Pearl Exploration and Production Ltd.



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  Nov 6, 2014 - 17:45 ET
BlackPearl Announces Third Quarter 2014 Financial and Operating Results

 

CALGARY, ALBERTA--(Marketwired - Nov. 6, 2014) - BlackPearl Resources Inc. ("BlackPearl" or the "Company") (TSX:PXX)(OMX:PXXS) is pleased to announce its financial and operating results for the three and nine months ended September 30, 2014.

Third quarter highlights include:

  • Oil and gas production for the quarter averaged 9,248 boe/day, a 4% increase compared to the second quarter;

  • At Onion Lake, construction of the first 6,000 bbl/d phase of the thermal project continued throughout the quarter including delivery of over 35% of the modules (42 of 115 units) for the central processing facilities. The drilling of the horizontal production wells and vertical injector wells also commenced during the quarter. The project is on budget and on schedule to commence steam injection in mid-2015;

  • At Blackrod, production from the second pilot well pair continues to ramp-up and is currently producing in excess of 375 bbl/d at an instantaneous steam oil ratio of 3.2;

  • At Mooney, a new EOR royalty incentive program implemented by the Alberta government will have a positive impact on our Mooney ASP flood and we are planning to expand the flood in early 2015;

  • Lower oil prices and wider heavy oil differentials contributed to a 15% decrease in revenues in the quarter to $58.8 million compared with Q3 2013. For the first nine months of 2014, revenues increased 7% to $180.5 million compared to the first nine months of 2013;

  • Funds flow from operations was $23.8 million compared to $32.6 million in Q3 2013. For the first nine months of 2014, funds flow from operations was $70.0 million, a 7% increase from the first nine months of 2013;

  • Net earnings were $7.0 million in the quarter compared with $9.3 million in Q3 2013. For the first nine months of 2014, net earnings were $10.6 million, a 70% increase from the first nine months of 2013;

  • A healthy balance sheet was maintained with net debt of $29.5 million and an unutilized $150 million line of credit at the end of Q3 2014.

John Festival, President of BlackPearl, commenting on Q3 2014 activities, indicated that:

"Our focus in 2014 has been on building the first phase of the thermal EOR project at Onion Lake. Construction progress to date gives us confidence that we will meet our mid-2015 target start-up date for this project.

Production growth and the steam oil ratio in the second SAGD pilot well at Blackrod continues to perform in line with our expectations. This well should reach its peak production rates in the next six to nine months. The successful pilot along with commercial development approval, which is anticipated in the next few months, significantly reduces development risk of this project, and should improve our ability to finance the commercial development of the project.

Although crude oil prices have dropped in the last few weeks, the decrease for heavy crudes has been more muted than light oil due to lower heavy oil differentials and a weaker Canadian dollar. Our wellhead price in the third quarter was in the mid-$70s/bbl, which is still above historical averages. Our current wellhead price is around $65/bbl, which is similar to the average price realized from 2010 to 2013. In addition, our current hedging program will result in 40% of our production receiving a price in excess of $70/bbl for the next six months."

Property Review

Blackrod SAGD Pilot Project

Production continues to ramp-up from the second pilot well pair at Blackrod. Steam injection and circulation in this well commenced in November 2013 and the well was converted to SAGD production in March 2014. Typically, it takes 9 to 18 months after the well is converted to production to reach peak production rates. The well pair has produced over 50,000 barrels of oil and during the third quarter production from the second well pair averaged 316 barrels of oil per day with a steam oil ratio of approximately 3.3. We are continuing to see increases in monthly production volumes; currently the well is producing over 375 barrels of oil per day with a steam oil ratio of 3.2. Recent oil analysis from the well indicates that we are still in the early stages of steam chamber development and we expect to reach our target peak production of 500 to 600 barrels of oil per day in the next six to nine months.

The initial pilot well pair continues to perform as expected and is producing approximately 175 barrels of oil per day under restricted steam injection rates.

We are continuing to work with the Alberta Energy Regulator (AER) to complete the regulatory requirements for our 80,000 barrel per day commercial development application for the Blackrod area. We received two statements of concern from stakeholders in the area regarding the development application. We are working with these groups and the AER to resolve their outstanding issues. We anticipate receiving regulatory approval for the project in the next six months.

Onion Lake

Construction of the 6,000 barrel per day thermal EOR project at Onion Lake continued throughout the quarter. The project remains on budget and on schedule for a mid-2015 start-up. At the end of September, 42 of 115 modules of the central processing facility were delivered to site and six of 12 horizontal producer wells were drilled. In addition, seven of 19 vertical injector wells and three water disposal wells were also drilled during the quarter. The remaining wells to be drilled are expected to be completed by year-end. We have also commenced construction of the 27 kilometer water source pipeline to bring source water to the steam generation facilities. Currently there are in excess of 100 construction workers on site.

In addition to construction of the thermal project, we also continued with our primary development program at Onion Lake, with 12 wells drilled during the third quarter. These wells were drilled outside of the current thermal development area.

Mooney

During the third quarter, the Alberta government implemented new royalty regulations for enhanced recovery projects, such as our ASP flood at Mooney. Generally, these new rules are positive for operators of new projects or expansion of existing projects and, as a result, we are planning to move ahead with the expansion of our ASP flood at Mooney. Under the new royalty structure, future phases of the ASP flood at Mooney are expected to pay a 5% royalty for the first eight to ten years of production. Currently, we are paying royalties of about 22% on phase 2 lands. We are completing some infrastructure improvement projects (water treatment and pipeline expansion) to accommodate expansion of the ASP flood to our phase 2 lands and expect to initiate polymer and chemical injection on these lands in early 2015. The expansion does not require drilling any additional wells; however, it will result in several existing wells being shut-in and converted to ASP injector wells. Initially this will result in a reduction in oil production of approximately 400 barrels of oil per day until we achieve a response from the ASP flood, expected in 12 to 18 months after initial injection.

Due to pressure restrictions imposed by a third party gas transmission operator in the Mooney area we are limited by the amount of solution gas we can deliver to these facilities. Limitations on gas deliveries reduces the amount of additional oil we can produce in the area. As a result, we have deferred additional drilling on the phase 3 lands at Mooney, likely until the second half of 2015. These pressure restrictions are not expected to have a significant impact on production from Phase 1 and 2 wells in the Mooney field.

Production

Oil and gas production averaged 9,248 boe per day in the third quarter of 2014 compared to 9,382 boe per day for the same period in 2013. Quarter over quarter production increased 4% from the second quarter this year. The increase reflects additional drilling at Onion Lake in the second quarter and the continued positive response from the SAGD pilot at Blackrod.

Three months ended
September 30,
Nine months ended
September 30,
(boe/day) 2014 2013 2014 2013
Onion Lake 4,203 4,678 4,132 4,666
Mooney 3,429 3,324 3,547 3,634
John Lake 1,025 940 1,053 841
Blackrod 478 303 332 227
Other 113 137 104 117
9,248 9,382 9,168 9,485

Financial Results

Oil and gas revenues were $58.8 million in the third quarter compared to $69.1 million in Q3 2013. The decrease in revenues is primarily attributable to an 11% decrease in our average oil price received this quarter compared with 2013. The lower realized wellhead price reflects lower WTI reference oil prices in Q3 2014 compared with Q3 2013 (US$97.17/bbl vs US$105.83/bbl), and wider heavy oil differentials (US$20.24/bbl vs US$17.48/bbl), partially offset by a weaker Canadian dollar relative to the US dollar ($0.918 vs $0.962).

Operating costs were $26.05 per boe in Q3 2014 compared with $19.95 per boe in Q3 2013. The increase in operating costs is primarily due to the expensing of all costs associated with the first phase of the ASP flood at Mooney. During the initial re-pressurization of the reservoir these costs were being capitalized.

Funds flow from operations was $23.8 million in Q3 2014 compared to $32.6 million in the same period in 2013. The decrease in funds flow in 2014 is primarily a result of lower wellhead sales prices in Q3 2014 compared to the same period in 2013. For the nine months ended September 30, 2014 funds flow from operations was $70.0 million, a 7% increase for the same period in 2013. For the nine months ended September 30, 2014, the Company generated net income of $10.6 million compared to $6.2 million in the same period in 2013.

Financial and Operating Highlights

Three months ended
September 30
Nine months ended
September 30
($000, except where noted) 2014 2013 2014 2013
Daily production / sales volumes
Oil (bbl/d) (2) 8,744 9,108 8,798 9,237
Natural gas (mcf/d) 3,024 1,643 2,222 1,491
Combined (boe/d) (1) 9,248 9,382 9,168 9,485
Product pricing ($)
Crude oil - per bbl (before the effects of hedging) 75.89 84.85 76.89 67.57
Natural gas - per mcf 3.97 2.38 4.49 3.06
Combined - per boe 72.90 82.72 74.84 66.50
Realized loss on risk management contracts - per boe 0.58 0.00 1.65 0.00
Revenue
Oil and gas revenue - gross 58,818 69,092 180,547 168,085
Royalties ($/boe) 12.73 17.39 14.18 12.90
Transportation costs ($/boe) 2.06 2.50 2.03 3.14
Operating costs ($/boe) 26.05 19.95 25.28 21.28
Net income for the period 7,013 9,270 10,571 6,223
Per share, basic and diluted 0.02 0.03 0.03 0.02
Funds flow from operations (3) 23,809 32,609 70,007 65,471
Capital expenditures 80,262 24,326 177,666 70,742
Working Capital (deficiency), end of period (29,543) (2,380) (29,543) (2,380)
Long term debt - 10,000 - 10,000
Shares outstanding, end of period 335,638,226 296,305,808 335,638,226 296,305,808
(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.
(2) includes production from the Blackrod SAGD pilot.
(3) Funds flow from operations is a non-GAAP measure. See discussion of this term under "Non-GAAP Measures".

Guidance for the Remainder of 2014 and 2015

We expect our oil and gas production to average between 9,000 and 9,500 boe/d for 2014, unchanged from our Q2 update. Funds flow from operations for the year is anticipated to range between $80 and $85 million, again, unchanged from our Q2 2014 update. Capital spending for 2014 is expected to be between $275 and $285 million, a reduction from our Q2 update estimate of $280 to $300 million. The reduction in capital spending is a result of certain expenditures on the Onion Lake thermal project that were originally planned for the fourth quarter that will now likely occur in the first quarter of 2015 and the deferral of drilling on the Phase 3 lands at Mooney until the second half of 2015. As a result of the lower capital spending our year-end 2014 debt should be between $110 and $115 million.

In 2015, we have planned a capital expenditure program of between $80 and $85 million. Capital expenditures for 2015 will include completion of the Onion Lake thermal project, costs associated with the expansion of the ASP flood at Mooney (well conversions and initial capitalization of polymer and chemical costs), drilling horizontal wells on the phase 3 lands at Mooney, drilling 20 to 25 conventional heavy oil wells at Onion Lake and drilling up to 10 wells at John Lake and other areas.

It is expected that this capital program will be largely funded from anticipated cash flow from operations and supplemented with our existing credit facilities. Year-end 2015 debt levels are anticipated to be approximately $135 million.

Oil and gas production should average approximately 9,500 boe/d in 2015. We expect to commence steam injection at Onion Lake in mid-2015 but this thermal project is not expected to have a meaningful impact on our production levels until 2016. Exit production levels for 2015 are expected to be approximately 11,000 boe/d.

The 2014 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).

Non-GAAP Measures

This news release includes terms commonly used in the oil and natural gas industry, such as "funds flow from operations" which represent cash flow from operating activities expressed before changes in non-cash working capital and "net debt" which represents borrowings under our credit facilities less working capital.. This term is 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. "Funds flow from operations" and "net debt" 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 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", "anticipated", "planning", "planned", "potential", "could", "continue", "continued", "continuing", "estimate", "estimates", "estimated", "forecast", "likely", "expect", "expected", "may", "intend", "intends", "intended", "intention", "deferred", "successful", "will", "project", "timing", "in the event", "move toward", "should", "scheduled", "outlook" or similar words suggesting future outcomes.

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

In particular, but without limiting the foregoing, this report contains forward-looking statements pertaining to our business plans and strategies; capital expenditure and drilling programs including the target date of mid-2015 for completion of construction and first steam at Onion Lake and anticipated timing of initial and peak oil production rates at the Onion Lake EOR project, estimated capital costs of $210 million for the first phase of thermal development at Onion Lake, anticipated corporate production being within our production target guidelines by the end of the year, timing and expected ramp-up time to reach peak production rates of 500 to 600 barrels of oil per day for the second pilot well pair at Blackrod and the expected steam oil ratios associated with this production and our planned commercial operations, expected timing to receive regulatory approval for our commercial development application at Blackrod, anticipated expansion of the ASP flood to phase two lands at Mooney in 2015, as well as all the information contained in the Guidance for the Remainder of 2014 and 2015 section.

The forward-looking information is based on expectations and assumptions by management regarding 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, the ability to obtain financing on acceptable terms, availability of skilled labour and drilling and related equipment, general economic and financial market conditions 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.

Undue reliance should not be placed on 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.

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, volatility of commodity inputs, substantial capital requirements, customary conditions including receipt of necessary regulatory and stock exchange approvals on the issuance of common shares, 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, financial loss associated with derivative risk management contracts, potential cost overruns, variations in foreign exchange rates, variations in interest rates, diluent and water supply shortages, competition for capital, equipment, new leases, pipeline capacity and skilled personnel, uncertainties inherent in the SAGD bitumen and ASP 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. 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.



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

Robert Eriksson
Investor Relations - Sweden
+46 8 545 015 50
 
 

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