Petrobank Energy and Resources Ltd. (TSX:PBG) is pleased to announce 2011 third
quarter financial and operating results highlighted by funds flow from
operations of $1.37 per diluted share.
Petrobank's results include the financial and operating results of PetroBakken
Energy Ltd. (TSX:PBN), 59% owned by Petrobank at September 30, 2011. PetroBakken
announced third quarter financial and operating results on November 8, 2011.
All financial figures are unaudited and in Canadian dollars ($) unless noted
otherwise. All financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") including comparative
figures pertaining to Petrobank's 2010 results. A reconciliation of comparative
figures is provided in the notes to the Unaudited Interim Consolidated Financial
Statements for the period ended September 30, 2011.
This news release includes forward-looking statements and information within the
meaning of applicable securities laws. Readers are advised to review
"Forward-Looking Information and Statements" at the conclusion of this news
release. Readers are also referred to "Non-GAAP Measures" at the end of this
news release for information regarding the presentation of the financial
information in this news release. A full copy of our 2011 Third Quarter
Financial Statements and MD&A have been filed on our website at
www.petrobank.com and will be available under our profile on SEDAR at
www.sedar.com.
In this report, quarterly comparisons are third quarter 2011 compared to third
quarter 2010 unless otherwise noted. The results of Petrominerales Ltd.
("Petrominerales") (TSX:PMG), previously majority owned by Petrobank, have been
separately disclosed as discontinued operations up until December 31, 2010, the
date the shares of the business unit were distributed to Petrobank shareholders.
HIGHLIGHTS
Q3 2011 Financial Overview
-- Net income from continuing operations, adjusted for gains on derivative
financial liabilities, for the three months ended September 30, 2011 of
$4.7 million decreased $17.6 million compared to the same period in the
prior year. The decrease is primarily due to a foreign exchange loss in
the third quarter of 2011, compared to a gain in the comparative period,
partially offset by higher revenue as a result of higher pricing.
-- PetroBakken's production averaged 39,074 barrels of oil equivalent
("boe") per day in the third quarter of 2011, representing an 11 percent
increase compared to the second quarter of 2011. The increase in
production over the second quarter was the result of a combination of
restoring production that was shut-in due to the extended spring break-
up and production additions from new wells that were put on production
in the latter part of the third quarter.
-- PetroBakken's operating netback (excluding hedging activity) of $50.04
per boe in the third quarter decreased 12 percent compared to the second
quarter of 2011, and increased 15 percent over the prior year period.
The decrease over the second quarter was primarily a result of lower
pricing that more than offset decreased royalty and production expenses.
-- Capital expenditures were $302.6 million in the third quarter, up four
percent from a year ago. The increase is attributable to PetroBakken's
drilling program, partially offset by decreased spending at our Heavy
Oil Business Unit, which acquired Baytex Energy Corp.'s 50 percent
working interest in the Kerrobert project for $18.1 million in the third
quarter of the prior year. PetroBakken drilled 96 (70.1 net) wells in
the third quarter. Capital expenditures for the Heavy Oil Business Unit
totalled $30.8 million in the third quarter, including $20.0 million on
facilities, drilling and completion expenditures.
Heavy Oil Business Unit Operational Highlights
-- The Kerrobert expansion project is in the production start-up phase,
with all wells capable of production and 11 of the 12 well-pairs on
combustion.
-- Drilling and facilities construction at the Dawson demonstration project
started in the third quarter and we anticipate that the Pre-Ignition
Heating Cycle ("PIHC") will begin by the end of the year.
-- The Energy Resources Conservation Board ("ERCB") has scheduled the May
River project hearing for March 6, 2012.
-- In early October, we suspended all field operations at the Conklin
demonstration project.
Kerrobert Project
At the Kerrobert expansion project, we have successfully put nine of the 10 new
well pairs to air injection and have increased air injection rates over the
quarter. One of the air injection wells is currently not operational; however,
we continue to operate the associated production well as the reservoir is being
heated by surrounding air injection wells. All of our technical measurements
confirm that we have achieved high temperature combustion. There are increasing
temperatures at the toes of the production wells and along the wellbores, and we
have produced upgraded oil. The project's central processing facility is
operating normally. All of these characteristics are positive milestones for the
Kerrobert expansion.
Early stage production has been low and inconsistent, with third quarter 2011
average production of approximately 30 barrels of oil per day at Kerrobert. We
are mainly producing cold, heavy native oil which is difficult to move down the
wellbore and tends to produce sporadically as it is pumped to the surface. We
have taken a controlled approach to manage air injection and production to
initiate combustion and increase reservoir pressure across a much broader area.
We believe this approach will maximize combustion front development and
reservoir recovery. Based on our experience with the two pilot wells, as the
initial cold native oil production transitions to hot upgraded THAI(R) oil
production, we expect production rates to greatly improve. However, our
operating approach may extend the time frame for achieving normalized production
rates.
Our operational plan at Kerrobert is to continue to increase air injection
rates, build out the combustion front, increase the overall pressure in the
reservoir and increase production of upgraded THAI(R) oil.
Dawson Project
During the third quarter we began the field work and drilling at our Dawson
demonstration project. We have drilled and completed two horizontal production
wells and one of the air injection wells on time and on budget. The second air
injection well will be completed by year-end 2011. The surface facilities from
the Kerrobert demonstration project have been relocated to Dawson and are ready
to be installed. We are also moving some non-essential equipment from the
Conklin demonstration project to the Dawson site. PIHC is expected to begin in
December and air injection will begin in early 2012.
The environmental assessment and regulatory application associated with the
Dawson commercial project are near completion. The applications to the ERCB and
Alberta Environment are expected to be submitted later this year. We expect that
the regulatory review cycle could take up to 18 months.
Conklin Demonstration Project
We have suspended operations at our Conklin demonstration project which was
being used as a field scale testing site for enhancements to the THAI(R)
process. All the testing that was scheduled for Conklin was completed, leading
to the decision to suspend operations. Once our May River project has been
approved by regulators, we will evaluate whether to integrate the Conklin
facilities into our May River project or abandon the site. Once the site is
fully suspended, operating costs and maintenance capital at our Conklin project
are expected to be reduced to a minimal amount with savings of approximately
$1.0 million each month compared to continuing operations.
May River Project
Our May River project continues to move towards our ERCB hearing on March 6,
2012. Pending the outcome of the ERCB hearing, which is expected approximately
three months after the hearing date, we will update the May River project
development schedule and proceed with our internal project approval and
sanctioning processes.
Plover Property
As previously reported, earlier this year we acquired more undeveloped land
along the Kerrobert trend in Saskatchewan. We have been evaluating third party
3-D seismic surveys on this land over the last several months. Three
stratigraphic wells are expected to be drilled in Q1 2012 to better define the
resource.
PETROBANK'S LIQUIDITY AND CAPITAL RESOURCES
Petrobank and PetroBakken manage their capital structure independently, generate
their own cash flows and have the ability to fund their operations through
numerous means, including the issuance of secured and unsecured debt as well as
equity financing. Petrobank's capital resources are focused on funding Corporate
and Heavy Oil Business Unit expenditures. At September 30, 2011, on a standalone
basis, independent of PetroBakken, Petrobank had bank debt of $58.8 million, a
working capital deficit of $17.5 million and committed credit capacity of $141.2
million. The availability of Petrobank's $200 million credit facility was
reduced to $100 million at September 30, 2011 based on the value of Petrobank's
ownership in PetroBakken. We expect the reduction to be temporary, with future
increases in availability subject to PetroBakken's share price. Our near-term
capital spending is expected to decrease significantly once our Dawson
demonstration project is completed at the end of 2011. Other capital projects
will largely be dependent on regulatory approvals which, as previously
mentioned, are expected in mid-2012 for the May River project and 2013 for the
Dawson commercial project. Our current sources of capital are expected to be
more than adequate for our planned projects through the end of 2012. Petrobank
expects to release formal 2012 capital expenditure guidance in mid-December.
Based on Petrobank's current ownership and PetroBakken's current annual dividend
of $0.96 per PetroBakken share, Petrobank expects to receive $105 million of
dividends annually from PetroBakken, paid monthly. Petrobank can also raise
funds by selling a portion of our ownership in PetroBakken or other corporate
assets.
Petrobank currently expects to fund our HBU capital expenditure program with
available credit, cash from operations and dividends received from PetroBakken.
EXECUTIVE APPOINTMENTS
Petrobank is pleased to announce the promotion and appointment of Mr. Chad Magus
as Controller effective October 1, 2011. Mr. Magus joined Petrobank in 2004 and
was most recently Petrobank's Manager of Reporting and Planning and leads a team
responsible for all accounting functions. He has contributed to Petrobank's many
strategic initiatives and gained significant transactional, tax, operational and
financial experience. Mr. Magus is a Chartered Accountant.
Petrobank has also appointed Mr. Dwight Mervold as Vice President, Operations
and Production effective November 1, 2011. Mr. Mervold's career spans more than
24 years, including positions in the field and management responsibilities for
heavy oil and natural gas production with a number of Canadian energy companies.
Mr. Mervold is a member of the Association of Professional Engineers,
Geologists, and Geophysicists of Alberta.
SUMMARY OF FINANCIAL AND OPERATING RESULTS
The following table provides a summary of Petrobank's financial and operating
results for the three and nine month periods ended September 30, 2011 and 2010.
Unaudited condensed interim consolidated financial statements with Management's
Discussion and Analysis ("MD&A") will be available on the Company's website at
www.petrobank.com and on the SEDAR website at www.sedar.com.
Summary of Results (1)
Three months ended September 30,
2011 2010 % Change
----------------------------------------------------------------------------
Financial
($000s, except where noted)
Oil and natural gas sales
from continuing operations 272,346 228,537 19
Funds flow from continuing
operations (2) 147,452 139,324 6
Per share - basic ($) 1.39 1.31 6
- diluted ($) 1.37 1.30 5
Adjusted net income (loss)
from continuing operations
(2) (3) 4,742 22,311 (79)
Per share - basic ($) 0.04 0.21 (81)
- diluted ($) 0.04 0.21 (81)
Adjusted net income
attributable to Petrobank
shareholders (2) (3) (4) 4,742 74,916 (94)
Per share - basic ($) 0.04 0.71 (94)
- diluted ($) 0.04 0.69 (94)
Capital expenditures (5)
PetroBakken 271,861 241,309 13
Heavy Oil Business Unit
("HBU") 30,772 49,385 (38)
----------------------------------------------------------------------------
Total capital expenditures
from continuing operations 302,633 290,694 4
Total assets 6,852,270 7,723,767 (11)
Common shares outstanding,
end of period (000s)
Basic 106,327 106,042 -
Diluted (6) 111,216 109,979 1
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----------------------------------------------------------------------------
Operations
PetroBakken operating
netback ($/boe) (2) (7)
Crude oil and NGL sales
price ($/bbl) (8) 84.61 68.43 24
Natural gas sales price
($/Mcf) (8) 4.01 3.82 5
Oil equivalent sales price
(8) 75.37 60.63 24
Royalties 12.20 8.64 41
Production expenses 13.13 8.38 57
----------------------------------------------------------------------------
Operating netback (2) (7)
(9) 50.04 43.61 15
Average daily production
(7)
PetroBakken - oil and NGL
(bbls) 33,112 33,230 -
PetroBakken - natural gas
(Mcf) 35,776 41,193 (13)
----------------------------------------------------------------------------
Total conventional (boe)
(7)(10) 39,074 40,095 (3)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended September 30,
2011 2010 % Change
----------------------------------------------------------------------------
Financial
($000s, except where noted)
Oil and natural gas sales
from continuing operations 828,595 750,197 10
Funds flow from continuing
operations (2) 464,276 481,410 (4)
Per share - basic ($) 4.37 4.64 (6)
- diluted ($) 4.27 4.50 (5)
Adjusted net income (loss)
from continuing operations
(2) (3) 22,570 (38,805) -
Per share - basic ($) 0.21 (0.37) -
- diluted ($) 0.20 (0.37) -
Adjusted net income
attributable to Petrobank
shareholders (2) (3) (4) 22,570 143,927 (84)
Per share - basic ($) 0.21 1.39 (85)
- diluted ($) 0.20 1.28 (84)
Capital expenditures (5)
PetroBakken 692,352 549,113 26
Heavy Oil Business Unit
("HBU") 140,668 83,971 68
----------------------------------------------------------------------------
Total capital expenditures
from continuing operations 833,020 633,084 32
Total assets 6,852,270 7,723,767 (11)
Common shares outstanding,
end of period (000s)
Basic 106,327 106,042 -
Diluted (6) 111,216 109,979 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations
PetroBakken operating
netback ($/boe) (2) (7)
Crude oil and NGL sales
price ($/bbl) (8) 87.17 71.97 21
Natural gas sales price
($/Mcf) (8) 4.11 4.31 (5)
Oil equivalent sales price
(8) 77.98 64.71 21
Royalties 12.36 9.17 35
Production expenses 12.73 7.92 61
----------------------------------------------------------------------------
Operating netback (2) (7)
(9) 52.89 47.62 11
Average daily production
(7)
PetroBakken - oil and NGL
(bbls) 32,965 35,229 (6)
PetroBakken - natural gas
(Mcf) 34,030 39,473 (14)
----------------------------------------------------------------------------
Total conventional (boe)
(7)(10) 38,636 41,808 (8)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Petrominerales Ltd. ("Petrominerales") has been presented as discontinued
operations in the comparative period as this business unit was distributed to
Petrobank shareholders at December 31, 2010.
(2) Non-GAAP measure. See "Non-GAAP Measures" section within this press release.
(3) Net income has been adjusted for the IFRS accounting effects of changes in
the gain on derivative financial liability. For the three and nine months ended
September 30, 2011, adjusted net income includes a $10.6 million and $71.7
million reduction (2010 - $58.8 million increase and $17.7 million decrease) for
this gain. Management considers adjusted net income a better measure of the
Company's economic performance period over period.
(4) Net income attributable to Petrobank shareholders for the three and nine
months ended September 30, 2010 includes the operating results of
Petrominerales.
(5) Includes expenditures on property, plant and equipment, exploration and
evaluation and other intangible assets.
(6) Consists of common shares, stock options, directors deferred common shares,
deferred common shares, and incentive shares as at the period end date.
(7) Six Mcf of natural gas is equivalent to one barrel of oil equivalent ("boe").
(8) Net of transportation expenses.
(9) Excludes hedging activities.
(10) HBU bitumen and heavy oil volumes are excluded from average daily
production as Conklin and Kerrobert operations are considered to be in the
exploration and evaluation phase and accordingly are capitalized.
INVESTOR CONFERENCE CALL
Management of Petrobank will be holding a conference call for investors,
financial analysts, media and any interested persons on Tuesday, November 15,
2011 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss Petrobank's
third quarter financial and operating results. The investor conference call
details are as follows:
Live call dial-in number(s): 416-695-6616 / 800-952-6845
Replay dial-in numbers: 905-694-9451 / 800-408-3053
Replay pass code: 4657181
The live audio webcast link is:
http://events.digitalmedia.telus.com/petrobank/111511/index.php and is also
available on our website at:
http://www.petrobank.com/investors/presentations-webcasts.
Petrobank Energy and Resources Ltd. is a Calgary-based oil and natural gas
exploration and production company with operations in western Canada. The
Company operates high-impact projects through two business units and a
technology subsidiary. Petrobank's 59% owned TSX-listed subsidiary, PetroBakken
Energy Ltd. (TSX:PBN), 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,
along with a significant inventory of opportunities in the Horn River and
Montney gas resource plays in northeast BC. PetroBakken's strategy is to deliver
accretive production and reserves growth, along with an attractive dividend
yield. Whitesands Insitu Partnership, a partnership between Petrobank and its
wholly-owned subsidiary Whitesands Insitu Inc., owns 104 net sections of oil
sands leases in Alberta, 36 sections of oil sands licenses in Saskatchewan and
15 sections of petroleum and natural gas rights along the Kerrobert channel
trend near Kerrobert, Saskatchewan, and operates the Kerrobert and Conklin
projects which are field-demonstrating Petrobank's patented THAI(R) heavy oil
recovery process. THAI(R) is an evolutionary in-situ combustion technology for
the recovery of bitumen and heavy oil that integrates existing proven
technologies and provides the opportunity to create a step change in the
development of heavy oil resources globally. THAI(R) and CAPRI(R) are registered
trademarks of Archon Technologies Ltd., a wholly-owned subsidiary of Petrobank
Energy and Resources Ltd., for specialized methods for recovery of oil from
subterranean formations through in-situ combustion techniques and methodologies
with or without upgrading catalysts. Used under license by Petrobank Energy and
Resources Ltd.
Non-GAAP Measures: This press release contains financial terms that are not
considered measures under International Financial Report Standards, which are
considered to be generally accepted accounting principles ("GAAP"), such as
funds flow from continuing operations, funds flow per share, adjusted net
income, adjusted net income per share and operating netback. These measures are
commonly utilized in the oil and gas industry and are considered informative for
management and shareholders. Specifically, funds flow from continuing operations
and funds flow per share reflect cash generated from operating activities before
changes in non-cash working capital. Adjusted net income is determined by adding
back any losses or deducting any gains on the derivative financial liabilities.
Management considers funds flow from continuing operations, funds flow per
share, adjusted net income and adjusted net income per share important as they
help evaluate performance and demonstrate the Company's ability to generate
sufficient cash to fund future growth opportunities and repay debt.
Profitability relative to commodity prices per unit of production is
demonstrated by an operating netback. Funds flow from continuing operations,
funds flow per share, adjusted net income, adjusted net income per share and
operating netbacks may not be comparable to those reported by other companies
nor should they be viewed as an alternative to net income or other measures of
financial performance calculated in accordance with GAAP.
The following table shows the reconciliation of funds flow from continuing
operations to cash flow from operating activities from continuing operations for
the periods noted (in $000s):
Three months ended Nine months ended
Sept. 30, Sept. 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Funds flow from
continuing operations:
Non-GAAP 147,452 139,324 464,276 481,410
Changes in non-cash
working capital 10,633 (71,547) 9,443 (91,160)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net cash provided by
operating activities
from continuing
operations: GAAP 158,085 67,777 473,719 390,250
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Forward-Looking Statements: Certain information provided in this press release
constitutes forward-looking statements. Specifically, this press release
contains forward-looking statements relating to financial results, results from
operations, the timing of certain projects, timing for obtaining regulatory
approvals, potential technology enhancements and anticipated sources of
available financing. Forward-looking statements are necessarily based on a
number of assumptions and judgments, including but not limited to, assumptions
relating to the outlook for commodity and capital markets, the success of future
resource evaluation and development activities, the successful application of
our technology, the performance of producing wells and reservoirs, well
development and operating performance, general economic conditions, weather and
the regulatory and legal environment. The reader is cautioned that assumptions
used in the preparation of such information, although considered reasonable at
the time of preparation, may prove to be incorrect. Actual results achieved
during the forecast period will vary from the information provided herein as a
result of numerous known and unknown risks and uncertainties and other factors.
You can find a discussion of those risks and uncertainties in our Canadian
securities filings. Such factors include, but are not limited to: general
economic, market and business conditions; weather conditions and access to our
properties; fluctuations in oil prices; the results of exploration and
development drilling, recompletions and related activities; timing and rig
availability; outcome of exploration contract negotiations; fluctuation in
foreign currency exchange rates; the uncertainty of reserve estimates; changes
in environmental and other regulations; uncertainties associated with the
regulatory review and approval process in respect to our projects; risks
associated with the application of early stage technology; risks associated with
oil and gas operations; and other factors, many of which are beyond the control
of the Company. There is no representation by Petrobank that actual results
achieved during the forecast period will be the same in whole or in part as
those forecasted. Except as may be required by applicable securities laws,
Petrobank assumes no obligation to publicly update or revise any forward-looking
statements made herein or otherwise, whether as a result of new information,
future events or otherwise.
Natural gas volumes have been converted to barrels of oil equivalent ("boe").
Six thousand cubic feet ("Mcf") of natural gas is equal to one barrel of oil
equivalent based on an energy equivalency conversion method primarily
attributable at the burner tip and does not represent a value equivalency at the
wellhead. Boes may be misleading, especially if used in isolation.
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