Palliser Oil & Gas Corporation Reports Q1 2014 Financial and Operating Results

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

CALGARY, May 28, 2014 /CNW/ - Palliser Oil & Gas Corporation ("Palliser" or the "Company") (TSX VENTURE:PXL) wishes to report financial and operating results for the three months ended March 31, 2014. 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, May 28, 2014.

Operating & Financial Highlights - Three months ended March 31, 2014 and 2013

               
      Three months ended
  March 31   
        2014   2013 % Change
Operating                
Wells drilled, re-entered or reactivated (net)                
Oil       2.6   10.0 -74%
Salt water disposal               -   1.0 -100%
Total             2.6   11.0 -76%
Success (%)               100%   100% 0%
Undeveloped land Greater Lloydminster (net acres)       34,042     33,988 0%
Undeveloped land Medicine Hat (net acres)           10,363     25,850 -60%
Total undeveloped land (net acres)         44,405     59,838 -26%
Average daily production                
Crude oil (bbl per day)         1,850   2,166 -15%
Natural gas (Mcf per day)             145   295 -51%
Barrels of oil equivalent (boe per day, 6:1)         1,874   2,215 -15%
Crude oil production (%)         99%   98% 1%
Average sales prices                  
Crude oil ($ per bbl)         $   76.48 $   51.76 48%
Natural gas ($ per Mcf)           $ 4.61 $ 2.92 58%
Barrels of oil equivalent ($ per boe, 6:1)       $    75.85 $ 51.04 49%
Operating netback ($ per boe)                  
Petroleum and natural gas sales       $   75.85 $ 51.04 49%
Realized gain (loss) on financial derivatives     $ (12.08) $ 6.13 -297%
Royalties           $   17.50 $ 11.48 52%
Production, operating & transportation expenses       $   41.85 $ 29.90 40%
Operating netback (1)        $   4.42 $ 15.79 -72%

 

Financial ($000's except per share amounts)                
        Three months ended
  March 31
            2014   2013 % Change
                   
Oil and natural gas sales        $   12,793 $   10,175 26%
                   
Funds flow from                
    operating activities (2)       $ (702) $ 1,682 -142%
Per share - basic and diluted        $ (0.01) $  0.03 -133%
                   
Income (loss) and                 
    comprehensive income (loss)        $ (5,551) $ (4,486) 24%
Per share - basic and diluted        $ (0.09) $ (0.07) 29%
                   
Weighted average                
    shares outstanding          63,915,979    62,193,757 3%
Shares outstanding          63,915,979    63,915,979 0%
                   
Capital expenditures (3)        $ 1,485 $ 8,724 -83%
Working capital (net debt) (4)        $ (49,465) $ (41,655) 19%
Shareholders' equity        $ 29,912 $   43,993 -32%

 

(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.

Operationally, the first quarter of 2014 was a very quiet period for Palliser, due to the Company's limited financial flexibility.  Palliser is forecasting a return to positive funds flow for the balance of 2014.  The Company plans to apply all free cash flow to reducing its indebtedness.

Q1 2014 Highlights

  • Decrease in average quarterly production. First quarter 2014 production averaged 1,874 boe/d, down 15% from the first quarter of 2013;
  • Increased operating costs. Production and operating expenses averaged $41.85/boe in the first quarter of 2014, 40% higher $29.90 in the first quarter of 2013;
  • Decreased operating netbacks. Operating netbacks averaged $4.42/boe, 72% lower than the prior year comparative quarter;
  • Decreased funds flow from operating activities. Funds flow from operating activities was negative $0.7 million (($0.01)/share), compared to positive funds flow of $1.7 million ($0.03/share) in the prior year comparative quarter;
  • Executed a $1.5 million capital program. The first quarter capital program included 2.6 net wells completed for heavy oil production;
  • Maintained a significant undeveloped heavy oil land position. The Company's undeveloped heavy oil land position at the end of the first quarter was 34,042 net acres; and
  • 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.

Operations

In the first quarter of 2014, the Company successfully drilled one (0.575 net) well at Manitou and re-entered one (1.0 net) well and reactivated one (1.0 net) well at Edam.  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.

Average production for the quarter was 1,874 boe/d; representing a 15% decrease over the prior year comparative quarter.  Production, operating, and transportation costs for the first quarter were higher on a per unit basis due to lower production volumes and significantly 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 hedging losses, the Company realized negative funds flow from operating activities of $0.7 million for the first quarter of 2014, compared to positive funds flow of $1.7 million in the prior year comparative quarter.  Subsequent to the first quarter, propane unit costs and consumption combined with optimization initiatives is forecast to result in production, operating, and transportation costs averaging approximately $30/boe for the remainder of the year, and the Company is forecast for the remainder of 2014 to be funds flow positive with limited capital expenditures and a decreasing net debt balance.

Financial & Outlook

The Company has had stabilized production in the range of 1,800 - 1,900 boe/d for the past five months.  However, given the limited capital program for 2014, production is expected to decline until capital can be allocated to growth projects.  The Company will continue to seek out joint venture opportunities to bring into production the inventory of prospects on a timely basis.

Palliser has a significant undeveloped land holding in the Lloydminster area (34,042 net acres), and has identified a heavy oil prospect inventory of 169 locations.   Approximately half of these future locations (83 of 169) are reflected in the year end 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.

The Company's net debt was $49.5 million at the end of the first quarter relative to a current total credit facility of $51.9 million. The credit facility is composed of a $41.9 million demand revolving operating credit facility and a $10.0 million acquisition and development demand loan.  As at March 31, 2014, authorized and drawn borrowings on the acquisition and development demand loan amounted to $1.9 million, resulting in total available borrowing capacity of $43.8 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 March 31, 2014 the Company was not in compliance with the current ratio banking covenant. The credit facilities were to be reviewed by the lender effective May 1, 2014.  The review by the lender has not been completed.

The previously announced strategic review of Palliser's business plan to identify appropriate actions for the Company continues to progress. 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.

Readers are invited to view an updated corporate presentation available on the Company's website.

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