Pinecrest Energy Inc. announces its December 31, 2012 Year End Results and 2012 Year End Reserves

TSX Venture Exchange:  PRY

CALGARY, March 18, 2013 /CNW/ - Pinecrest Energy Inc. ("Pinecrest" or the "Company") is pleased to announce that it has filed on SEDAR its audited annual financial statements, related Management's Discussion and Analysis ("MD&A") and Annual Information Form for the year ended December 31, 2012.  The statements will be available for review at www.sedar.com or www.pinecrestenergy.com.

2012 HIGHLIGHTS

  • Increased proved plus probable reserves by 107% to 16.2 mmboe (99% oil) and proved reserves by 100% to 9.5 mmboe (99% oil).  Proved reserves represent 58% of proved plus probable reserves as at December 31, 2012;

  • Increased proved plus probable reserves per fully diluted share by 70% to 68 boe per 1,000 shares from 40 boe per 1,000 shares;

  • Pinecrest's 2012 capital program added proved plus probable reserves at a cost of $23.64 per boe excluding future development capital ("FDC") and $33.37 per boe including FDC;

  • Emphasizing the quality of the Company's production base and the efficiency of its operations, Pinecrest continued to generate a top ranking operating netback of $66.01 per boe for the year ended December 31, 2012, despite a realized price decrease of 10%, compared to $69.46 per boe for the year ended December 2011.  Operating netback for Q4 2012 was $65.71 per boe compared to $76.39 per boe for Q4 2011 and increased by 2% compared to $64.33 per boe in Q3 2012;

  • Pinecrest achieved a finding, development and acquisition ("FD&A") recycle ratio of 2.8 excluding FDC and 2.0 including FDC based on our 2012 operating netback of $66.01 per boe;

  • Replaced 2012 production by greater than 4 times on a proved basis and 8 times on a proved plus probable basis;

  • Maintained an attractive reserves life index of 12.7 years based on our Q4 2012 average production rate of 3,510 boe per day;

  • Increased average production 133% to 3,142 boe per day (99% light oil) for the year ended December 31, 2012, from 1,348 boe per day for the year ended 2011.  Average production increased by 58% for Q4 2012 to 3,510 boe per day (99% light oil) compared to Q4 2011 (2,225 boe per day), and increased by 28% over Q3 2012 (2,748 boe per day);

  • Increased average production per share by 104%;

  • Increased funds from operations by 130% to $71.8 million ($0.34 per basic and $0.30 per diluted shares outstanding) compared to $31.2 million ($0.17 per basic and $0.15 per diluted shares outstanding) for the year ended December 2011.  Fourth quarter funds from operations increased by 41% to $20.7 million ($0.10 per basic and $0.09 per diluted shares outstanding) for Q4 2012 compared to $14.6 million ($0.07 per basic and diluted shares outstanding) during Q4 2011, and increased 38% in Q4 2012 compared to $15.0 million from Q3 2012;

  • Pinecrest increased 2012 net income by 284% to a corporate record of $32.1 million ($0.15 per basic and $0.13 per diluted shares outstanding) compared to $8.4 million ($0.05 per basic and $0.04 per diluted shares outstanding) in 2011 and increased Q4 net income 115% to $12.5 million ($0.06 per basic and $0.05 per diluted shares outstanding) compared to $5.8 million in Q4 2011;

  • Increased drilling inventory to over 400 net locations as at January 1, 2013 of which 50 gross (40.7 net) are currently booked (un-booked portion of drilling inventory is supported by the Independent Third Party Assessment of the Contingent and Prospective Oil Resources report, dated January 31, 2012);

  • The Company achieved 100% drilling success with a total of 39 (37.7 net) horizontal oil wells drilled during the year ended December 31, 2012 compared to 29 (24.7 net) oil wells drilled during the year ended 2011.  Pinecrest drilled 10 additional wells more than originally planned in 2012 to accelerate the Company's waterflood schemes.  A total of 16 (15.3 net) horizontal oil wells were drilled in the fourth quarter of 2012, compared to 14 (13.3 net) wells in Q4 2011;

  • Commenced water injection in late December 2012 at the Company's first 100% operated waterflood scheme which has already demonstrated a positive response (an increase in pressure and production rates) from offsetting producing wells.  Pinecrest received ERCB approval to implement six additional 100% operated waterflood projects, and expects to commence injection at the Loon-Project #1 in the first quarter 2013;

  • Operational efficiencies reduced transportation and production costs to $14.92 per boe for the year ended December 31, 2012 compared to $16.99 per boe for the year ended December 31, 2011.  Transportation and production costs were $15.22 per boe for Q4 2012 compared to $14.79 per boe in Q4 2011, and decreased from $15.68 per boe from the third quarter 2012;

  • Pinecrest exited the year with a strong balance sheet with net debt and working capital deficit of $100.2 million on a bank line of $125 million (at December 31, 2012, $59.8 million was drawn on the credit line).  Subsequent to the year ended December 31, 2012, Pinecrest's bank indicated an increase in total credit available to $155.0 million.

  • Pinecrest's Net Asset Value (NAV) is estimated at $1.67 per basic share based on net present value discounted at 10% (before tax) Proved plus Probable (2P) reserves at December 31, 2012 and an independent land evaluation as at December 31, 2012; and

  • Based on Pinecrest's third party contingent resource and reserve reports, the internally calculated NAV per basic share is estimated at $4.43 including all un-booked drilling locations.  This estimate is based on primary recovery only, not including the considerable upside potential via waterflooding.

             
December 31 Three months ended Year ended
  2012 2011 %
Change
2012 2011 %
Change
FINANCIAL               
Petroleum and natural gas sales    26,581 19,897 34 98,204 46,846 110
Funds flow from operations (1)(2) 20,663 14,616 41 71,779 31,166 130
    Per share - basic    $0.10 $0.07 43 $0.34 $0.17 100
   Per share - diluted    $0.09 $0.07 29 $0.30 $0.15 100
Net income    12,527 5,828 115 32,129 8,362 284
    Per share - basic    $0.06 $0.03 100 $0.15 $0.05 200
    Per share - diluted    $0.05 $0.03 67 $0.13 $0.04 225
Capital expenditures    80,320 66,134 21 212,800 164,940 29
Working capital deficit, including debt (100,175) (26,974) 271 (100,175) (26,974) 271
Common Shares Outstanding (000's)               
    Weighted average - basic    214,311 195,626 10 210,482 179,211 17
    Weighted average -  diluted    238,543 224,068 6 238,373 208,104 15
OPERATING               
Number of days    92 92   366 365  
Production               
   Crude oil (bbls/d)    3,484 2,204 58 3,124 1,334 134
   Natural gas (mcf/d)    93 51 82 62 34 82
   NGL (bbls/d)    10 12 (17) 8 8 -
   Barrels of oil equivalent (boe/d-6:1)    3,510 2,225 58 3,142 1,348 133
Average realized price               
   Crude oil ($/bbl)    82.72 97.77 (15) 85.73 95.80 (11)
   Natural gas ($/mcf)    3.18 3.43 (7) 2.36 3.68 (36)
   NGL ($/bbl)    40.59 53.72 (24) 48.33 58.69 (18)
   Barrels of oil equivalent ($/boe- 6:1)    82.31 97.24 (15) 85.41 95.27 (10)
Netback per boe ($)(1)               
   Petroleum and natural gas sales    82.31 97.24 (15) 85.41 95.27 (10)
   Realized gain (loss)  on derivative contracts    4.64 - 100 2.01 - 100
   Royalties    (6.02) (6.06) (1) (6.49) (8.82) (26)
   Transportation and production  expenses    (15.22) (14.79) 3 (14.92) (16.99) (12)
   Operating netback    65.71 76.39 (14) 66.01 69.46 (5)
Wells drilled               
   Gross    16 14 14 39 29 34
   Net    15.3 13.3 15 37.7 24.7 5
   Success rate (%)    100 100 - 100 100 -
(1)     Non-GAAP measure
(2)     Excludes $11.8 million relating to termination fee income, net of costs


The following tables summarize certain information contained in the independent reserves report prepared by Sproule Associates Ltd. ("Sproule") as at December 31, 2012.  The report was prepared in accordance with definition, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101").  Additional reserves information as required under NI 51-101 will be included in the Company's Annual Information Form - a copy of which can be obtained under Pinecrest's profile at www.sedar.com or at www.pinecrestenergy.com.

SUMMARY OF RESERVES

  Oil and NGLs
(mbbls)
Gas
(mmcf)
Combined
(mboe)
NPV 10% (1)
($000)
Undiscounted
Future
Development
Capital
($000)
Net
Undeveloped
Locations
Booked
Proved Developed
Producing
5,877.1 322 5,930.9 205,088 - -
Proved Developed
Non-Producing
645.9 13 648.1 23,805 2,203 -
Proved
Undeveloped
2,886.5 62 2,896.9 24,137 88,176 23.4
Total Proved 9,409.5 398 9,475.8 253,030 90,379 23.4
Probable
Additional
6,724.1 248 6,765.4 99,523 56,297 17.3
Total Proved plus
Probable
16,133.6 645 16,241.2 352,553 146,675 40.7
(1)     Before Tax

2012 FD&A COSTS

     
Finding Development & Acquisition (FD&A) Costs (1)(2)
  Total Proved
($000)
Proved plus
Probable
($000)
2012 Capital Expenditures ($000s)    
Land 8,643 8,643
Development 193,163 193,163
Net Acquisitions 10,994 10,994
Change in FDC 54,488 87,573
Total Capital 267,288 300,373
     
2012 Reserve Additions Mboe    
Acquisitions 322 433
Additions/Revisions 4,979 8,567
Total 5,301 9,000
     
2012 FD&A ($/boe)(1)    
       Including FDC 50.42 33.37
       Before FDC 40.14 23.64
(1)    Under NI 51-101, the methodology to be used to calculate FD&A costs includes incorporating changes in future development capital ("FDC") required to bring the proved undeveloped and probable reserves to production. For continuity, Pinecrest has presented herein FD&A costs calculated both excluding and including FDC.
(2)   While NI 51-101 requires that the effects of acquisitions and dispositions be excluded from the calculation of FD&A, FD&A costs have been presented because acquisitions and dispositions can have a significant impact on the Company's ongoing reserve replacement costs and excluding these amounts could result in an inaccurate portrayal of the Company's cost structure.  The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in the estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.

OPERATIONAL UPDATE

Pinecrest is in the midst of a very active first quarter operating three drilling rigs in its Red Earth core area.   By the end of Q1 2013, the Company expects to have drilled 12 (11.25 net) wells and completed 14 (12.75 net) wells, with 100% success (including one net water source well to be utilized in a future pressure maintenance scheme).  Six (5.25 net) wells have been placed on production along with an additional 4 (3.5 net) wells that were drilled in 2012.  The remaining horizontal wells drilled in the first quarter are planned to be on production before the end of April.  Based on experience operating in the area, Pinecrest does not budget any drilling activity during the second quarter due to wet access and road bans, however the Company is confident in its ability to drill and bring on a total of 30-34 net horizontal wells as per our previously announced 2013 budget.

Pinecrest is very encouraged by the early results of its waterflooding activities, having previously reported increases in pressure and production rates on its initial Evi Projects #1 and #2.  These first two pressure maintenance schemes continue to perform in accordance with expectations.  We have received ERCB approval to proceed with an additional six waterflood schemes in the greater Red Earth area. The required field work has been completed and we expect the ERCB to grant final injection approval on our second operated scheme imminently.  Construction of the required field facilities for the third and fourth operated schemes has commenced and we anticipate having water injection into these two, as well as the three previously approved schemes by the end of the third quarter.

2013 production is tracking our budget and we are confident we will meet or exceed our year end exit estimate of 6,000 boe per day (99% oil).  With our 2012 top decile netback and strong recycle ratio, the Company is well situated to continue strong growth regardless of fluctuations in commodity pricing.

ANNUAL GENERAL AND SPECIAL MEETING

Pinecrest's Annual General and Special Meeting is scheduled for 10:00 am on June 5, 2013 at the Bow Valley Conference Centre, Angus/Northcote Room, located at 300, 205 - 5th Avenue S.W., Calgary. Alberta, T2P 2V7.

Advisory 

The information in this press release contains certain forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar expressions. In particular, forward looking statements in this press release includes, but is not limited to: Pinecrest's capital program and 2013 business objectives, Pinecrest's 2013 budget, oil recovery rates, drilling plans for 2013, expected production, expected oil to gas ratios, the effects of waterfloods on recovery factors, anticipated receipt of ERCB approvals, decline rates and type curves for wells, success in anticipated drilling in Q1 2013, production rates, exit rates for production and bank debt, downspacing opportunities, the quantity of reserves, and projections of market prices, anticipated increase to the Company's credit facility, and costs. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Pinecrest's control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves. Pinecrest's actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits that Pinecrest will derive from them. Forward-looking statements are made as of the date herein except as required by law, Pinecrest undertakes no obligation to publicly update or revise any forward-looking statements.

Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources or reserves described can be profitably produced in the future.

The Corporation uses the following terms for measurement within this press release that do not have a standardized prescribed meaning under GAAP and these measurements may differ from other companies and accordingly may not be comparable to measures used by other companies. The terms "funds from operations" and "operating netback" are not recognized measures under the applicable GAAP. Management of the Corporation believes that these terms are useful, in addition to profit and loss and cash flow from operating activities as defined by GAAP, for evaluating the Corporation's operating performance and leverage. Funds from operations is expressed as cash flow from operating activities before changes in non-cash working capital and asset retirement expenditures. Operating netback is a measure of operating margin used in capital allocation decisions. Pinecrest defines operating netback as average realized price per boe, less royalties per boe, less operating and transportation expenses per boe, plus any realized gain or loss per boe on financial instruments.

Certain information provided in this press release in relation to the results of waterflooding Slave Point reservoirs on lands in close proximity to the land in which the Company has an interest, is considered analogous information under National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.  Such information is based on publicly available information from governmental agencies and other industry producers and has been provided to give an indication of possible incremental recovery factors in the specified area.  Other than comparing such information to the Company's own limited results in the specified area, the Company has not independently confirmed the accuracy of this information.  There is no certainty that such incremental recovery factors will be obtained of even if so obtained, whether such factors can be achieved on an economic basis.

Net asset value per share as presented herein is based on the [PVBT10] of proven plus probable reserves as at December 31, 2012 of $353 million, 2012 year end net debt of $100 million, a December 31, 2012 independent third party valuation estimate of Pinecrest's undeveloped land of $106 million, for total net asset value of $376 million and with 214.3 million basic shares outstanding is a net asset value of $1.67/share.

Net asset value per share including all un-booked drilling locations as presented herein is calculated based on Pinecrest's January 31, 2012 third party contingent resource report along with internal engineering estimates of $694 million and [PVBT10] of proven plus probable reserves as at December 31, 2012 of $353 million, 2012 year end net debt of $100 million less an independent third party valuation estimate of Pinecrest's undeveloped land as at December 31, 2012 of $106 million for total net asset value of $589 million and with 214.3 million basic shares outstanding is a net asset value of $4.43/share.

Barrels of Oil Equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of 6MCF:1bbl 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 6:1, utilizing a conversion on a 6:1 basis 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 news release.

  

SOURCE: Pinecrest Energy Inc.

For further information:

Pinecrest Energy Inc.
Suite 500, 255 - 5th Avenue S.W.
Calgary, Alberta  T2P 3G6

Wade Becker, President & CEO
or
Dan Toews, V.P. Finance & CFO

Tel: (403) 817-2550 or
Fax: (403) 817-2599

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