Pearl Exploration and Production Ltd.

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  Aug 10, 2010 - 17:04 ET
BlackPearl Announces Second Quarter 2010 Financial and Operating Results


CALGARY, ALBERTA--(Marketwire - Aug. 10, 2010) - BlackPearl Resources Inc. ("BlackPearl" or the "Company") (TSX:PXX)(FIRST NORTH:PXXS) is pleased to announce its financial and operating results for the three and six months ended June 30, 2010.

Highlights of our second quarter activities include:

  • Oil and gas production averaged 7,163 boe/day, a 39% increase over Q2 2009 and a 7% increase over Q1 production volumes;
  • Revenues increased 55% to $34.3 million compared to Q2 in 2009; Cash flow from operations increased 76% to $13.9 million compared with $7.9 million in Q2 2009;
  • Operating efficiency improvements resulted in lower production expenses and general and administrative costs;
  • Successfully completed several non-core property dispositions which has resulted in net proceeds of $19.2 million during the first six months of 2010;
  • Strengthened the balance sheet with an equity offering of 10.3 million common shares; working capital sits at $97.4 million and no debt;
  • Active second half planned with over 60 wells to be drilled primarily at Onion Lake and major facility construction projects at Blackrod and Mooney.

John Festival, President of BlackPearl, commenting on Q2 2010 activities indicated that, "We had a relatively quiet second quarter in terms of new activity due to spring break-up and wet weather conditions. However, we will be very active the remainder of the year on our three core areas. Short-term production growth will come from continued development drilling at Onion Lake while we proceed with construction of the commercial polymer flood at Mooney and the SAGD pilot at Blackrod. During the second quarter we continued to optimize production from our new wells at Onion Lake with overall Company production averaging in excess of 7,100 boe/day. Third quarter production will be modestly impacted by recent asset dispositions but we are confident that our planned second half activities will allow us to reach our 2010 exit production target of 8,000 – 8,500 boe/day."

Property Review

Blackrod SAGD Project

BlackPearl owns 100% of the Blackrod property as a result of acquiring, earlier this year, the 20% working interest held by Serrano Energy Ltd. We are waiting on regulatory approvals before we commence construction of the facilities for the single well pair SAGD pilot. These approvals are expected later this year. Engineering and design work on the steam and water handling facilities for the pilot are on-going. Total capital costs of the pilot facilities and wells, including construction of a 31 kilometer all weather road to the facility site, are estimated to be approximately $25 million. We anticipate initiating steam injection during the first quarter of 2011.

Onion Lake

No new drilling activity occurred during the second quarter due to wet ground conditions from spring-breakup and heavy rains in Saskatchewan. Development drilling will begin in the third quarter with a planned 60 well drilling program. This program should be completed before year-end. During the second quarter the Company completed connecting last fall's drilling sites into its fuel gas system which allowed us to reduce operating costs during the quarter. Over the next three to five years we plan to drill over 200 wells and then convert a portion of the Onion Lake field to thermal (SAGD) recovery.


Engineering and design work on the water and chemical handling facilities for the ASP flood (Alkali Surfactant Polymer) continued during the second quarter. We anticipate receiving regulatory approval from the ERCB for phase 1 of the commercial ASP flood during the third quarter. Once we receive these approvals we will commence field construction of the facilities and we expect to be in a position to start ASP injection early in 2011.

In addition, earlier this year, we made an application to the Alberta Department of Energy for lower EOR royalties for the project. We expect to receive this ruling during the third quarter. If approved, the initial royalty rate on the ASP flood project is expected to be approximately 10%. This compares favourably to the current royalty rate on conventional Mooney production of 23% and the estimated 35 - 40% we would pay on ASP flood production without any royalty relief.

Sale of Properties

During the first half of 2010, BlackPearl sold certain non-core oil and gas properties for $19.2 million. At the time of the sale, these properties were producing approximately 700 boe/day. The assets sold were gas properties in southern Alberta and a heavy oil property in Saskatchewan. We intend to continue selling our non-core oil and gas assets over the next two or three years.


Oil and gas production for the three months ended June 30, 2010 was 7,163 boe/day, a 39% increase compared to the same period in 2009. It also represents a 7% increase from Q1 production in 2010 of 6,685 boe/day. The increase is attributable to development drilling activity at Onion Lake last fall and in the first quarter this year.

Production in the third quarter will be slightly impacted by producing property asset dispositions that occurred during the first half of 2010. However, ongoing development drilling at Onion Lake should result in our year-end exit production reaching 8,000 – 8,500 boe/day. Current production is approximately 6,800 boe/day.

  Three months ended June 30, Six months ended June 30,
(Boe/day) 2010 2009 2010 2009
Onion Lake 5,098 2,063 4,702 2,115
Mooney 980 1,424 1,062 1,320
Ear Lake 316 461 340 447
Salt Lake 253 416 270 396
Long Coulee/Little Bow 368 426 385 446
Other 148 380 166 615
  7,163 5,170 6,925 5,339

Financial Results

Oil and gas revenues increased 55% in the second quarter 2010 to $34.3 million compared with $22.1 million in Q2 2009. The increase is attributable to higher oil production volumes and higher crude oil prices. The higher wellhead price reflects stronger WTI oil prices in 2010 (US$78.03/bbl vs US$59.62/bbl), partially offset by wider heavy oil differentials (18% differential in 2010 compared with 13% in 2009) and a stronger Canadian dollar compared to the US dollar (1.028 in Q2 2010 compared with 1.167 in Q1 2009). Revenues are down 6% from the first quarter this year primarily as a result of wider heavy oil differentials.

Operating costs decreased significantly to $14.31 per boe in Q2 2010 compared to $17.54 per boe in Q1. New heavy oil wells tend to have higher initial expenses due to increased sand production, increased fuel costs until wells are tied into the fuel gas system, and increased emulsion trucking and treating costs. These initial costs are reduced after several months of production from the new wells.

Cash flow from operations (before working capital adjustments) increased 76% in Q2 to $13.9 million compared to $7.9 million for the same period in 2009.

Financial and Operating Highlights

    Three months ended June 30 Six months ended June 30
    2010 2009 2010 2009
Daily production / sales volumes (1)        
  Oil (bbl/d) 6,515 4,167 6,230 4,294
  Natural gas (mcf/d) 3,890 6,017 4,174 6,271
  Combined (Boe/d) 7,163 5,170 6,925 5,339
Product pricing ($)        
  Crude oil - per bbl 55.03 53.33 59.18 42.40
  Natural gas - per mcf 3.97 3.51 4.53 4.32
  Combined - per Boe 52.58 47.07 56.40 39.22
($000's, except per share and Boe amounts)      
Oil and gas revenue - gross 34,274 22,143 70,703 37,898
Royalties ($/Boe) 13.60 10.74 14.53 8.20
Transportation costs ($/Boe) 1.00 1.46 0.94 2.06
Operating costs ($/Boe) 14.31 12.48 15.86 16.60
Net income (loss) for the period (10,276) (10,889) (18,329) (31,405)
  Per share, basic and diluted (0.04) (0.03) (0.07) (0.14)
Cash flow from operating activities, before working capital adjustments 13,926 7,910 28,955 6,106
Capital expenditures 5,687 932 37,870 4,079
Working Capital, end of period 97,440 56,794 97,440 56,794
Long term debt - - - -
Shares outstanding, end of period 272,845,386 261,684,050 272,845,386 261,684,050

(1) Boe amounts are based on a conversion ratio of 6 mcf of gas to 1 barrel of oil. BOEs may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 mcf: 1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The 2010 second quarter report to shareholders, including the financial statements, management's discussion and analysis and notes to the financial statements are available on the Company's website ( or SEDAR (

Forward-Looking Statements

Certain of the statements made and information contained herein is forward-looking statements and forward looking information (collectively referred to as "forward-looking statements") within the meaning of Canadian securities laws. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "believe", "plan", "continuous", "estimate", "expect", "may", "will", "project", "should", "predict", "targeting", "seek", "intend", "could", "potential" or similar words. In particular, this document contains forward-looking statements pertaining to the Company's 2010 capital expenditure program, estimated production levels and anticipated cash flow from operations, estimated production lost from asset sales, development plans at Onion Lake, Blackrod and Mooney, future drilling locations at Onion Lake and estimated future operating costs.

Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward-looking statements will not occur. There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will in fact be realized. Actual results will differ, and the difference may be material and adverse to the Corporation and its shareholders. The Company believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. The Company's Annual Information Form, 2009 year-end Management Discussion and Analysis and other documents filed with securities regulatory authorities describes the risks, assumptions and other factors that could influence actual results and which are incorporated herein by reference. Furthermore, the forward-looking statements contained in this news release are made as of the date hereof, and the Corporation does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise.

BlackPearl's Certified Advisor on First North is E. Öhman J:or Fondkommission AB.

Company Registration Number: 409596-1

The report for the three months ending September 30, 2010 will be published on or before November 14, 2010.


BlackPearl Resources Inc.
John Festival
President and Chief Executive Officer
(403) 215-8313
BlackPearl Resources Inc.
Don Cook
Chief Financial Officer
(403) 215-8313
(403) 265-8324 (FAX)

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