Palliser Oil & Gas Corporation Reports Third Quarter 2012 Results, Record Production and Funds Flow from Operating Activities
/NOT FOR DISTRIBUTION IN THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/
CALGARY, Nov. 14, 2012 /CNW/ - Palliser Oil & Gas Corporation ("Palliser" or the "Company") (TSX VENTURE:PXL) is pleased to report the financial and operating results for the three and nine months ended September 30, 2012. Certain selected financial and operational information is set out below and should be read in conjunction with Palliser's unaudited condensed interim financial statements complete with the notes to the financial statements and related MD&A which is available at www.sedar.com and the Company's website at www.palliserogc.com.
HIGHLIGHTS - Three and nine months ended September 30, 2012 and 2011 (unaudited)
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|2012||2011||% Change||2012||2011||% Change|
|Wells drilled, re-entered or reactivated (gross and net)|
|Salt water disposal||1||-||-||3||-||-|
|Undeveloped land Greater Lloydminster (net acres)||29,760||16,643||79%||29,760||16,643||79%|
|Undeveloped land Medicine Hat (net acres)||33,522||29,520||14%||33,522||29,520||14%|
|Total undeveloped land (net acres)||63,282||46,163||37%||63,282||46,163||37%|
|Average daily production|
|Crude oil (bbl per day)||2,185||1,356||61%||1,936||1,226||58%|
|Natural gas (Mcf per day)||344||376||-9%||370||339||9%|
|Barrels of oil equivalent (boe per day, 6:1)||2,242||1,418||58%||1,998||1,282||56%|
|Crude oil production (%)||97%||96%||1%||97%||96%||1%|
|Average sales prices|
|Crude oil ($ per bbl)||$||61.43||$||63.07||-3%||$||64.02||$||65.57||-2%|
|Natural gas ($ per Mcf)||$||2.16||$||2.44||-11%||$||2.03||$||3.63||-44%|
|Barrels of oil equivalent ($ per boe, 6:1)||$||60.19||$||60.86||-1%||$||62.43||$||63.66||-2%|
|Operating netback ($ per boe)|
|Petroleum and natural gas sales||$||60.19||$||60.86||-1%||$||62.43||$||63.66||-2%|
|Realized gain on financial derivatives||$||7.92||$||-||-||$||3.43||$||-||-|
|Production & operating expenses||$||21.45||$||33.81||-37%||$||23.07||$||32.14||-28%|
|Operating netback (1)||$||31.34||$||14.81||112%||$||28.06||$||16.83||67%|
|Financial ($000's except per share amounts)|
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|2012||2011||% Change||2012||2011||% Change|
|Oil and natural gas sales||$||12,417||$||7,940||56%||$||34,174||$||22,282||53%|
|Funds flow from operating activities (2)||$||5,101||$||820||522%||$||11,468||$||2,411||376%|
|Per share - basic and diluted||$||0.09||$||0.02||350%||$||0.21||$||0.06||250%|
|Income (loss) and|
|comprehensive income (loss)||$||(3,087)||$||(905)||241%||$||2,052||$||(2,483)||-|
|Per share - basic and diluted||$||(0.06)||$||(0.02)||200%||$||0.04||$||(0.06)||-|
|Weighted average shares outstanding||54,708||43,130||27%||54,324||41,183||32%|
|Capital expenditures (3)||$||12,873||$||5,799||122%||$||28,470||$||29,530||-4%|
|Working capital (net debt) (4)||$||(35,884)||$||(17,294)||107%||$||(35,884)||$||(17,294)||107%|
(1) Operating netback is a non-IFRS measure and is the net of petroleum and natural gas sales, realized gain or loss on financial derivatives, royalties and production & operating expenses.
(2) Funds flow from operating activities is a non-IFRS measure that represents cash flow from operations less decommissioning expenditures and changes in non-cash working capital related to operating activities. Funds flow per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net income per share. Funds flow from operating activities is a key measure as it demonstrates the Company's ability to generate the funds necessary to achieve future growth through capital investment. This table also contains other industry benchmarks and terms, such as working capital (calculated as current assets less current liabilities) and operating netbacks (calculated on a per unit basis as production sales less royalties, transportation and operating costs), which are not recognized measures under IFRS. Management believes these are useful supplemental measures of, firstly, the total net position of current assets and current liabilities of the Company and secondly, the profitability relative to commodity prices. Other entities may calculate these figures differently than Palliser.
(3) Capital expenditures exclude decommissioning liability costs and capitalized share-based compensation.
(4) Working capital (net debt) is a non-IFRS measure representing the total bank loan, accounts payable and accrued liabilities, less accounts receivable, deposits and prepaid expenses.
Third Quarter 2012 Operational Highlights
- Achieved 14th consecutive quarter of production growth;
- Increased average production to 2,242 boe/d, 58% higher than 1,418 boe/d in Q3 last year and 15% higher than 1,942 boe/d in Q2 2012;
- Improved production and operating expenses to $21.45/boe, 37% lower than $33.81/boe in Q3 last year and 1% lower than $21.75/boe in Q2 2012;
- Increased operating netbacks to $31.34/boe, 112% higher than $14.81/boe in Q3 last year and 12% higher than $28.09/boe in Q2 2012;
- Increased funds flow from operating activities to $5.1 million ($0.09/share), 522% higher than $0.8 million ($0.02/share) in Q3 last year and 38% higher than $3.7 million ($0.07/share) in Q2 2012;
- Executed a $12.9 million capital program which included drilling and re-activating six heavy oil wells, expanding the Company's salt water disposal infrastructure, and completing a strategic acquisition to add 140 boe/d of heavy oil production;
- Expanded the Company's undeveloped heavy oil land position to 29,760 net acres, a 26% increase from 23,617 net acres in Q2 2012;
- Expanded the Company's prospect inventory of drilling, re-entries and reactivations to over 160 locations at the end of the third quarter; and
- Commenced shipping heavy oil by rail in September.
Palliser achieved record production of 2,242 boe/d (97% oil weighting) during the third quarter of 2012, representing 14 consecutive quarters of production growth. Capital expenditures amounted to $12.9 million in the third quarter, bringing expenditures for the first nine months of 2012 to $28.5 million, relative to a revised $36 million capital budget for 2012. Production and operating expenses continue to trend lower, with third quarter 2012 operating costs of $21.45/boe as compared to $21.75/boe in the second quarter of 2012 and $26.52/boe in the first quarter of 2012.
At Edam, Palliser re-entered two wells, and reactivated one well for heavy oil production. The Company also expanded its salt water disposal infrastructure, with conversion of one existing shut in well to salt water disposal service, and tied in four producing heavy oil wells. At Lloydminster, the Company drilled one well and reactivated one well for heavy oil production. The new drill was our first well in a new prospect area, firming up numerous follow-up locations. One well was also drilled in the Manitou area. All six new wells were cased for heavy oil production, resulting in a 100% success rate.
The Company completed a strategic property acquisition during the quarter, purchasing 140 boe/d of heavy oil, for total consideration of approximately $5.3 million, comprised of approximately $3.2 million cash and 3.3 million Palliser common shares. In conjunction with announcing this acquisition, the Company also increased its capital budget for 2012 by approximately $6 million to $36 million. The acquisition generated attractive metrics of approximately $34,300/boe/d and proved plus probable reserves of $12.96 per boe, adjusting for land value of approximately $0.5 million (based on $300/acre for undeveloped lands). With infrastructure in close proximity to existing Palliser lands and attractive operating costs of approximately $15.00/boe, the acquisition was strategic for the Company. It should be noted that this acquisition closed September 14, 2012, thus reflecting the full cost of the acquisition in the third quarter, but with minimal impact on production and cash flow for the quarter.
The Company continues to gain momentum on our high volume lift ("HVL") strategy with continued quarterly record production, while also demonstrating sustainable low operating costs. Palliser has seen four consecutive quarters of operating cost reductions, and two consecutive quarters with operating costs below $22.00/boe, currently at $21.45/boe. Significant progress has been made from the same quarter last year, as Palliser has transitioned from the proof of concept phase of HVL to the development and manufacturing phase. Entering 2011, we had no salt water disposal infrastructure, and today we have eight salt water disposal facilities, 15 salt water disposal wells, and 42 heavy oil wells tied in to these facilities. The Company has also developed well past the basic HVL 'pod' model. Numerous 'pods' have multiple salt water disposal wells per facility, with the largest 'pod' currently having 11 producing wells, with salt water disposal through one central facility.
Over the past year, quarterly production has grown by 58% to 2,242 boe/d while operating costs have improved by 37% to $21.45/boe. Operating netbacks improved to $31.34/boe, an increase of 112% from $14.81/boe last year, and 12% higher than $28.09 in the second quarter of 2012. Over the past year, funds flow from operating activities increased by 522% to $5.1 million for the third quarter 2012, surpassing funds flow from operating activities for all of 2011, which saw total funds flow of $4.4 million. In September we commenced shipping heavy oil by rail, and continue to increase the percentage of our sales shipped by rail, which will also positively impact operating netbacks.
The focus of 2012 has been to grow production in the most efficient manner possible. We have exercised discipline in only bringing production on stream when sufficient salt water disposal infrastructure was in place. As a result, Palliser is on track to meet the average operating cost target for 2012 of $22.88/boe, however, production has trailed behind the original budget to ensure operational efficiencies over pure production growth. We expect 2012 average production to be in the range of 2,100 - 2,150 boe/d or approximately 6% below the lower end of the guidance range of 2,250 - 2,350 boe/d. This revised average 2012 production estimate represents over 50% growth in average production from 2011. Based on field estimates, current production is estimated to be approximately 2,500 boe/d, and we believe we are on track to meet previously announced exit production guidance (December 2012 average) of 2,600 - 2,800 boe/d (98% oil weighting), targeting the middle to higher end of that range.
Our 2012 capital program is nearly completed, with the drilling rig currently finishing off the last two wells of the program. Throughout 2012, Palliser shifted some capital from drilling and completing wells, to expanding salt water disposal infrastructure and land acquisition to build the Company's profitability and sustainability for years to come.
While building a solid track record with 14 consecutive quarters of production growth, we have amassed an inventory of over 160 heavy oil locations, with unbooked reserves, equating to approximately five years of future inventory at the current pace. We see significant scope to continue to expand our heavy oil operations by taking advantage of the knowledge base we have been developing, and applying it to numerous additional pools. Since the start of 2012, Palliser has increased its land holdings within the greater Lloydminster area by 63%. The Company is currently underway on a substantial seismic program, which will fulfill the outstanding 2012 flow-through obligation, and is expected to firm up additional locations from the undeveloped land inventory.
At September 30, 2012, net debt totalled $35.9 million resulting in a third quarter debt to annualized funds flow from operating activities ratio of 1.76 times. Palliser's total credit facility is $43 million. We intend to maintain a strong balance sheet and anticipate fourth quarter 2012 net debt to be in the range of 1.6-1.8 times fourth quarter annualized funds flow from operating activities.
To reduce cash flow risk from commodity price volatility, we have hedged approximately 50% of budgeted production volumes for the fourth quarter of 2012, and comparable volumes have also been hedged for the first half of 2013. These hedged volumes are at prices in the range of $15-$20/bbl higher than current market prices, which provides the Company with greater cash flow support to offset potentially weaker commodity prices.
Palliser is a Calgary-based emerging junior oil and gas company currently focused on heavy oil production in the greater Lloydminster area of both Alberta and Saskatchewan. For further information regarding Palliser Oil & Gas Corporation, the reader is invited to visit the Company's website at www.palliserogc.com.
Certain statements contained herein constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation, including, but not limited to management's assessment of future plans and operations, including: commodity focus; drilling plans and potential locations; expected production levels; development plans; reserves growth; production and operating sales and expenses; reservoir characteristics; the results of applying certain operational development techniques; certain economic factors; and capital expenditures. Forward-looking statements are typically identified by words such as "anticipate", "estimate", "expect", "forecast", "may", "will", "project" and similar words suggesting future events or performance or may be identified by reference to a future date. In addition, statements relating to oil and gas reserves and resources are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves or resources described, as the case may be, exist in the quantities predicted or estimated and can be profitably produced in the future. With respect to forward-looking statements herein, Palliser has made assumptions regarding, among other things; future capital expenditure levels; future oil and natural gas prices; "differentials" between West Texas Intermediate and Western Canadian Select benchmark pricing; future oil and natural gas production levels; future water disposal capacity; future exchange rates and interest rates; ability to obtain equipment and services in a timely manner to carry out development activities; ability to market oil and natural gas successfully to current and new customers; the impact of increasing competition; the ability to obtain financing on acceptable terms; and the ability to add production and reserves through development and exploitation activities. Although Palliser believes that the expectations reflected in the forward-looking statements contained herein, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included herein, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous risks and uncertainties that contribute to the possibility that the forward-looking statements will not occur, which may cause Palliser's actual performance and financial results in future periods to differ materially from any estimates or projections. Additional information on these and other factors that could affect Palliser's results are included in reports on file with Canadian securities regulatory authorities, including the Company's Annual Information Form, and may be accessed through the SEDAR website at www.sedar.com.
The forward-looking statements contained herein speak only as of the date hereof. Except as expressly required by applicable securities laws, Palliser does not undertake any obligation to, nor does it intend to, publicly update or revise any 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. In addition, readers are cautioned that historical results are not necessarily indicative of future performance.
Production volumes are commonly expressed on a barrel of equivalent ("BOE") basis whereby natural gas volumes are converted at a ratio of six thousand cubic feet to one barrel of oil. The intention is to convert oil and natural gas measurement units into one basis for improved analysis of results and comparisons with other industry participants. The term BOE may be misleading, particularly if used in isolation. The conversion ratio is based on an energy equivalent method and does not represent an economic value equivalency at the wellhead.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this Press release.
SOURCE: Palliser Oil & Gas CorporationFor further information:
Allan B. Carswell
President and COO
Ivan J. Condic
Vice President, Finance and CFO