Pearl Exploration and Production Ltd.



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  Jan 30, 2018 - 17:00 ET
BlackPearl Announces Onion Lake Construction Update, Provides Q4 Production Data and 2017 Year-End Reserves and Contingent Resource Estimates

 

CALGARY, ALBERTA--(Marketwired - Jan. 30, 2018) - BlackPearl Resources Inc. ("we", "our", "us", "BlackPearl" or the "Company") (TSX:PXX) (OMX:PXXS) is pleased to provide a construction update on its Onion Lake thermal expansion project and Q4 2017 production information, as well as, announce the results of its 2017 independent year-end oil and gas reserve and resource evaluation.

Highlights and accomplishments included:

  • Construction of the Phase 2 expansion of the Onion Lake thermal project is ahead of schedule and within budget. Commissioning of the facilities has begun and steam injection is expected to begin in February.
  • Q4 2017 production averaged 10,600 boe/day; full year production averaged 10,199 boe/day.
  • 24% year over year increase in total proved (1P) reserves to 94.4 mmbbls. The increase primarily reflects positive technical revisions due to the performance from Phase 1 of the Onion Lake thermal project as well as an increase in the Onion Lake thermal development area to which reserves were assigned.
  • 48% increase in net present value, before tax, discounted at 10% of our 1P reserves to $1.1 billion, or $3.23 per common share.
  • 1P reserve additions replaced 583% of 2017 production.
  • Net present value, before tax, discounted at 10% of our proved plus probable (2P) reserves was $2 billion, or $6.00 per common share. This value is comparable to 2016 despite a 48% drop in 2P reserve volumes. The decrease in 2P reserve volumes was due to the previously announced reclassification of the probable reserves to resources associated with the first phase of the Blackrod SAGD project. This reclassification is the result of a change in the Company's strategic plan to accelerate the expansion of the Onion Lake thermal project before we commence development of the first phase of the Blackrod SAGD project. The reclassification does not impact management's positive assessment of or its commitment to develop the Blackrod project.
  • 28% increase in 2P reserve volumes at Onion Lake.
  • Risked contingent resources (best estimate) for our three core properties totaled 640 million barrels of oil equivalent, a 28% increase compared to year-end 2016 resource estimates. The increase reflects the reclassification of the Blackrod reserves discussed above.

John Festival, President of BlackPearl, indicated that "we are very pleased with the progress of the Onion Lake expansion project. Due to our committed operations staff and favourable weather conditions we are going to complete the project well ahead of schedule. We expect to commence steam injection in February.

We are also pleased with the significant increase in proved reserves, which reflects the positive results of our Onion Lake thermal project. These results were one of the primary reasons we made a change in our strategic plan to accelerate the next expansion of Onion Lake before we tackle development of our Blackrod SAGD project. Full cycle economics of our Onion Lake thermal project are best in class compared to North American oil projects. The increased cash flow generated from an expanded Onion Lake project will put us in a better financial position to develop the large Blackrod project. The consequence of this shift in strategy is that regulatory rules necessitate the reclassification of the Blackrod reserves to resources, but we are still very committed to development of this large resource."

Onion Lake Construction Update

We have made excellent progress over the last two months on the construction of the 6,000 barrel per day phase 2 thermal expansion at Onion Lake and construction is nearing completion, approximately five months ahead of our original estimate. Capital costs are trending toward the low end of our original estimates of $180- 185 million. We have started the commissioning of the central processing facilities and steam is expected to be delivered to the first pad of wells in February. Steam injection to the second pad of wells will occur approximately one month later. First oil is expected before the end of Q2 2018. We anticipate reaching peak production approximately 12 months after initial steam injection, a similar timeline to that achieved for phase 1.

Production Update

BlackPearl's Q4 2017 oil and gas sales volumes were 10,600 boe per day, a 17% increase over production during the third quarter. The increase in fourth quarter production is mainly attributable to the successful restart of the Onion Lake thermal facilities after completion of a facility turnaround during the third quarter.

Three months ended
December 31
Year ended
December 31
Production by Area (boe/d) 2017 2016 2017 2016
Onion Lake - thermal 6,204 6,119 5,686 5,520
Onion Lake - primary 1,917 2,011 2,022 2,135
Mooney 1,178 785 1,096 801
John Lake 699 837 770 863
Blackrod 481 523 490 556
Other 121 204 135 202
Total production 10,600 10,479 10,199 10,077

Oil and Gas Reserves

The following tables summarize certain information contained in the independent reserves report prepared by Sproule Associates Limited ("Sproule") as of December 31, 2017. The report was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Additional reserve information as required under NI 51-101 will be included in the Company's Annual Information Form which is expected to be filed on SEDAR on February 22, 2018. It should not be assumed that the net present value of reserves estimated by Sproule represents the fair market value of these reserves.

Summary of Oil and Gas Reserves

(Company interest, before royalties)
Heavy
Crude Oil


Bitumen

Natural
Gas

2017
Total

2016
Total
(Mbbl) (Mbbl) (MMcf) (MBoe) (MBoe)
Proved developed producing 18,378 426 - 18,804 19,125
Proved developed non-producing 13,247 - 5 13,248 3,428
Proved undeveloped 62,321 - 3 62,322 53,840
Total proved 93,946 426 8 94,374 76,393
Probable 68,038 21 7 68,060 235,186
Total proved plus probable 161,984 447 15 162,434 311,579
Notes:
(1) BOE's may be misleading, particularly if used in isolation. In accordance with NI 51-101, 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.
Net Present Value of Reserves
Net Present Value of Future Net Revenue Discounted at %/year
($000s) 0% 5% 10% 15% 20%
Before Tax
Proved
Developed producing 455,399 402,162 354,620 314,838 282,110
Developed non-producing 272,154 239,688 208,828 181,899 159,021
Undeveloped 1,516,483 868,783 521,732 327,678 213,734
Total proved 2,244,035 1,510,633 1,085,180 824,416 654,865
Probable 3,143,580 1,619,000 932,438 588,985 399,242
Total proved plus probable 5,387,615 3,129,634 2,017,618 1,413,400 1,054,106
After Tax
Proved
Developed producing 455,399 402,162 354,620 314,838 282,110
Developed non-producing 265,751 235,301 205,765 179,725 157,453
Undeveloped 1,268,764 710,338 415,748 254,094 161,026
Total proved 1,989,914 1,347,801 976,134 748,657 600,589
Probable 2,594,909 1,295,166 725,135 447,556 297,872
Total proved plus probable 4,584,823 2,642,967 1,701,269 1,196,212 898,461
Notes:
(1) Based on Sproule's December 31, 2017 forecast prices.
(2) Columns may not add due to rounding.

Estimated Future Development Capital

The following table summarizes the future development capital ("FDC") Sproule estimates is required to bring total proved and total proved plus probable reserves on production.

($ Millions) Total Proved Total Proved + Probable
2018 59.0 59.1
2019 36.5 86.6
2020 56.3 95.6
2021 29.4 42.0
2022 37.2 25.4
Remainder 537.1 651.4
Total FDC undiscounted 755.5 960.1
Total FDC discounted at 10% 376.6 450.5

Reconciliation of Changes in Reserves

The following table summarizes the changes in Sproule's evaluation of the Company's share of oil and natural gas reserves (before royalties) from December 31, 2016 to December 31, 2017.

Heavy
Crude Oil

Bitumen
Natural
Gas

BOE
(Mbbl) (Mbbl) (MMcf) (MBOE)
Proved
Balance, Dec 31, 2016 75,260 1,057 456 76,393
Extensions and improved recovery 18,284 8 18,285
Technical revisions 3,931 (452) (247) 3,438
Economic factors (20) (20)
Production (3,509) (179) (209) (3,723)
Balance, Dec 31, 2017 93,946 426 8 94,374
Probable
Balance, Dec 31, 2016 56,374 178,742 421 235,186
Extensions and improved recovery 14,904 7 14,905
Technical revisions (3,348) (178,721) (2) (421) (182,139)
Economic factors 108 108
Production
Balance, Dec 31, 2017 68,038 21 7 68,061
Proved plus Probable
Balance, Dec 31, 2016 131,634 179,799 877 311,579
Extensions and improved recovery 33,188 15 33,191
Technical revisions 583 (179,173) (668) (178,700)
Economic factors 88 88
Production (3,509) (179) (209) (3,723)
Balance, Dec 31, 2017 161,984 447 15 162,434
Note:
(1) Columns may not add due to rounding
(2) Includes technical revisions of bitumen associated with the Blackrod SAGD project that were reclassified to contingent resources

Pricing Assumptions

The pricing assumptions used in the Sproule evaluation are summarized below.

Year
WTI
Cushing
40° API
Canadian Light Sweet Crude
40° API
Western
Canadian Select
20.5° API

Alberta
AECO-C
Spot



Inflation rate


Exchange rate
(US$/bbl) (CDN$/bbl) (CDN$/bbl) (CDN$/MMBtu) (%/yr) (US$/Cdn$)
2018 55.00 65.44 51.05 2.85 0.0 0.790
2019 65.00 74.51 59.61 3.11 2.0 0.820
2020 70.00 78.24 64.94 3.65 2.0 0.850
2021 73.00 82.45 68.43 3.80 2.0 0.850
2022 74.46 84.10 69.80 3.95 2.0 0.850
2023 75.95 85.78 71.20 4.05 2.0 0.850
2024 77.47 87.49 72.62 4.15 2.0 0.850
2025 79.02 89.24 74.07 4.25 2.0 0.850
2026 80.60 91.03 75.55 4.36 2.0 0.850
2027 82.21 92.85 77.06 4.46 2.0 0.850
2028 83.85 94.71 78.61 4.57 2.0 0.850
Escalation rate of 2.0% thereafter
Notes:
(1) The pricing assumptions were provided by Sproule.
(2) None of the Company's future production is subject to a fixed or contractually committed price.

Definitions:

  1. "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
  2. "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
  3. "Developed" reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (e.g. when compared to the cost of drilling a well) to put the reserves on production.
  4. "Developed Producing" reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.
  5. "Developed Non-Producing" reserves are those reserves that either have not been on production, or have previously been on production, but are shut in, and the date of resumption of production is unknown.
  6. "Undeveloped" reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned.
  7. The Net Present Value (NPV) is based on Sproule forecast pricing and costs. The estimated NPV does not necessarily represent the fair market value of our reserves. There is no assurance that forecast prices and costs assumed in the Sproule evaluations will be attained, and variances could be material.

Contingent Resources

In addition to the reserve evaluation discussed above, the Company also requested Sproule prepare resource evaluations for each of its core properties: Blackrod, Onion Lake and Mooney. The following tables summarize certain information contained in the contingent resource evaluations prepared by Sproule as of December 31, 2017. The reports were independently prepared in accordance with definitions, standards and procedures contained in the COGE Handbook.

It should not be assumed that the estimates of recovery, production, and net revenue presented in the tables below represent the fair market value of the Company's contingent resources. There are certain contingencies which currently prevent the classification of these contingent resources as reserves. Information on these contingencies is provided in the footnotes to the tables below. There is no certainty that it will be commercially viable to produce any portion of the contingent resources. Please refer to our Annual Information Form (to be filed on February 22, 2018) for a more detailed discussion of our contingent resources.

Summary of Best Estimate Contingent Resource Volumes - By Property (1)(2)

Unrisked Volumes Risked Volumes(4)

Heavy Crude Oil

Bitumen

Heavy Crude Oil

Bitumen
Project Maturity
Subclass
(3)
Chance of Development(4) Gross(5) Net (5) Gross(5) Net (5) Gross(5) Net Gross(5) Net (5)
Blackrod (6) (Mbbl) (Mbbl) (Mbbl) (Mbbl)
First phase Development/ pending 94% 179,294 141,971 168,536 133,453
Future phases Development/ on hold 77% 566,135 461,358 435,924 355,246
Onion Lake (7)
Thermal Development/ pending 85% 27,035 21,356 22,980 18,153
Primary Development/ pending 90% 1,154 851 1,038 766
Mooney (8) Development/ on hold 71% 15,904 13,791 11,292 9,792

Summary of Net Present Value of Future Net Revenue of Development Pending Contingent Resources

The following table sets forth the net present value of BlackPearl's best estimate risked contingent resources in the development pending project maturity sub-class at December 31, 2017.

An estimate of risked net present value of future net revenues of the "development pending" contingent resources subclass is preliminary in nature and is provided to assist the reader in reaching an opinion on the merit and likelihood of the Company proceeding with the required investment. It includes contingent resources that are considered too uncertain with respect to the chance of development to be classified as reserves. There is uncertainty that the risked net present value of future net revenue will be realized. The other subclass of resources (development on hold) is not included in this net present value amount, and therefore, this is not reflective of the value of the resources base.

Net Present Values of Future Net Revenue Before Income Taxes
Discounted at (%/year)
0% 5% 10% 15% 20%
Project ($M)
Blackrod (6) (first phase) 4,110,612 1,470,349 554,602 200,879 53,197
Onion Lake (7) (thermal) 746,710 322,153 151,364 76,040 39,853
Onion Lake (7) (primary) 13,247 9,349 6,643 4,762 3,446
Notes:
(1) Contingent Resources are defined in the COGE Handbook as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as Contingent Resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage.
(2) There are three classifications of contingent resources: Low Estimate, Best Estimate and High Estimate. Best estimate is a classification of estimated resources described in the COGE Handbook as being considered to be the best estimate of the quantity that will be actually recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the best estimate.
(3) Contingent resources are further classified based on project maturity. The project maturity subclasses include development pending, development on hold, development unclarified and development not viable. All of the Company's contingent resources are classified as either development pending or development on hold:
(a) Development pending is where resolution of the final conditions of development are being actively pursued, indicating there is a high chance of development.
(b) Development on hold is where there is a reasonable chance of development, but there are major non-technical contingencies to be resolved that are usually beyond the control of the operator.
(4) Chance of Development is defined as the probability of a project being commercially viable. Sproule's estimate of unrisked contingent resources have been adjusted for risk based on the chance of development (risked amounts represent unrisked values multiplied by the Chance of Development).
(5) "Gross" means the Company's working interest share in the contingent resources before deducting royalties. "Net" means the Company's working interest share after the deduction of royalty obligations. The Company has a 100% working interest at Blackrod and Mooney and the Onion Lake thermal project, and a 50 to 100% working interest at Onion Lake Primary.
(6) The established recovery technology to be used to recover the contingent resources of the Blackrod project is the SAGD process, the same process that is being used in the successful pilot that is currently being conducted within the Blackrod reservoir.
The contingencies in the Sproule Report associated with the Company's contingent resources for the first phase of the Blackrod project are due to (a) the absence of corporate commitment related to the final investment decision and endorsement from the Board of Directors of the Company to move forward with commercial development and a final investment decision will not likely occur for several years and (b) the estimated timing of production and development may commence beyond the reasonable time periods described in the COGE Handbook to be classified as reserves. For the contingent resources associated with the first phase of the Blackrod project, the estimated timing of first commercial production is 2024 and the estimated capital to reach first commercial production is $0.8 billion (unrisked and escalated for inflation).
The contingencies in the Sproule Report associated with the Company's contingent resources for the future phases of the Blackrod project are due to the following: (a) the requirement for more evaluation drilling, as required by the regulatory process, to define the reservoir characteristics to assist in the implementation and operation of the SAGD process; (b) the absence of submission of an application to expand the commercial SAGD development beyond the phase 1 project area; (c) the absence of corporate commitment related to the final investment decision and endorsement from the Board of Directors of the Company to move forward with commercial development of future phases of the Blackrod project and a final investment decision will not likely occur for several years; and (d) the uncertainty of timing of production and development of future phases of the Blackrod project. For the contingent resources associated with future phases of the Blackrod project, the estimated timing of first commercial production is 2028 and the estimated capital to reach first commercial production is $1.2 billion (unrisked and escalated for inflation).
(7) The recovery of the Company's Onion Lake contingent resources will use a combination of production processes: the established modified SAGD process for future phases of the Onion Lake thermal project, the same process that is already utilized commercially in phase 1 of the Onion Lake thermal project; and the established cold heavy oil production with sand (CHOPS) process to extend the primary development area, the same CHOPS process that has already been extensively deployed throughout the field.
For the Onion Lake thermal project, the contingencies in the Sproule Report associated with the Company's Onion Lake contingent resources are due to the following: (a) the requirement for more evaluation drilling to define the reservoir characteristics to assist in the implementation and operation of the modified SAGD recovery process; and (b) approvals between the Company and OLCN/OLE and Saskatchewan Energy and Resources (SER) for thermal EOR development in the lands currently leased by the Company but outside the thermal EOR development area; and (c) the estimated timing of production and development is beyond the reasonable time periods described in the COGE Handbook to be classified as reserves. For the Onion Lake thermal project contingent resources, the estimated timing of first commercial production is 2022, while the estimated capital to reach first commercial production is $61.2 million (unrisked and escalated for inflation).
For the extension of the primary development area, the contingencies in the Sproule Report associated with the Company's Onion Lake contingent resources are due to the following: (a) the requirement for more evaluation drilling to confirm the geological continuity of the reservoir and reduce the distance from proven productivity; and (b) the potential for the current agreements with the Onion Lake Cree Nation (OLCN), which are subject to policies and approvals by Indian Oil and Gas Canada (IOGC), required to be renegotiated due to changes imposed by IOGC. First commercial production for the primary development area has already been achieved and, as a result, estimated capital to reach first commercial production is nil.
(8) The established recovery technology to be used for phases 3 and 4 of the Mooney project is the established ASP flood process, the same process that is already deployed commercially in phase 1 of the Mooney field. The contingencies in the Sproule Report associated with the Company's Mooney contingent resources are due to the following: (a) the requirement for more evaluation wells to confirm the reservoir characteristics needed for the ASP process; (b) the absence of regulatory approvals to expand the ASP development area beyond the phase 1 and phase 2 project areas; (c) the absence of a final investment decision from the Board of Directors of the Company to move forward with the ASP flood expansion to phases 3 and 4 of the Mooney project and (d) the uncertainty of timing of production and development of phases 3 and 4 of the Mooney project. First commercial production for the Mooney ASP flood has already been achieved and, as a result, estimated capital to reach first commercial production at the Mooney ASP flood is nil.
(9) The pricing assumptions used by Sroule in the determination of the NPV of the "development pending" contingent resources were the same as those used to determine the NPV of the oil and gas reserves.

Other

The Company is planning to release its 2017 year-end financial and operating results on February 22, 2018.
At December 31, 2017, the Company had 336,267,235 common shares outstanding.

Forward-Looking Statements

This release contains certain forward-looking statements and forward-looking information (collectively referred to as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of historic fact are forward-looking statements. Forward-looking statements are typically identified by such words as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "potential", "targeting", "intend", "could", "might", "should", "believe" or similar words suggesting future events or future performance. In particular, this release contains the following forward-looking statements:

  • The estimated volumes and net present values of BlackPearl's proved and probable reserves and contingent resources as well as the estimated future development capital to bring the reserves on production.
  • The estimate that initial steam injection will occur in February 2018 on phase 2 of the Onion Lake thermal project and that peak production rates should occur within 12 months after initial steam injection
  • The estimated capital costs to construct phase 2 of the Onion Lake thermal project of between $180 to $185 million.

The forward-looking information is based on, among other things, expectations and assumptions by management regarding its future growth, future production levels, future oil and natural gas prices, continuation of existing tax, royalty and regulatory regimes, foreign exchange rates, estimates of future operating costs, timing and amount of capital expenditures, performance of existing and future wells, recoverability of the Company's reserves and contingent resources, the ability to obtain financing on acceptable terms, availability of skilled labour and drilling and related equipment on a timely and cost efficient basis, continuance of current general economic and financial market conditions, environment matters and the ability to market oil and natural gas successfully to current and new customers. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their nature, forward-looking statements involve numerous known and unknown risks and uncertainties that contribute to the possibility that actual results will differ from those anticipated in the forward-looking statements. Further information regarding these risk factors may be found under "Risk Factors" in the Annual Information Form, which can be accessed on SEDAR at www.sedar.com.

Undue reliance should not be placed on these forward-looking statements. There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will be realized. Actual results will differ, and the differences may be material and adverse to the Company and its shareholders. Furthermore, the forward-looking statements contained in this release are made as of the date hereof, and the Company 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. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

This is information that BlackPearl Resources Inc. is obliged to make public pursuant to the EU Market Abuse Regulation and the Swedish Securities Markets Act. The information was submitted for publication at 3:00 p.m. Mountain Time on January 30, 2018.



FOR FURTHER INFORMATION PLEASE CONTACT:

John Festival
President and Chief Executive Officer
Tel.: (403) 215-8313

Don Cook
Chief Financial Officer
Tel: (403) 215-8313

Robert Eriksson
Investor Relations Sweden
Tel.: +46 8 545 015 50
 
 

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