Palliser Oil & Gas Corporation Reports 2013 Financial and Operating Results

/NOT FOR DISTRIBUTION IN THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

CALGARY, April 29, 2014 /CNW/ - Palliser Oil & Gas Corporation ("Palliser" or the "Company") (TSXV: PXL) wishes to report financial and operating results for the three months and year ended December 31, 2013. Certain selected financial and operational information is set out below and should be read in conjunction with Palliser's financial statements complete with the notes to the financial statements and related MD&A which is expected to be available at www.sedar.com and the Company's website at www.palliserogc.com on Wednesday, April 30, 2014.  In addition, the Company's Annual Information Form is expected to be available on www.sedar.com and the Company's website at www.palliserogc.com on Wednesday, April 30, 2014.

Operating & Financial Highlights - Three months and year ended December 31, 2013 and 2012






Three months ended
December 31


Year ended 
December 31












2013

2012

% Change


2013

2012

% Change

Operating











Wells drilled, re-entered or reactivated (net)









Oil





3.6

6.0

-40%


18.6

18.0

3%

Salt water disposal




-

-

0%


2.0

3.0

-33%

Total





3.6

6.0

-40%


20.6

21.0

-2%

Success (%)




75%

83%

-10%


81%

90%

-10%

Undeveloped land Greater Lloydminster (net acres)

37,144

32,542

14%


37,144

32,542

14%

Undeveloped land Medicine Hat (net acres)


10,996

31,602

-65%


10,996

31,602

-65%

Total undeveloped land (net acres)


48,140

64,144

-25%


48,140

64,144

-25%

Average daily production










Crude oil (bbl per day)



2,018

2,450

-18%


2,304

2,065

12%

Natural gas (Mcf per day)



116

293

-60%


221

351

-37%

Barrels of oil equivalent (boe per day, 6:1)


2,037

2,498

-18%


2,340

2,124

10%

Crude oil production (%)



99%

98%

1%


98%

97%

1%

Average sales prices











Crude oil ($ per bbl)




$ 62.48

$58.96

6%


$ 68.18

$62.51

9%

Natural gas ($ per Mcf)



$   3.64

$  3.11

17%


$   3.06

$  2.26

35%

Barrels of oil equivalent ($ per boe, 6:1)


$ 62.10

$58.18

7%


$ 67.41

$61.18

10%

Operating netback ($ per boe)










Petroleum and natural gas sales



$ 62.10

$58.18

7%


$ 67.41

$61.18

10%

Realized gain (loss) on financial derivatives


$ (3.82)

$  8.10

-147%


$ (1.61)

$  4.81

-133%

Royalties





$ 16.17

$13.13

23%


$ 16.79

$14.26

18%

Production & operating expenses


$ 37.30

$22.98

62%


$ 28.64

$23.04

24%

Operating netback (1) 



$   4.81

$30.17

-84%


$ 20.37

$28.69

-29%











 

Financial ($000's except per share amounts)








Three months ended 
December 31


Year ended
December 31






2013

2012

% Change


2013

2012

% Change










Oil and natural gas sales

$     11,637

$     13,373

-13%


$     57,580

$     47,547

21%










Funds flow from









operating activities (2)

$          (63)

$       5,405

-101%


$     11,813

$     16,873

-30%

Per share - basic and diluted

$            -

$         0.09

-101%


$          0.19

$         0.31

-39%










Income (loss) and 









comprehensive income (loss)

$      (7,138)

$        (513)

1291%


$    (13,680)

$       1,538

-989%

Per share - basic and diluted

$        (0.11)

$       (0.01)

1000%


$        (0.22)

$         0.03

-833%










Weighted average









shares outstanding

63,915,979

57,739,515

11%


63,491,321

55,182,838

15%

Shares outstanding

63,915,979

58,915,979

8%


63,915,979

58,915,979

8%










Capital expenditures (3)

$        5,580

$       7,975

-30%


$     24,423

$     36,446

-33%

Working capital (net debt) (4)

$    (47,365)

$    (37,345)

27%


$    (47,365)

$    (37,345)

27%

Shareholders' equity

$     35,344

$     45,448

-22%


$     35,344

$     45,448

-22%

 

(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. This excludes financial derivative assets and/or liabilities.




2013 Highlights

  • Increased total proved plus probable reserves. Total proved reserves decreased 2% to 5.49 million boe and proved plus probable reserves increased 19% to 9.41 million boe with the proved plus probable reserve life index increasing to 12.6 years (based on average Q4 2013 production, annualized).
  • Achieved proved plus probable finding, development and acquisition costs (including future development capital) of $24.90/boe in 2013 and a four year average of $18.80/boe;
  • Increased net asset value per share 10%. Net asset value (debt adjusted, fully diluted, discounted at 10% before tax) was $1.83 per share compared with $1.66 in 2012;
  • Decreased production per weighted average share 4%. Yearly production averaged 2,340 boe/d, up 10% from the prior year, and fourth quarter 2013 production averaged 2,037 boe/d, down 18% from fourth quarter 2012;
  • Increased operating costs 24%. Production and operating expenses averaged $28.64/boe in 2013, 24% higher than 2012;
  • Decreased operating netbacks 29%. Operating netbacks averaged $20.37/boe, 29% lower than in the prior year;
  • Decreased funds flow from operating activities per share 39%. Funds flow from operating activities was $11.8 million ($0.19/share), 30% lower than $16.9 million ($0.31/share) in 2012;
  • Executed a $24.4 million capital program. The 2013 capital program included 18.6 net wells completed for heavy oil production, expansion of the Company's salt water disposal infrastructure, and a key strategic property acquisition which added 140 bbl/d of heavy oil production and 2 salt water disposal wells and associated facilities;
  • Increased undeveloped heavy oil land position. The Company's undeveloped heavy oil land position at year-end 2013 was 37,144 net acres, a 14% increase from 2012;
  • Maintained a significant prospect inventory. The Company's heavy oil prospect inventory stands at 169 locations, 83 of which are included in the 2013 independent reserves report; and 86 locations that are not included in the reserves report; and
  • Increased rail shipments to 60% of production and the capability to ship production by rail to 75% in the fourth quarter, with the commissioning of the Edam oil treating facility.

Operations

Average production for the year was 2,340 boe/d, representing a 10% increase over 2012.  Palliser previously provided operational updates which noted that water breakthrough has been experienced in a number of CHOPS wells in Manitou. The new Manitou salt water disposal facility was commissioned in late November, with high volume lift ramp up of these wells commencing in December. The forecasted recovery of oil production from the affected wells at Manitou was not achieved in 2013, as it appears that some of the producing wells are not seeing adequate pressure support from the reservoir.  The Company is considering the merits of implementing a pressure maintenance scheme at Manitou.  In addition to natural declines, the Company has also experienced higher water cuts in a select number of high oil rate producers which have recovered a significant percentage of the original oil in place, resulting in production losses of approximately 500 barrels per day as compared to production of 2,800 boe/d in the second quarter of 2013. The Company reacted to this development by expanding its salt water disposal take away capacity in order to produce those specific wells at higher total fluid rates and by recompleting new uphole zones in two wells to replace production from the depleted zones in these wells. The Company has successfully stabilized production in the range of 1,800 – 1,900 boe/d. 

Operating costs for the fourth quarter were higher on a per unit basis due to lower production volumes and increased propane costs. Over the winter months, propane unit prices increased nearly three-fold.  Propane is used to heat production tanks and power wellhead equipment, with the majority of the propane being consumed at Edam.  When combined with the wider heavy oil differential and hedging losses, the Company realized negative funds flow from operating activities of $63 thousand for the fourth quarter of 2013 and positive funds flow of $11.8 million for the full year, down 30% as compared to 2012. Capital expenditures for the full year 2013 were limited to $24.4 million, resulting in year-end net debt of $47.3 million.

Palliser maintained almost entirely a 100% working interest in the 2013 capital program, which included 21 wells. The capital program resulted in 21 wells being drilled, re-entered or reactivated for heavy oil production and two salt water disposal wells, with an 81% success rate.  In the fourth quarter, the Company farmed out 160 acres of land to an industry partner, which resulted in one (0.575 net) oil well being drilled and completed on the property at no cost to Palliser. The Company incurred 57.5% of the costs to equip the well for production.  Palliser operates the property and the partner has a one year option to drill three more wells on the same terms.

Reserves

The 2013 year end independent reserves evaluation was completed by Sproule Unconventional Ltd. ("Sproule"). Proved developed producing reserves are 1.83 million boe, total proved reserves are 5.49 million boe, and total proved plus probable reserves increased 113% to 9.41 million boe.

Proved plus probable reserves additions (including revisions) totalled 2.34 million boe in 2013 and 10.35 million boe per year for the four year period from 2010 to 2013. Finding and development costs including future development capital were $24.90 per boe in 2013 and $18.80 per boe for the four year period ended December 31, 2013. These metrics resulted in recycle ratios of 0.8 times in 2013 and a four year average of 1.2 times.

Palliser's December 31, 2013 total proved plus probable reserves were valued at $153.3 million, resulting in a net asset value (debt adjusted, fully diluted, discounted at 10% before tax) of $1.83 per share. The Company's reserve life index based on annualized fourth quarter 2013 average production was 7.4 years for total proved reserves and 12.6 years for total proved plus probable reserves.

Financial & Outlook

Production and operating expenses averaged $28.64/boe in 2013 and operating netbacks averaged $20.37/boe. The resultant decrease in funds flow from operating activities to $11.8 million required the Company to trim capital expenditures, such that new projects to add production and reduce operating costs have been deferred until funds are available. 

In the first quarter of 2014, the Company successfully drilled one (0.575 net) well at Manitou and re-entered two (2.0 net) wells at Edam.  The activities at Edam were required in order to preserve expiring lands.  At Manitou, one well was pipeline connected to an existing salt water disposal facility to reduce operating costs and allow the well to be produced on an uninterrupted basis over spring break up with reduced operating costs.

In 2013, Palliser added 14% to our undeveloped land total in the Lloydminster area (to 37,144 net acres), while increasing the heavy oil prospect inventory to 169 locations.   Approximately half of these future locations (83 of 169) are reflected in the reserves report as proved Developed Non-Producing, Proved Undeveloped and Probable Reserves, while the balance are not reflected in the report.   The Company's undeveloped land base and extensive prospect inventory provides significant upside potential for future growth, once funding is available to mount a meaningful capital expenditure program.

At Edam as funds become available, Palliser is planning to connect the field facilities to the Transgas natural gas distribution system in order to eliminate propane usage.  This $1.3 million project is forecasted to result in reduced corporate operating costs by $3.00 to $4.00 per boe.

The Company exited 2013 with net debt of $47.4 million relative to a current total credit facility of $52.0 million. As at December 31, 2013, the Company had a credit facility with a Canadian chartered bank in the amount of $52.0million.  The credit facility is composed of a $42.0 million demand revolving operating credit facility and a $10.0 million acquisition and development demand loan.  As at December 31, 2013, authorized and drawn borrowings on the acquisition and development demand loan amounted to $2.25 million, resulting in total available borrowing capacity of $44.25 million.  The facility is a borrowing base facility that is determined based on, among other things, the Company's current reserve report, results of operations, current and forecasted commodity prices and the current economic environment.  The credit facility is secured by a general security agreement and floating charge debenture covering all assets of the Company.  The Company's bank indebtedness does not have a specific maturity date as it is a demand facility.  This means that the lender has the ability to demand repayment of all outstanding indebtedness or a portion thereof at any time.  If that were to occur the Company would be required to source alternate credit facilities, sell assets or issue new shares to repay the indebtedness.  The Company is required to maintain a current ratio (current assets adjusted to include the undrawn credit facility balance) of not less than 1.0:1.0.  As at December 31, 2013 the Company was not in compliance with the current ratio banking covenant.

In light of financial constraints facing the Company, the board of directors of Palliser is conducting a strategic review of the Company's business plan to identify appropriate actions for the Company. The strategic review is examining and considering the alternatives available to the Company with a view to enhancing shareholder value.  The alternatives being considered include but are not limited to the sale of assets or the entire Company, joint ventures and the refinancing of some or all of Palliser's debt.  Management and the Board are committed to acting in the best interests of the Company and its shareholders.

About Palliser

Palliser is a Calgary-based junior oil and gas company focused on high netback heavy oil production in the greater Lloydminster area of Alberta and Saskatchewan.

Forward-Looking Statements

Statements in this document may contain forward-looking information including matters related to the strategic review. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. These risks include, but are not limited to: the risks associated with the oil and gas industry; commodity prices, and; exchange rate changes. Industry related risks could include, but are not limited to: operational risks in exploration; proposed dispositions not being completed or if completed, not providing the benefits expected; development and production; delays or changes in plans; risks associated to the uncertainty of reserve estimates; health and safety risks, and; the uncertainty of estimates and projections of production, costs and expenses. In addition, forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the ability of the Company to obtain financing on acceptable terms; the impact of increasing competition; the general stability of the economic and political environment in which the Company operates; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; field production rates and decline rates; the ability to replace and expand reserves through acquisition, development and exploration; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Company to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its oil and natural gas products. Readers are cautioned that the foregoing lists of factors and assumptions are not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), at the Company's website (www.palliserogc.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Conversion

The Company has adopted the industry standard of 6:1 Mcf to Bbl when converting natural gas to barrels of oil equivalent.  Disclosure provided herein in respect of Boes may be misleading, particularly if used in isolation.  A Boe conversion ratio of 6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.  Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 Mcf:1 Bbl, utilizing a conversion ratio of 6:1 may be misleading as an indication of value.

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 Corporation

For further information: Kevin J. Gibson, President & CEO, kgibson@palliserogc.com, (403) 209-5717; or, Ivan J. Condic, Vice President, Finance & CFO, icondic@palliserogc.com, (403) 209-5718