Anderson Energy Ltd., Calgary, (TSX: AXL) has reported its operating and financial results for the three months ended March 31, 2011. This includes details on the company’s Cardium well program as well as information on an increase in Anderson’s capital budget.

Highlights

  • Cash flow from operations in the first quarter of 2011 was $10.9 million, up 17% from the fourth quarter of 2010. Total production was 7,726 BOE/d as compared to 7,000 BOE/d in the first quarter of 2010. Oil and NGL production in the first quarter of 2011 averaged 2,071 b/d, up 83% from the first quarter of 2010 and 14% from the fourth quarter of 2010. Oil production made up 1,372 bpd of the total and was 298% higher than the first quarter of 2010 and 38% higher than the fourth quarter of 2010.
  • In the first and second quarters of 2011, 19 gross (13.8 net) Cardium horizontal oil wells were drilled. All of these oil wells were placed on production as of May 16, 2011. Current Cardium production is 2,300 to 2,400 BOE/d (85% oil and NGL).
  • The Board of Directors has approved an increase in the company's capital program from $75 million to $115 million. Associated production guidance with this expanded capital program is 7,500 to 8,000 BOE/d. In 2011, the company estimates it could drill up to 44 gross (28.6 net) Cardium horizontal oil wells, of which 19 gross (13.8 net) have been drilled to date in 2011.
  • On May 13, 2011, the company entered into an agreement with its lenders to renew its credit facilities and increased the total amount of its facilities from $125 million to $135 million, subject to execution of customary documentation and normal closing conditions.
  • Drill ready Cardium horizontal oil location inventory stands at 188 gross (116.2 net) locations, a 36% increase since December 31, 2010 and a 4.5% increase since our March 28, 2011 press release. The company has increased the Cardium prospective land that it owns or controls to 115 gross (68.3 net) sections (85% in the oil fairway). Using an industry standard disclosure of three wells per section drilling density, the drilling inventory would be 204 net locations.
  • In Garrington, current working interest production is 1,300 BO/d from 17 net Cardium horizontal oil wells. Tank battery and gathering system consolidation and pipeline connections are ongoing and are expected to be complete by August 2011.
  • The company has recently completed its best performing well in the Garrington field. This 100% working interest well was fracture stimulated with a 19 stage gelled water frac and has flowed back 4,000 bbls of reservoir oil in its first seven days of production, at varying rates of 278 to 1,144 BO/d and at time of writing of this press release was flowing at 300 BO/d.

Operations

In the first quarter of 2011, 15 gross (11.3 net revenue) Cardium horizontal oil wells were drilled. To date in the second quarter of 2011, the company has drilled 4 gross (2.5 net revenue) Cardium horizontal oil wells. From May 1, 2010 to May 16, 2011, the company has placed 41 gross (29.2 net) wells on production.

Cardium production was approximately 2,300 to 2,400 BOE/d (85% oil and NGL) as of May 16, 2011. Oil and NGL production for the three months ended March 31, 2011 was 2,071 bpd, up substantially from 1,130 bpd in the first quarter of 2010. Of this number, 1,372 bpd or 66% is crude oil production, compared to 345 bpd or 31% in the first quarter of 2010. The company plans to drill 44 gross (32.7 net capital, 28.6 net revenue) Cardium horizontal oil wells in 2011.

The company's Cardium prospective land inventory is 115 gross (68.3 net) sections, which has appreciated 4% since the last update on March 28, 2011. Approximately 85% of the company's Cardium lands are in the oil prone fairway and the balance is in the gas prone fairway. Using geological mapping and offset production information, the company has high-graded a location list to drill in the oil prone fairway. The list includes 188 gross (116.2 net) horizontal locations to be drilled in the next few years (including wells drilled to date). Each location is a development location that is technically feasible and not contingent upon the drilling of other wells.

In February 2011, the company switched from oil based fracture stimulations to water based fracture stimulations of the Cardium. Well performance has been encouraging and the company is planning to conduct future fracture stimulations with water. The capital cost savings of this change has been approximately $500,000 per well. The company estimates its go forward drill, complete, equip and tie-in costs for the Cardium horizontal program with water based fracture stimulation to be approximately $2.6 million per well in the Garrington field and $3.0 to $3.2 million per well in other properties.

In the Garrington field, the company has drilled 23 gross (17.0 net) Cardium horizontal wells to date, with 40 gross (26.6 net) locations remaining to be drilled. The company's first well in Garrington came on-stream on May 1, 2010. Since then, the company has grown its Garrington working interest production to 1,300 BO/d (1,470 BOE/d including solution gas and NGL).

The company has recently completed its best performing well in the Garrington field. This 100% working interest well was fracture stimulated with a 19 stage gelled water frac and has flowed back 4,000 bbls of reservoir oil in its first seven days of production, at varying rates of 278 to 1,144 BO/d and at time of writing of this press release was flowing at 300 BO/d.

In Garrington, the company is currently in the process of connecting all of it single well batteries and field satellites to its central 15-34 tank battery. The 100% owned facility will ultimately be connected by Plains Midstream Canada to the Rangeland Pipeline system. This facility is attracting third party volumes and so also represents an attractive source of processing fee income for the company.

The company will be conducting a reservoir simulation study to plan its waterflood for the Garrington field. The company is planning to conduct a water injectivity test in the fourth quarter of 2011 and be in a position to inject water in 2012.

The company has been primarily focused on drilling Cardium A sand horizontal wells. In the first quarter of 2011, the company made a new discovery in a Cardium B sand with a horizontal well and is planning to pursue both the A and B sands in that particular area.

Production

For the quarter ended March 31, 2011, the company averaged 7,726 BOE/d, with oil and NGL volumes representing 27% of total volumes. Oil and NGL production is 83% higher than the first quarter of 2010 due to increasing Cardium oil volumes. The company had a very successful first quarter drilling and completing Cardium oil wells. The production impact from these wells is expected in the second quarter of 2011, with second quarter oil production estimated to be 35 to 40% higher than first quarter oil production.