Progress Energy Grows 2010 Year-end Reserves by 63 Percent

Montney reserves grow to 600 billion cubic feet equivalent

CALGARY, Feb. 9 /CNW/ - (TSX-PRQ) - Progress Energy Resources Corp. ("Progress" or the "Company") today announced its 2010 year-end reserves information.  Progress grew its proved plus probable ("P+P") company interest reserve base by 63 percent to more than 253 million barrels of oil equivalent ("mmboe") or 1.5 trillion cubic feet equivalent ("tcfe"). On a per-share, debt-adjusted basis, Progress' P+P reserves grew by 30 percent year-over-year.  

Highlights

  • Progress grew its P+P Montney reserves by 386 percent to approximately 600 billion cubic feet equivalent ("bcfe") in 2010;

  • At year-end 2010, the Company had 156 net Montney horizontal wells booked in its reserve base.  This represents less than two percent of Progress' identified Montney inventory of over 7,500 locations;

  • Progress had 22 gross producing Montney horizontal wells booked at year end 2010 with an average P+P booking of 4.4 bcf per well;

  • P+P finding and development ("F&D") costs, excluding changes in future development capital ("FDC") and acquisitions, were $4.67 per barrel  of oil equivalent ("boe") or $0.78 per thousand cubic feet equivalent ("mcfe");

  • P+P F&D costs were $12.37 per boe including changes in FDC;

  • P+P finding, development and acquisition ("FD&A") costs were $12.49 per boe including changes in FDC;

  • 2010 year-end P+P reserves grew by 63 percent to 253.4 mmboe with a reserve life index of 15 years based on current production of approximately 45,000 boe per day, annualized; 

  • Total P+P reserve additions, excluding acquisitions, were 80.5 mmboe. P+P reserve additions through the drillbit replaced 539 percent of production;

  • Total P+P reserve additions were 113.0 mmboe. P+P reserve additions from all sources replaced 758 percent of production.
(unaudited) FD&A including
changes in FDC
($/boe, $/mcfe)
F&D including
changes in FDC
($/boe, $/mcfe)
F&D excluding
changes in FDC
($/boe, $/mcfe)
Proved $16.23 / $2.71 $16.43 / $2.74 $9.22 / $1.54
Proved plus probable $12.49 / $2.08 $12.37 / $2.06 $4.67 / $0.78
2010 Capital before FDC ($MM) $712.7 $375.6  

Year-end 2010 Results

Progress anticipates releasing its year-end 2010 financial results on February 24, 2011 after market close.  Exit rate production for 2010 was approximately 45,000 boe per day with fourth quarter production averaging approximately 42,700 boe per day.  Fourth quarter cash flow from operating activities (before changes in non-cash working capital) was approximately $59 million.  Capital investment in 2010 was $375 million, before acquisitions and divestitures, and year-end 2010 bank debt was approximately $333 million including working capital.

In addition to the detailed information disclosed in this news release more detailed information will be included in Progress' Annual Information Form ("AIF") anticipated to be filed in mid-March 2011.

In this news release, all estimates of natural gas and petroleum reserves and production are presented on a "company interest" basis (as defined below), unless expressly indicated that they have been presented on a "gross" or "net" basis.  The Company's actual natural gas and petroleum reserves and future production will be greater than or less than the estimates provided in this news release.  The estimated future net revenue from the production of the Company's natural gas and petroleum reserves does not represent the fair market value of the Company's reserves.

Supplemental Reserve Reconciliation Information

  • The opening balance is equal to the Corporation's 2009 closing balance representing 102.3 mmboe of proved reserves and 155.1 mmboe of proved plus probable reserves;

  • The closing balance for 2010 is 153.7 mmboe proved reserves and 253.4 mmboe proved plus probable reserves. This results in a 50% increase in proved reserves and a 63% increase in proved plus probable reserves.

Replacement Costs (Unaudited)

  • 2010 FD&A cost of $16.23 per boe, proved and $12.49 per boe, proved plus probable, including the change in FDC;

  • 2010 F&D cost of $16.43 per boe, proved and $12.37 per boe, proved plus probable, including the change in FDC;

  • The three year average F&D cost of $17.04 per boe, proved and $13.02 per boe, proved plus probable, including the change in FDC.

PRESENTATION OF PROGRESS' NATURAL GAS AND PETROLEUM RESERVES AND PRODUCTION INFORMATION

Disclosure of Information

In addition to the detailed information disclosed in this news release more detailed information on a gross basis (working interest share before deduction of royalties and without including any royalty interests) will be included in Company's Annual Information Form for the year ended December 31, 2010 ("AIF") in addition to the full National Instrument 51-101 - Standards for Disclosure for Oil and Gas Activities ("NI 51-101"), disclosure for the year ended December 31, 2010 which will be filed on or before March 31, 2011. 

The Company has adopted the standard of 6 mcf:1 boe when converting natural gas to boes and 1 barrel of oil to 6 mcf of gas when converting oil to gas. Boe's or mcfe's may be misleading, particularly if used in isolation.  A boe conversion ratio of 6 mcf:1 boe and an mcfe conversion ratio of 1 bbl:6 mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Certain of the following definitions and guidelines have been prepared by the Standing Committee on Reserves Definitions of the CIM (Petroleum Society). Further information is contained in Section 5.4 of Volume 1 of the COGE Handbook (First Edition, June 30, 2002). Readers should consult the COGE Handbook for additional explanation and guidance.  Certain other terms used in this news release have the meanings assigned to them in NI 51-101 and accompanying Companion Policy 51-101CP, adopted by the Canadian securities regulatory authorities and in Staff Notice 51-324 of the Canadian Securities Administrators.

STATEMENT OF RESERVES DATA AND OTHER OIL AND GAS INFORMATION
PROGRESS ENERGY RESOURCES CORP.

The following tables set forth certain information relating to Progress' crude oil, natural gas and natural gas liquid reserves and the net present value of future net revenues associated with such reserves as at December 31, 2010, as evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") in its report dated February 8, 2011 based upon forecast price and cost assumptions.  The information set forth below is derived from the GLJ Report that was prepared in accordance with the standards contained in the COGE Handbook and the reserves definitions contained in NI 51-101, Notice 51-324 and the COGE Handbook.  Progress engaged GLJ to provide an evaluation of proved and proved plus probable reserves.

All future net revenues are stated prior to provision for interest, general and administrative expenses and after deduction of royalties and estimated future capital expenditures.  Future net revenues have been presented on a before tax basis.  Estimated values of future net revenue disclosed herein do not represent fair market value.  Columns may not add due to rounding.

It should not be assumed that the present worth of estimated future cash flow presented in the tables below represent the fair market value of the reserves.  There is no assurance that the forecast prices and costs assumptions will be attained and variances could be material.  The recovery and reserve estimates of Progress' crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered.  Actual crude oil, natural gas and natural gas liquid reserves may be greater than or less than the estimates provided herein. 

The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.

Summary of Oil and Gas Reserves and Net Present Values of Future Net Revenue
As of December 31, 2010
Forecast Prices and Costs

 
  Light and Heavy Oil Conventional
Natural Gas
Natural Gas BOE
Medium Oil Liquids
  Company
Interest
    Net Company
Interest
  Net   Company
Interest
  Net Company
Interest
    Net Company
Interest
    Net
Reserve Category (Mbbl)     (Mbbl) (Mbbl)   (Mbbl)   (MMcf)   (MMcf) (Mbbl)     (Mbbl) (Mboe)     (Mboe)
Proved                                      
Developed producing 3,384     2,916 463   361   470,464   392,700 7,170     5,368 89,429     74,094
Developed non-producing 328     293 0   0   48,390   40,292 669     504 9,062     7,512
Undeveloped 586     512 0   0   302,434   274,436 4,264     3,695 55,255     49,946
Total proved 4,298     3,721 463   361   821,289   707,429 12,103     9,566 153,746     131,553
Probable 1,345     1,133 135   101   544,293   470,874 7,470     6,060 99,666     85,773
Total proved plus probable 5,643     4,854 599   462   1,365,581   1,178,303 19,573     15,626 253,412     217,326

"Company interest" means, in relation to Progress' interest in production or reserves, its working interest (operating or non-operating) share before deduction of royalties, plus Progress' royalty interests in production or reserves.  "Company interest" is not a term defined or recognized under NI 51-101 and does not have a standardized meaning under NI 51-101. Therefore, the "company interest" reserves of Progress may not be comparable to similar measures presented by other issuers, and investors are cautioned that "company interest" reserves should not be construed as an alternative to "gross" or "net" reserves calculated in accordance with NI 51-101.

                                     
  Net Present Value of Future Net Revenue      
Reserve
Category
Before Income Taxes     BTNPV
Discounted at (%/year)     Disc 10%
      0     5     10     15     20     $/boe
($ thousands)                                    
Proved                                    
Developed Producing     1,840,528     1,337,244     1,059,190     883,367     762,130     11.84
Developed Non-Producing     179,859     122,037     90,420     70,912     57,809     9.98
Undeveloped     866,593     498,973     295,910     173,202     93,983     5.35
Total Proved     2,886,980     1,958,255     1,445,521     1,127,480     913,923     9.40
Total Probable     2,312,642     1,167,960     682,291     432,876     287,216     6.85
Total Proved Plus Probable     5,199,623     3,126,215     2,127,812     1,560,357     1,201,139     8.40

Notes:

(1)   The estimated net present value of future net revenue is based on current legislation in place December 31, 2010. 
(2)   Natural gas reserves are reported at a base pressure of 14.65 pounds per square inch and a base temperature of 60°F.
(3)   Prices for oil F.O.B. Edmonton are based upon 40° API oil having less than 0.4% sulphur.  Prices for natural gas are based upon a base pressure of 14.65 pounds per square inch and base temperature of 60ºF.  The wellhead oil prices were adjusted for quality and transportation based on historical actual prices.  The natural gas prices were adjusted, where necessary, based on historical pricing based on heating values and the differing costs of service applied by various purchasers.  The natural gas liquids prices were adjusted to reflect historical average prices received.
(4)   The forecast prices and cost case assumes no legislative or regulatory amendments and includes the effects of inflation.  The estimated future net revenue to be derived from the production of the reserves includes an inflation rate of 2.0% per year, an exchange rate as listed below, and the following price forecasts supplied by GLJ.

  Oil Natural Gas Liquids  
 
Year
WTI Cushing Oklahoma
(US$/bbl)
Edmonton
Par Price
40° API
(Cdn$/bbl)
Cromer Medium
29° API
(Cdn$/bbl)
Edmonton Propane
(Cdn$/bbl)
Edmonton Butane
(Cdn$/bbl)
Edmonton Pentanes
Plus
(Cdn$/bbl)
Inflation Rates
(%/Year)
Exchange Rate
(US$/Cdn$)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
88.00
89.00
90.00
92.00
95.17
97.55
100.26
102.74
105.45
107.56
86.22
89.29
90.92
92.96
96.19
98.62
101.39
103.92
106.68
108.84
82.78
83.04
83.64
84.59
87.54
89.75
92.26
94.57
97.08
99.04
54.32
56.25
57.28
58.56
60.60
62.13
63.87
65.47
67.21
68.57
67.26
68.75
70.01
71.58
74.07
75.94
78.07
80.02
82.15
83.80
90.54
91.96
92.74
94.82
98.12
100.59
103.42
106.00
108.82
111.01
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
.98
.98
.98
.98
.98
.98
.98
.98
.98
.98
                 
Thereafter +2.0%/yr +2.0%/yr +2.0%/yr +2.0%/yr +2.0%/yr +2.0%/yr 2.0  

                               
                               
 
Year
          NYMEX Futures
Contract
(US$/MMBtu)
    Midwest @
Chicago
(US$/MMBtu)
    AECO Gas Price
(Cdn$/MMBtu)
    Sumas Spot Gas
Price
(US$/MMBtu)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
          4.50
5.15
5.75
6.25
6.75
7.10
7.32
7.47
7.62
7.77
    4.60
5.25
5.85
6.35
6.85
7.20
7.42
7.57
7.72
7.87
    4.16
4.74
5.31
5.77
6.22
6.53
6.76
6.90
7.06
7.21
    4.25
4.85
5.40
5.90
6.40
6.75
6.97
7.12
7.27
7.42
                               
Thereafter           +2.0%/yr     +2.0%/yr     +2.0%/yr     +2.0%/yr

In 2010, Progress received a weighted average price of $73.24 per barrel ("bbl") for crude oil, $55.10 per bbl for Natural Gas Liquids ("NGLs") and $4.13 per thousand cubic feet ("Mcf") for natural gas.

The undiscounted total future net revenue by reserves category as of December 31, 2010, using forecast prices and costs, is set forth below:

      ($ millions)
Reserve Category     Revenue     Royalties,
Mineral
Tax
    Operating
Costs
  Development
Costs
  Well
Abandonment
Costs
  Future Net
Revenue
Before Income
Taxes
    Income
Taxes
  Future Net
Revenue
After Income
Taxes
Forecast Prices and Costs                                        
Proved     6,336     926     1,786   684   53   2,887     128   2,759
Proved plus probable     11,011     1,612     2,918   1,212   69   5,200     706   4,494

Reconciliation of Total Company Interest Reserves by Principal Product Type

Forecast Prices and Costs

                    Oil       Natural
Gas
      Natural
Gas
Liquids
      BOE
                    (mbbl)       (MMcf)       (mbbl)       (mboe)
Total Proved     Opening Balance (December 31, 2009)             4,105       544,887       7,370       102,290
      Technical Revisions             436       (12,391)       1,056       (573)
      Economic Factors             (22)       (15,530)       (130)       (2,740)
      Exploration Discoveries             -       43,819       814       8,117
      Drilling Extensions and Improved Recovery             246       198,174       2,662       35,936
      Acquisitions             1,457       156,855       2,018       29,618
      Dispositions             (746)       (16,538)       (461)       (3,963)
      Production             (714)       (77,986)       (1,228)       (14,940)
      Closing Balance (December 31, 2010)             4,762       821,289       12,103       153,746
Proved Plus Probable     Opening Balance (December 31, 2009)             5,283       834,195       10,825       155,141
      Technical Revisions             448       (35,360)       1,388       (4,057)
      Economic Factors             (23)       (8,872)       (92)       (1,593)
      Exploration Discoveries             -       102,282       1,845       18,892
      Drilling Extensions and Improved Recovery             386       372,135       4,870       67,280
      Acquisitions             1,843       201,198       2,568       37,944
      Dispositions             (980)       (22,010)       (604)       (5,253)
      Production             (714)       (77,986)       (1,228)       (14,940)
      Closing Balance (December 31, 2010)             6,242       1,365,581       19,573       253,412

Closing balances may be slightly higher than reported Company gross reserves due to the inclusion of recoverable royalties.

The following table sets out the development costs deducted in the estimation of future net revenue attributable to the reserves categories described above.

Future Development Costs
($ thousands)                     Forecast Prices and Costs
Year                     Proved Reserves       Proved Plus Probable
Reserves
2011                     195,939       275,297
2012                     293,774       537,219
2013                     109,244       261,906
2014                     13,871       35,896
2015                     36,107       52,257
Total                     683,913       1,211,776

2011 Production Estimates

The following table sets out the Company's gross production estimated in GLJ's evaluation for 2011 which is reflected in the estimated future net revenue disclosed above. There are no fields that account for 20% or more of the total production.

 
Area





Light and Medium
Oil
(bbl/d)



Heavy Oil
(bbl/d)

  Associated And
Non-Associated Gas
(Mcf/d)


Natural Gas
Liquids
(bbl/d)



  BOE
(Boe/d)
Total Proved Daily Production           1,536       208     238,859     4,247         45,801
Total Probable Daily Production           44       4     17,691     339         3,335
Total Proved Plus Probable Production           1,580       212     256,549     4,586         49,136

Finding and Development Costs

                  Proved             P+P      
            Capital      Reserve       Proved     Reserve     P+P
            Expenditures     Additions       Costs     Additions     Costs
Finding, Development and Net Acquisition Costs           ($ million)     (mmboe)       ($/boe)     (mmboe)     ($/boe)
Total 2010 proved FD&A costs including change in FDC           $  1,078     66.4       $  16.23     na     na
Total 2010 P+P FD&A including change in FDC           $  1,414     na       na     113.2     $  12.49
Total 2009 proved FD&A costs including change in FDC           $  1,386     51.2       $  27.09     na     na
Total 2009 P+P FD&A including change in FDC           $  1,516     na       na     76.7     $  19.78
3-year average proved FD&A including change in FDC           $  2,611     127.7       $  20.45     na     na
3-year average P+P FD&A including change in FDC           $  3,097     na       na     202.2     $  15.31
                                       
Finding and Development Costs                                      
Total 2010 proved F&D costs including change in FDC           $     669     40.7       $  16.43     na     na
Total 2010 P+P F&D including change in FDC           $     996     na       na     80.5     $  12.37
Total 2009 proved F&D costs including change in FDC           $     421     22.4       $  18.79     na     na
Total 2009 P+P F&D including change in FDC           $     550     na       na     39.7     $  13.88
3-year average proved F&D including change in FDC           $  1,259     73.9       $  17.04     na     na
3-year average P+P F&D including change in FDC           $  1,736     na       na     133.4     $  13.02

Finding and development cost calculations and finding, development and acquisition cost calculations have been done in accordance with NI 51-101 (although total company interest reserves were used rather than gross (working interest) reserves). 

Advisory on Forward Looking Statements

Certain information regarding Progress set forth in this news release contains forward-looking statements that involve substantial known and unknown risks and uncertainties.  The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward looking statements. Such statements represent Progress' internal projections, estimates or beliefs concerning, among other things, the timing of release of its year end financial results and the filing of its AIF. In addition, statements relating to "reserves" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future. These statements are only predictions and actual events may differ materially. Although Progress believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, expected timing of filing of its financial results and AIF, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies.

These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the Company's control, including the impact of general economic conditions; volatility in market prices for crude oil and natural gas; industry conditions; volatility of commodity prices; currency fluctuation; imprecision of reserve estimates; liabilities inherent in crude oil and natural gas operations; environmental risks; incorrect assessments of the value of acquisitions and exploration and development programs; competition from other producers; the lack of availability of qualified personnel or management; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; hazards such as fire, explosion, blowouts, cratering, and spills, each of which could result in substantial damage to wells, production facilities, other property and the environment or in personal injury; stock market volatility; and the ability to access sufficient capital from internal and external sources. Readers are cautioned that the foregoing lists of factors are not exhaustive.

With respect to forward-looking statements contained in this news release, Progress has made assumptions regarding: current commodity prices and royalty regimes; availability of skilled labour; north American sulphur prices; timing and amount of capital expenditures; future exchange rates; the price of oil and natural gas; the impact of increasing competition; conditions in general economic and financial markets; availability of drilling and related equipment; effects of regulation by governmental agencies; royalty rates and future operating costs.

These forward-looking statements are made as of the date of this news release and the Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Barrels of Oil Equivalent

"Boe" means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

For further information:

Greg Kist, Vice President, Investor Relations and Marketing

Progress Energy Resources Corp.

403-539-1809 (gkist@progressenergy.com)

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Progress Energy Resources Corp.

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