch)
o Consideration of A$7.5 million cash has been received and Santos has agreed to fund 75 per
cent of earn-in commitments in return for a 35 per cent interest in PEL570
o New Standard has retained a 17.5 per cent working interest and Santos has become operator
Western Australian assets
? Miro Advisors commenced a formal process for the farm-out of all Western Australian exploration
acreage
Corporate
? Cash position of $7.4 million at 31 December 2014
? Ongoing focus on expenditure management and overhead reduction
Texas, USA Atascosa Project ? Operated working interests ranging from 35.4% to 100% across 5,585 net acres in the Eagle Ford shale, onshore Texas Colorado Project ? 32.5% non-operated working interest ,Colorado County, onshore Texas South Australia Cooper Basin Project ? 17.5% non-operated interest in the PEL 570 acreage area, Cooper Basin, South Australia Western Australia Southern Canning Project ? 100% operated interest in exploration permits (EPs 443, 450, 451, 456), Southern Canning Basin, Western Australia ? 100% operated interest in exploration permit application areas (STP-EPA-006, STP-EPA-007 and STPEPA-010), Southern Canning Basin, Western Australia Laurel Project ? 100% operated interest in exploration permit EP 417, Northern Canning Basin, Western Australia ? 100% operated interest in exploration permit application areas (STP-EPA-0092 and STP-EPA-0109), Northern Canning Basin, Western Australia Merlinleigh Project ? 100% operated interest in exploration permits (EPs 481 and 482), onshore Carnarvon Basin, Western Australia In addition to the above portfolio.
Operated interest
Western Australian Projects Miro Advisors commenced a formal process for the farm-out of the Company’s Western Australian exploration acreage. The decision is in line with its strategy to eliminate major capital commitments and focus its primary efforts on growing the value of the remainder of its portfolio. Included in the farm-out process is the Merlinleigh Project, located in the onshore Carnarvon Basin, the Laurel Project and the Southern Canning Project, located in the Canning Basin. The farm-out offers potential farm-in parties significant exposure to large permit areas totalling 15.6 million acres (63,400km2) in three prospective basins and sub-basins. New Standard is seeking partners to fund the next stages of exploration in each of our projects so that New Standard has no significant funding commitments in these projects. The farm-out process is proceeding and a number of parties remain actively engaged in that process. New Standard continues to work closely alongside the Department of Mines and Petroleum to manage its expenditure commitments and maintain its permits in good standing in all areas.
Corporate and financial review
Financial position The Company ended the quarter with a cash position of approximately $7.4 million. Sales revenue net of royalties from the US operations for the quarter was $1.6 million. Further supplementing this cash position, subsequent to the end of the quarter New Standard received a Research and Development Tax Incentive refund of $1.9 million relating to the 2013/14 financial year. During the quarter the Company successfully applied for the trading of its securities to commence on the OTCQX market under the ticker code NWSTF.
The Company continues to prudently look at all options and opportunities to develop and manage its program and assets, particularly in the current challenging global environment, including discussions around partnerships, JV’s and asset acquisitions, sales or swaps. New Standard’s lenders have made available additional debt funding for operational needs in the current quarter if required and the Company’s hedging position on existing production is assisting protection of revenue in the current low oil price environment.
AND THIS IS JUST THE BEGINNING
Contact Information
Phil Thick
Managing Director
Ph: + 61 8 9481 7477
Email: pthick@newstandard.com.au
Cameron Morse
FTI Consulting
Ph: +61 8 9485 8888
Email: cameron.morse@fticonsulting.com