Bellatrix announces Alder Flats Plant phase 2 start-up, updated commodity risk management contracts

— Photo courtesy Bellatrix Exploration Ltd.

Bellatrix Exploration Ltd. (“Bellatrix”, “we”, “our” or the “Company”) (TSX:BXE) (NYSE:BXE) announces the start-up of the Phase 2 expansion project at the Bellatrix O’Chiese Nees-Ohpawganu’ck deep-cut gas plant at Alder Flats (the “Alder Flats Plant”), an update of commodity risk management contracts, and revised 2018 corporate guidance.

The Phase 2 expansion project of the Alder Flats Plant was fully commissioned mid-March and began selling volumes March 19, 2018. The project more than doubles throughput capacity at the Alder Flats Plant to 230 MMcf/d (from 110 MMcf/d), was brought on-stream safely ahead of schedule, and was delivered approximately 5% under budget. The Alder Flats Plant has successfully tested inlet volumes of approximately 210 MMcf/d (combined between both Phase 1 and 2), and is performing in-line with expectations. The turbo expander is operational on Phase 2, which was designed with a colder process, thereby enhancing natural gas liquid (“NGL”) extraction capabilities. Combined NGL recovery at the Alder Flats Plant increases to approximately 55 to 60 bbl/MMcf, from approximately 45 bbl/MMcf under Phase 1; this is in addition to an expected condensate yield of an additional 10 bbl/MMcf.

Completion of Phase 2 adds an incremental 30 MMcf/d ownership capacity net to Bellatrix's 25% working interest. Bellatrix has redirected approximately 65 MMcf/d of gross natural gas volumes from third party processing plants to theAlder Flats Plant to optimally process under its ownership and processing volume commitments. Operating costs for natural gas processed through Bellatrix’s ownership interest in the Alder Flats Plant are approximately $0.16/mcf, providing significant cost benefits for the Company. The redirection of natural gas volumes from more expensive third-party plants are anticipated to deliver reductions in production expenditures in 2018 to a range of $7.65/boe to $8.00/boe, based on the Company’s updated production volume guidance discussed below. The completion of Phase 2 is anticipated to drive improved revenue generation through additional higher margin NGL extraction of approximately 10 to 35 bbl/MMcf over third party plants, resulting in an average corporate liquid weighting of approximately 26% in 2018, which we expect to, in turn, drive enhanced corporate profit margins and cash flow.

The Phase 2 expansion project represents the last stage of our multi-year infrastructure build out. With our long term infrastructure build out complete, Bellatrix expects the majority of capital investment to be utilized directly in drilling, completion and production addition activities with minimal capital required for facilities and infrastructure projects over the near term. Management expects that its existing facilities and processing capacity provide the capability to grow production volumes beyond 60,000 boe/d, with minimal future facility related capital.

During the first quarter of 2018, Bellatrix added to its commodity price risk management protection to further reduce the impact of price volatility on our business. Specifically, Bellatrix has added AECO natural gas fixed price swap contracts in the summer 2018 and summer 2019 months to insulate against potential seasonal weakness in local spot natural gas prices.

Including the new price risk management contracts, Bellatrix has approximately 70.7 MMcf/d of 2018 natural gas volumes hedged at an average fixed price of approximately $2.96/mcf, representing approximately 45% of forecast 2018 natural gas volumes. Bellatrix has also diversified its natural gas price exposure through physical sales contracts that give the Company exposure to the Dawn, Chicago, and Malin natural gas pricing hubs. This long-term diversification strategy reduces Bellatrix’s exposure to AECO pricing on approximately 26% of the Company’s forecast 2018 natural gas volumes.

In combination, the market diversification sales and fixed price hedges cover approximately 2/3 of natural gas volumes in 2018 and 55% in 2019 (based on the mid-point of 2018 average production guidance).

Bellatrix’s management believes that preserving balance sheet strength and liquidity, while optimizing production levels is a prudent strategy given current commodity prices. Bellatrix is therefore reducing its expected capital expenditure budget to a range of $55 to $60 million (down from a range of $65 million to $80 million) which reduces annual average production guidance by 1,000 to 1,500 boe/d.

Bellatrix plans to fund the reduced capital budget through adjusted funds flow while reducing the potential for additional debt or bank line utilization through the end of 2018. The 2018 capital program will remain flexible and focused on optimizing forecast return on invested capital through focused development of the Spirit River liquids rich natural gas play and higher liquids weighted opportunities in the Cardium play.