PetroBakken had a successful year in 2012. Early in the year we completed certain initiatives to strengthen our financial position and increase balance sheet liquidity. This included terming-out our debt through the issuance of US$900 million of high yield notes and disposing of approximately 4,200 boepd of non-core properties. The asset dispositions allowed us to expand our capital program during the second half of the year and more than replace the disposed production. Our 2012 December average production of 53,200 boepd represented a 6% increase over our 2011 December average (a 16% increase post dispositions) and was comprised of over 21,500 boepd from our Bakken business unit, over 22,500 boepd from our Cardium business unit, and the remainder from our Saskatchewan Conventional and AB/BC business units.
In the fourth quarter, we drilled 79 net wells, completed 106 net wells and brought 99 net wells on production, exiting the year with 21 net wells in inventory. We drilled a total of 217 net wells and completed 234 net wells in 2012. Fourth quarter activity is broken down by operating area as follows:
Our inventory of 14 net wells in the Cardium, 1 well in the Bakken, 4 net wells in southeast Saskatchewan, and 2 net wells in our new plays partly reflects the advancement of capital from 2013 into 2012 and will contribute to production volumes in the first quarter of 2013. We expect the first quarter of 2013 to be our busiest of the year, and we currently have 16 drilling rigs operating: 6 in southeast Saskatchewan, 7 in the Cardium and 3 in our Alberta/British Columbia emerging plays.
Of note, in our Swan Hills resource play we drilled 3 horizontal wells at Deer Mountain. 2 of the 3 net wells at Deer Mountain were completed and put on production and we are encouraged by initial results. Our capital plan for 2013 includes 12 (10 net) horizontal wells to be drilled on our Swan Hills play, of which 8 (8 net) will be drilled at Deer Mountain and 4 (2 net) will be drilled on farm-in land.
2013 Capital Plan
For 2013, our initial capital program is structured to build on the success of 2012. The execution of this plan began in late 2012, when we accelerated the spending of $100 million of capital from 2013 to the end of 2012. The accelerated capital should allow us to minimize field operation interruptions and make efficient use of oil field services during the active winter drilling season in order to add new production in the first quarter of 2013. This initial accelerated capital, together with projected 2013 capital of $675 million, is expected to allow us to grow our average annual production by 8% to 12% while targeting relatively flat year-over-year exit production.
We anticipate 71% ($480 million) of our 2013 capital will be directed to drilling, completion and tie-in activities with an additional $140 million being spent on facilities, optimization, workover capital and sustaining capital. The 2013 capital plan is expected to deliver an average daily production rate of 46,000 to 48,000 boepd and exit 2013 production of approximately 49,000 to 52,000 boepd, with an 85% liquids weighting. Our initial capital plan (including the acceleration of $100 million into 2012) is materially lower than previous years, which we believe to be prudent given the current price volatility and wider light oil differentials being experienced by the industry. Our capital plan may be adjusted throughout the year to take into account changes to realized prices and service costs.
From a capital allocation standpoint, we will focus on continuing to grow our production in the Cardium which, like our Bakken and Conventional business units, should become cash flow positive in 2013. The Cardium development program will focus on pad-drilling in Brazeau, Lochend and West Pembina, to shorten on-stream cycle times and reduce capital costs for surface leases, drilling, completions, equipping and tie-ins. We will also continue to invest in our cash flow positive assets in the Bakken and Southeast Saskatchewan. The Bakken program balances facilities and infrastructure spending with cluster development drilling to maintain strong capital efficiencies and a low operating cost structure. We have also allotted capital for the commercial expansion of our EOR pilots to build upon the encouraging results to date. Finally, we will invest in developing our new plays in Alberta that will drive future growth.
Our 2013 drilling activity will see a total of approximately 129 wells drilled, broken down by operating area as follows:
It is expected that corporate declines for 2013 will be in the range of 39% for the year. This is higher than the decline that we experienced in 2012 primarily as a result of the late year production additions from our expanded capital program in the second half of the year. Due to the typical horizontal well production profile, our corporate production in 2013 is expected to have higher initial declines during the first half of the year followed by notably lower declines during the second half of the year. With a balanced approach to 2013 capital plans resulting in a more active Q1 drilling program, followed by a load leveled Q3 and Q4 program, we anticipate that our 2014 corporate decline rate will be in the range of 30-35%.
We remain focused on creating value for our shareholders by developing long-life, accretive, light-oil resource plays that support organic growth of production and reserves. We believe that we are well positioned for the coming year with over 2,250 potential drilling locations, over 1 million acres of undeveloped land and balance sheet flexibility that allows us to actively develop our resources and respond to changing industry conditions.
$1.4 Billion Credit Facility and $300 Million Convertible Debentures
In December 2012, holders of $293.4 million of Convertible Debentures elected to put them back to PetroBakken. We have elected to repay these debentures in cash on the settlement date of February 8, 2013. We initially plan to repay the debentures using our $1.4 billion credit facility, which was approximately $610 million drawn at the end of 2012. The credit facility has a current maturity date of June 2015 and has the potential to be increased to $1.5 billion under an accordion feature.
2013 Hedging Strategy
In order to provide greater cash flow security, we have expanded our hedging program and are targeting to increase the net-hedged production for 2013 from 12,000 bopd to 18,000 bopd. This is an increase to our past practice of hedging approximately 25% of our net production. The following table provides our current hedge position
Completion of Corporate Reorganization and Introduction of a Share Dividend Program
On December 31st, 2012 Petrobank Energy and Resources Ltd. and PetroBakken completed a corporate reorganization which resulted in Petrobank shareholders effectively receiving Petrobank’s share holdings in PetroBakken while maintaining their interest in the remaining Petrobank assets. This transaction eliminated Petrobank’s 56% ownership in PetroBakken through the distribution of the 107.8 million shares owned by Petrobank to the Petrobank shareholders. This resulted in our market float increasing from approximately 83 million shares to 191 million shares, providing investors with increased trading liquidity.
We are pleased to announce the following internal management appointments. Mr. Rene Laprade has been promoted to the position of Senior Vice President and Chief Operating Officer. Rene has been with PetroBakken since our inception as Senior Vice President, Operations. Mr. Brad Malley has been promoted to Vice President, Drilling and Completions. Mr. David Salahub has been promoted to Vice President, Production. Ms. Doreen Scheidt has been promoted to Vice President and Controller. Finally, Mr. Lars Glemser has been promoted to Treasurer.
PetroBakken Energy Ltd. is an oil and gas exploration and production company combining light oil Bakken and Cardium resource plays with conventional light oil assets, delivering industry leading operating netbacks, strong cash flows and production growth. PetroBakken is applying leading edge technology to a multi-year inventory of Bakken and Cardium light oil development locations. Our strategy is to deliver accretive production and reserves growth, along with an attractive dividend yield.
Non-GAAP Measures. This press release contains financial terms that are not considered measures under IFRS, such as funds flow from operations and funds flow per share. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders. Specifically, funds flow from operations reflects cash generated from operating activities before changes in non-cash working capital. Management considers funds flow from operations and funds flow per share important as it helps evaluate performance and demonstrate the ability to generate sufficient cash to fund future growth opportunities, pay dividends and repay debt. Funds flow from operations and funds flow per share may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations or other measures of financial performance calculated in accordance with IFRS. Further information in respect of these non-GAAP measures is set forth in our MD&A.