Calgary 鈥� On March 15 Spartan Energy Corp. reported its financial and operating results for the fourth quarter and year ended December 31, 2017. The company announced it is looking at a share repurchase to bolster share value.
The company achieved record average production of 22,635 barrels of oil per day (boepd) (91 per cent oil and liquids), representing a 44 per cent increase (7 per cent per basic share) over the fourth quarter of 2016.
Year over year, Spartan achieved average production of 22,200 boepd (92 per cent oil and liquids), representing an 89 per cent increase (17 per cent per basic share) over 2016. The outperformance of Spartan鈥檚 drilling program led to the company increasing production guidance twice during the year while reducing our forecast development capital expenditures.
Spartan generated adjusted funds flow from operations of $64.5 million ($0.37 per basic share and $0.35 per diluted share), representing an increase of 96 per cent (48 per cent per basic share) over the fourth quarter of 2016 and an increase of 57 per cent over the third quarter of 2017 (61 per cent per basic share). It generated excess adjusted funds flow from operations of $28.7 million, as the company spent $35.8 million in total development capital expenditures (capital expenditures exclusive of land, seismic, waterflood capital and acquisitions) in the fourth quarter of 2017.
On an annual basis, generated adjusted funds flow from operations of $200.7 million ($1.14 per basic share and $1.09 per diluted share), representing an increase of 162 per cent (61 per cent per basic share) over 2016. It delivered excess adjusted funds flow from operations of approximately $60.2 million, as the company spent $140.5 million in total development capital expenditures during the year.
The company reduced operating and transportation expenses to $16.02 per boe, a decrease of 11 per cent from the fourth quarter of 2016 and a decrease of 7 per cent from the third quarter of 2017. 路 Reduced net general and administrative expenses to $0.80 per boe, a 35 per cent decrease from the fourth quarter of 2016. For the year, Spartan reduced its net general and administrative expenses to $1.01 per boe, a 40 per cent decrease from 2016.
Spartan drilled 36 (32.5 net) development wells and brought 46 (39.0 net) wells on production in the fourth quarter of 2017. For the whole year, Spartan drilled 141 (117.0 net) development wells and brought 139 (115.5 net) wells on production in 2017.
They completed the acquisition of certain oil and gas assets in southeast Saskatchewan for total consideration, net of closing adjustments, of $22.7 million. The acquisition added approximately 250 boepd of low decline production and 45 net open-hole drilling locations in the company鈥檚 core Winmore area where wells drilled to date have significantly outperformed Spartan鈥檚 internal open-hole type curve.
Over the course of 2017, Spartan invested a portion of its excess funds flow in projects designed to generate long term shareholder value, spending $27.4 million on four strategic acquisitions, $3.2 million on waterflood initiatives and $9.2 million on land and seismic.
Operations
Spartan has had an active first quarter in the field, with five drilling rigs operating in southeast Saskatchewan and an additional rig drilling on its Alexander property in Alberta. First quarter activity levels have been in line with budget, and the company anticipates it will drill 26 (19.7 net) open hole, 11 (8.4 net) frac Midale, 12 (8.7 net) Ratcliffe wells and three (2.5 net) Detrital wells in the quarter. In addition, 0.8 net frac Midale wells, one net Torquay well and 1.8 net Viking wells that were drilled in 2017 were brought on production during the quarter. Spring break-up conditions have been favourable to date and Spartan anticipates all wells drilled will be brought on production prior to the end of the quarter.
At its Oungre property in southeast Saskatchewan, in addition to drilling 8.7 net Ratcliffe wells, the company has completed the conversion of 10 vertical wells within the Oungre unit for water injection. Injection operations will commence prior to the end of the first quarter which will provide pressure support for its Phase 1 unit drills in the second half of the year.
Share repurchase
Echoing comments made by several other companies in the sector in recent months, Spartan said in its press release they continue to believe that their current share price does not properly reflect the underlying value of its asset base. This provides Spartan with an opportunity to utilize its excess funds flow to deliver significant value to its shareholders through strategic share repurchases. While Raging River Exploration and Trinidad Drilling have each undertaken a strategic review, Spartan is taking a different approach. Its board of directors has authorized the company to purchase for cancellation up to 8,620,148 common shares (representing approximately 5 per cent of its basic issued and outstanding shares), which is the maximum number permitted to be repurchased under its existing normal course issuer bid (NCIB).
The company intends to renew its NCIB for another 12 month period in August 2018 and, subject to regulatory approval, will consider repurchasing additional common shares during the remainder of the year. Share repurchases are expected to be funded largely out of excess funds flow, and all decisions to repurchase shares from time to time will be subject to prevailing market conditions, commodity prices and the company鈥檚 share price.
