Pearl Exploration and Production Ltd.



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  Nov 9, 2011 - 17:28 ET
BlackPearl Announces Third Quarter 2011 Financial and Operating Results

 

CALGARY, ALBERTA--(Marketwire - Nov. 9, 2011) - 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 nine months ended September 30, 2011.

Third quarter highlights include:

  • Blackrod SAGD pilot has been steaming for over five months; oil production is at 200 bbls/day and is continuing to ramp-up;
  • Polymer injection commenced in July on Phase One of our ASP flood at Mooney; heavy oil processing facility is under construction and we began drilling on Phase Two expansion lands;
  • Thermal (SAGD) application has been filed for a 12,000 bbl/day project at Onion Lake; planning to build a heavy oil battery and pipeline;
  • Successful drilling results achieved at John Lake and Zoller Lake;
  • Oil production averaged 8,113 boe/day, a 22% increase compared to Q3 2010;
  • Revenues increased 33% to $44.6 million compared to Q3 in 2010;
  • Cash flow from operations increased 34% to $18.9 million compared with $14.1 million in Q3 2010;
  • Maintained a strong balance sheet with working capital of $64.2 million and no debt after incurring capital expenditures of $135.7 million in the first nine months of the year.

John Festival, President of BlackPearl, commenting on Q3 2011 activities, indicated that, "We have made excellent progress advancing all three of our core properties in the third quarter.

At Blackrod, we are extremely pleased with the development of the SAGD pilot. All of our early milestones have been met and we are confident we will meet our commercial targets for our pilot in terms of steam-oil-ratio and peak oil production rate. Based on the consistent geology across our Blackrod lease, this pilot will be able to validate the entire project potential of over 70,000 barrels of oil per day.

At Onion Lake, we have slowed our conventional drilling program while waiting for enhanced oil recovery approval for our SAGD project at Onion Lake. We expect this approval within six months and we will continue with our conventional drilling at that time.

Our near term growth will continue with conventional horizontal drilling at our Mooney project, in preparation for our Phase Two polymer flood. While initially delayed by forest fires in the spring, Phase One of our polymer flood at Mooney is now operational and we anticipate initial response in the next six to twelve months.

In addition, we have advanced some of our non-core assets with successful drilling at John Lake, Zoller Lake and Salt Lake, which are currently producing over 750 barrels of oil per day. Our ability to sell these properties in the future and redeploying the capital into our core properties will reduce our requirement to raise capital and dilute our shareholders as we move towards our target of 30,000 barrels of oil per day in 2015."

Property Review

Blackrod SAGD Pilot Project

At Blackrod, we initiated steam injection in the SAGD well pair in June. In September, we installed a downhole pump in the lower horizontal well and commenced oil production. Oil production has been steadily increasing, with current production at over 200 barrels of oil per day. We anticipate in the next six to twelve months the well will reach its target production range of 500 – 800 barrels per day.

We are also continuing to work on our commercial development application and we are on target to file this application with regulatory authorities during the first quarter of 2012. Our original plan was to initially seek approval for a 40,000 barrel per day project, but we have since decided to file the application for an 80,000 barrel per day project to reflect the entire scope of the project. The first phase of the project will likely be 10,000 to 20,000 barrels per day.

The Blackrod leases have a recoverable contingent resource assigned to them in excess of 600 million barrels of oil and have the potential to support a development of over 80,000 barrels of oil per day.

Onion Lake

Onion Lake is a conventional heavy oil property that also provides us with a significant thermal SAGD opportunity. In our last update we indicated that we were going to temporarily slow-down our conventional drilling program. This will allow us time to drill the horizontal wells that will be used when we transition to SAGD development. Drilling the horizontal wells before further conventional development occurs will reduce the risk associated with drilling in a partially depleted reservoir. We have filed an application with regulatory authorities for a 12,000 barrel per day SAGD project. Upon approval, expected in the first half of 2012, we will immediately commence drilling up to 14 horizontal wells which will be used as oil producers when SAGD operations begins. In addition, we plan to drill up to 10 conventional vertical wells before year-end in areas that will not impact future SAGD development.

Our focus at Onion Lake for the next few months is to optimize production from the wells drilled during the first half of the year as well as plan for the construction of a heavy oil treating facility and a 30 kilometre pipeline that would tie into an oil gathering system. Owning infrastructure in our core areas ensures we retain more control over the entire operation and are less reliant on third party facilities.

Mooney

At Mooney, Phase One of the ASP (Alkali, Surfactant, Polymer) flood began in July, with the initial injection of chemicals and water. We encountered minor problems with some of the surface facilities during the start-up phase but these issues have been resolved and we have been continuously injecting for over three months. The objective is to initially re-pressurize the reservoir, after which we would expect to see response through increased oil production. It is expected to take six to twelve months to re-pressurize the reservoir and then an additional six to twelve months to reach peak production rates of between 3,000 and 4,000 barrels of oil per day. Construction of the heavy oil battery to handle increased fluid volumes is on-going and we expect to have the facility in operation by mid 2012.

As a result of the temporary slow-down in drilling at Onion Lake we have shifted some of our 2011 capital program to Mooney. We expect to drill up to 14 horizontal wells before year-end, 10 of which will be drilled on the Phase Two expansion lands. These wells will be produced conventionally until we add them to the ASP flood in the future.

Non-core Areas

John Lake is a conventional heavy oil project located in the Cold Lake oil sands region. We have drilled three successful horizontal wells in the area during the last 12 months and plan to drill an additional five wells before year-end. Oil production from the area has increased to over 400 barrels per day. We believe the area has the potential to support a development of 40 to 50 horizontal wells. We own 100% of this project.

Zoller Lake, in central Saskatchewan, is a heavy oil prospect in the Birdbear formation. During the third quarter we drilled two successful horizontal wells, each producing over 100 barrels of oil per day. We are planning to drill up to four additional wells next year. We own 100% of this project.

Production

Oil and gas production averaged 8,113 boe (barrels of oil equivalent) per day in the third quarter of 2011, a 22% increase from the comparable quarter in 2010. In addition, Q3 2011 production represented a 24% increase above Q2 2011 levels. The increase in production is mainly attributable to the 63 wells drilled at Onion Lake in the spring, the majority of which were put on production during Q3 2011. We still have 18 wells from this spring drilling program to bring on production. These wells will be brought on production when our thermal development plan receives regulatory approval which is expected in the first half of 2012.

In Q3 2011, we commenced ASP injection at Mooney and expect to see increased oil production in 6 to 12 months. Initially, production from Mooney will be lower than prior periods as we converted 22 producing oil wells to injectors as part of the ASP flood.

Three months ended
September 30,
Nine months ended
September 30,
(boe/day) 2011 2010 2011 2010
Onion Lake 7,065 5,157 6,092 4,855
Mooney
ASP flood area 175 788 274 880
Non-flood areas 334 102 408 124
John Lake 401 53 320 42
Other 138 546 135 930
8,113 6,646 7,229 6,831

Financial Results

Oil and gas revenues increased 33% in the third quarter of 2011 to $44.6 million compared with $33.4 million in Q3 2010. The increase was primarily attributable to a 22% increase in oil sales volumes and higher crude oil prices in 2011.

The higher wellhead price reflects stronger WTI oil prices in Q3 2011 compared with 2010 (US$89.74/bbl vs US$76.08/bbl), partially offset by an increase in heavy oil differentials (Cdn$17.27/bbl vs Cdn$15.66/bbl). The Canadian dollar was stronger in 2011 compared to the US dollar (0.98 in Q3 2011 compared with 1.039 in Q3 2010), which reduced the revenues we would otherwise receive.

Operating costs were $18.31 per boe in Q3 2011, which is higher than previous quarters. The increase reflects bringing on a significant number of new wells at Onion Lake during Q3. These 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. In addition, although the incremental costs of initially re-pressurizing the reservoir at Mooney are being capitalized, the existing operating costs are continuing with lower production levels (since half the wells were converted to injectors), which contributes to higher operating costs on a per barrel basis.

The increase in oil production and higher wellhead prices resulted in cash flow from operations (before working capital adjustments) increasing 34% in Q3 to $18.9 million compared to $14.1 million for the same period in 2010.

Financial and Operating Highlights

Three months ended
September 30
Six months ended
September 30
2011 2010 2011 2010
Daily production / sales volumes (1)
Oil (bbl/d) 8,028 6,166 7,033 6,208
Natural gas (mcf/d) 512 2,881 1,176 3,738
Combined (boe/d) 8,113 6,646 7,229 6,831
Product pricing ($)
Crude oil - per bbl 59.87 57.17 62.18 58.51
Natural gas - per mcf 4.10 3.52 3.91 4.26
Combined - per boe 59.70 54.66 61.46 55.83
($000's, except per share and boe amounts)
Revenue
Oil and gas revenue – gross 44,564 33,421 121,283 104,124
Royalties ($/boe) 13.82 14.61 15.84 14.56
Transportation costs ($/boe) 0.31 1.42 0.49 1.10
Operating costs ($/boe) 18.31 13.57 17.80 15.10
Net income (loss) for the period (51) (1,443) 3,407 4,746
Per share, basic and diluted
Basic 0.00 (0.01) 0.01 0.02
Diluted 0.00 (0.01) 0.01 0.02
Cash flow from operating activities, before working capital adjustments 18,924 14,136 49,355
43,091
Capital expenditures 40,499 19,926 135,660 57,796
Working Capital, end of period 64,167 92,006 64,167 92,006
Long term debt - - - -
Shares outstanding, end of period 284,732,011 272,900,553 284,732,011 272,900,553
(1) Boe amounts are based on a conversion ratio of 6 mcf of gas to 1 barrel of oil. Boe's 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.

2012 Guidance

In 2012, we expect our capital spending to be between $125-$135 million. A major emphasis of our capital spending program next year will be on building infrastructure in each of our core areas. These infrastructure projects include:

  • Constructing a heavy oil battery at Mooney to handle increased volumes from the ASP flood;
  • Building a heavy oil battery at Onion Lake and planning for a pipeline to connect the facilities to a major oil gathering system;
  • Drill up to 14 horizontal wells at Onion Lake that will eventually be used for thermal development of the property.

Although these infrastructure projects do not add to our production base they are necessary to efficiently develop and control operations in our core areas.

In addition to these infrastructure projects, we will continue with our conventional development program at Onion Lake with up to 50 wells planned. We also plan to drill 5 to 10 horizontal wells on phase two lands at Mooney. At Blackrod, we will begin the detailed engineering work for the first commercial development phase of our SAGD project as well as drill 10 additional delineation wells required for the commercial application.

It is expected that this capital program will be funded from existing working capital and anticipated cash flow from operations. We also have an unutilized $25 million line of credit that is available. We have a lot of flexibility in our capital program and if cash flows are lower than anticipated we are able to adjust capital spending if required.

We are also planning to sell some of our non-core properties in 2012. If we are successful in selling properties we would likely expand our capital program and accelerate the development in our core areas.

Exit production levels for 2012 are expected to be approximately 12,500 boe per day. The most significant increase in production is expected to come from the response of phase one of the ASP flood at Mooney.

The 2011 third 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 (www.blackpearlresources.ca) or SEDAR (www.sedar.com).

This news release includes terms commonly used in the oil and natural gas industry, such as cash flow and cash flow from operations which represent cash flow from operating activities expressed before changes in non-cash working capital. These terms are used by the Company to analyze operating performance, leverage and liquidity and to provide shareholders and investors with additional information to measure the Company's performance and efficiency and its ability to fund a portion of its future activities and to service any long-term debt if incurred in the future. These terms do not have standardized meanings prescribed by GAAP and therefore may not be comparable with the calculation of similar measures by other entities. Consequently, these are referred to as non-GAAP measures.

Forward-Looking Statements

This news 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 historical fact are forward-looking statements. Forward-looking information typically contains statements with words such as "anticipate", "believe", "plan", "continuous", "estimate", "expect", "may", "will", "project", "should", or similar words suggesting future outcomes. In particular, this document contains forward-looking statements pertaining to the Company's estimated production levels of the Blackrod SAGD pilot, resource estimates at Blackrod as well as potential production levels from the area, timing of regulatory approvals at Onion Lake and development plans at Onion Lake, Blackrod and Mooney as well as 2012 guidance information.

Statements relating to reserves and contingent resources are forward-looking, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and contingent resources described exist in the quantities predicted or estimated and can profitably be produced in the future.

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 be realized. Actual results will differ, and the differences may be material and adverse to the Company and its shareholders.

With respect to forward-looking statements contained in this press release, management has made assumptions regarding future production levels; future oil and natural gas prices; future operating costs; timing and amount of capital expenditures; the ability to obtain financing on acceptable terms; availability of skilled labour and drilling and related equipment; general economic and financial market conditions; continuation of existing tax and regulatory regimes; 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 very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and risks that the goals or figures contained in forward-looking statements will not be achieved. These factors include, but are not limited to, risks associated with fluctuations in market prices for crude oil, natural gas and diluent, general economic, market and business conditions, substantial capital requirements, uncertainties inherent in estimating quantities of reserves and resources, extent of, and cost of compliance with, government laws and regulations and the effect of changes in such laws and regulations from time to time, the need to obtain regulatory approvals on projects before development commences, environmental risks and hazards and the cost of compliance with environmental regulations, aboriginal claims, inherent risks and hazards with operations such as fire, explosion, blowouts, mechanical or pipe failure, cratering, oil spills, vandalism and other dangerous conditions, potential cost overruns, variations in foreign exchange rates, diluent supply shortages, competition for capital, equipment, new leases, pipeline capacity and skilled personnel, uncertainties inherent in the SAGD bitumen recovery process, credit risks associated with counterparties, the failure of the Company or the holder of licences, leases and permits to meet requirements of such licences, leases and permits, reliance on third parties for pipelines and other infrastructure, changes in royalty regimes, failure to accurately estimate abandonment and reclamation costs, inaccurate estimates and assumptions by management, effectiveness of internal controls, the potential lack of available drilling equipment and other restrictions, failure to obtain or keep key personnel, title deficiencies with the Company's assets, geo-political risks, risks that the Company does not have adequate insurance coverage, risk of litigation and risks arising from future acquisition activities. Further information regarding these risk factors may be found under "Risk Factors" in the Annual Information Form. Readers are cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate at the time of preparation, may prove to be incorrect. Accordingly, readers are cautioned that the actual results achieved will vary from the information provided herein and the variations could be material. Readers are also cautioned that the foregoing list of factors is not exhaustive. Consequently, there is no representation by the Corporation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained in this report 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. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

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 December 31, 2011 will be published on or before February 28, 2012.



FOR FURTHER INFORMATION PLEASE CONTACT:

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)
www.blackpearlresources.ca
 
 

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