Positioning Progress for the next up cycle
CALGARY, April 29 /CNW/ - (TSX - PRQ) - Progress Energy Resources Corp.
("Progress" or the "Company") announces results for the first quarter of 2009
(the "Quarter"). The Quarter was characterized by strong drilling results
within a disciplined capital program to preserve balance sheet strength and
position the Company for the next up cycle. "The new Progress was launched in
a challenging economic and commodity price environment," said Mr. Michael
Culbert, President and CEO of Progress. "We believe the depth of our asset
base, our prudent approach to financial management and the strength of our
technical and financial professionals has positioned the Company for success
through all cycles."
- Completed the business combination to create Progress Energy
Resources Corp. on January 15, 2009;
- Combined production for the Quarter, including ProEx Energy Ltd.
("ProEx") production prior to the Arrangement, averaged 35,007
barrels of oil equivalent ("boe") per day including approximately
185 million cubic feet ("mmcf") of natural gas per day;
- Drilled 29 gross (25.5 net) wells in the first quarter with an 88
percent success rate;
- Drilled three vertical and one horizontal Montney tests in the
Foothills with encouraging early results;
- Added over 65,000 net undeveloped acres of land through Crown land
sales and a swap with a major Canadian independent. Progress holds
over 1.1 million net undeveloped acres; and,
- Completed a $140 million common share public offering in February
2009 which has positioned the Company's balance sheet to be
opportunistic in this environment.
Progress Energy Trust and ProEx Energy Ltd. completed the business
combination on January 15, 2009 to create Progress Energy Resources Corp.
Since the combination is treated as a reverse takeover for accounting
purposes, cash flow and production exclude ProEx Energy results for the first
14 days of the Quarter. Cash flow reported for the Quarter was $68.8 million
versus $72.2 million including the first 14 days of January 2009 for ProEx.
Reported production for the Quarter was 33,170 boe per day versus 35,007 boe
per day including the first 14 days of January 2009 for ProEx.
The Company drilled 29 wells (25.5 net) in the Quarter with a success
rate of 88 percent. Through the Quarter, Progress had up to eight drilling
rigs operating, six in the Foothills and two in the Deep Basin. In the current
natural gas price environment, Progress chose to not complete and tie-in
several wells from the winter program. These wells will be completed and
brought on stream over the third and fourth quarters of 2009.
Building on the successes achieved in the Company's Nikanassin program in
the Deep Basin and its Montney program in the Foothills, the Company added
over 65,000 net undeveloped acres in the Quarter. Approximately 22,000 net
undeveloped acres were added in the Deep Basin primarily targeting the
Nikanassin. Another 43,000 net undeveloped acres were added in the Foothills
on trend with the Company's Montney activity. Progress currently holds over
1.1 million net undeveloped acres of land primarily in the Deep Basin of
northwest Alberta and the Foothills of northeast British Columbia.
Deep Basin of Northwest Alberta
The Company continued its successful program in the Deep Basin drilling
nine wells (7.9 net) in the Quarter of which eight wells (6.9 net) were
drilled in the Gold Creek Project area. The Nikanassin formation was the
primary or secondary zone in five of the wells which also included success in
the Charlie Lake, Falher, Bluesky and Gething zones. Five of nine wells are
currently on production with the other four to be brought on stream during the
third and fourth quarters of 2009.
"Our Deep Basin assets continue to generate strong operating results and
the economics of the area will be further enhanced by recent royalty changes,"
said Mr. Daniel Topolinsky, Executive Vice President, Exploration and
Development. "We will direct a greater proportion of our remaining 2009
capital investment program to maximizing the benefit of the Alberta royalty
Progress' Deep Basin program will benefit from the recently announced
changes to the Alberta royalties. A drilling credit of $200 per meter drilled
is expected to provide up to $500,000 per typical Deep Basin well drilled by
Progress. The Company also delayed the tie-in of numerous wells drilled in the
fourth and first quarters to take advantage of the five percent royalty credit
that is provided for wells brought on-stream after April 1, 2009.
Facilities construction for the Quarter included the installation of an
interconnect to provide area access to the Wapiti gas plant and provide the
Company with added flexibility to flow gas to multiple plants that the Company
has ownership in. Scheduled turnarounds and outages are planned at the Gold
Creek, Karr, Cutbank and Musreau plants during the second quarter. In total,
second quarter production is expected to be impacted by approximately 1,300 to
1,500 boe per day.
Progress has drilled two of its vertical wells down to the Montney in the
Deep Basin and has placed one of the two on a long term production test.
Industry activity on the Montney play is expanding in the area adjacent to
Progress' Gold Creek and Sinclair holdings. Currently large independent energy
companies are in the process of drilling horizontal wells offsetting
productive verticals. Progress will continue to monitor activity to determine
the potential for additional Montney tests on its large Deep Basin land base.
Foothills of Northeast British Columbia
The Company drilled 18 wells (15.6 net) in the Quarter primarily
targeting the Halfway and Montney formations and including three Debolt and
four Cretaceous tests.
Progress again partnered with the Province of British Columbia on
infrastructure development and completed the construction of approximately 8.5
kilometers of a gas gathering pipeline system in the Caribou/Green area in
January 2009 to tie-in new and existing wells.
Halfway Program Update
The Company's Halfway horizontal program was initiated with a focus in
achieving five to six times the benefit for the equivalent cost of three
vertical wells. The rates achieved in the Sasquatch and Bubbles wells are
sufficiently encouraging to continue to develop horizontal drilling technology
in the northerly portion of the Foothills landbase where topographical
challenges exist. Sasquatch, the Company's third horizontal well, commenced
production at 4 mmcf per day and now has leveled off at 1.5 mmcf per day. In
the Quarter, the Company's fourth horizontal well was drilled and completed at
Bubbles. The well was fracture stimulated in five intervals over a 560 meter
horizontal section. It is currently producing at 1.2 mmcf per day which is
approximately four times the rate of the offsetting verticals.
Progress has proved over its history that the Halfway is highly economic
when drilled vertically. Progress and its predecessor companies have drilled
over 200 Halfway vertical wells during the past 5-years at an average cost of
$2 million to drill, complete and tie-in with an average reserve booking of 2
billion cubic feet per well and an average initial production rate of 1.8 mmcf
Montney Program Update
Progress has built a significant Montney rights land base totaling
790,000 net undeveloped acres in the Montney fairway in northeast British
Columbia and northwest Alberta. Since July 2008, Progress has penetrated the
Montney in 10 vertical wells including eight in British Columbia and two in
Alberta. Nine of the 10 wells had primary or secondary targets other than the
Montney, consistent with Progress' program of risk mitigation. Test rates for
intervals which have been fracture stimulated in the 10 vertical wells tested
in excess of 100 thousand cubic feet ("mcf") per day with rates up to 1.5 mmcf
"While we are in the early stages of our Montney program, we are
encouraged by the results we have achieved to date as well as the results
achieved by adjacent operators," said Mr. Culbert. "Our Montney program for
the remainder of 2009 will be directed towards proving commerciality in
anticipation of an improved natural gas price environment."
At Town, the Company drilled two vertical wells and one horizontal. The
two vertical wells post frac tested in excess of one mmcf per day from the
Middle Montney. Both wells are on production through the Company's extensive
area infrastructure. The horizontal well was drilled and fracture stimulated
in nine intervals in the Middle Montney formation. The Company employed
varying sizes of fracture stimulations and carrying agents and also
individually flow tested each interval. The individual intervals tested at an
average rate of 750 mcf per day each. Upon completion of the fracture
stimulations the well flowed at a rate of 1.4 mmcf per day. Currently the well
has been shut in for pressure build up. Additional production testing and core
analysis is ongoing to determine the cause of the restricted flow.
Progress has also partnered with a large independent on its Montney
exploration program in the Blair/Cameron area. One vertical well has been
drilled with another two wells planned before year end.
The Company generated cash flow for the Quarter of $68.8 million or $0.46
per share, diluted. Cash flow included strong hedging gains of $5.85 per boe
from the Company's winter hedging program.
The Company invested exploration and development capital of $97.8 million
in the Quarter. This included $71.3 million in drilling and completions, $16.8
million in land and seismic, and $9.6 million in facilities. As at March 31,
2009, the Company had approximately $260 million available under its $650
million revolving credit facility.
Mr. Daniel Topolinsky has been appointed Executive Vice President,
Exploration and Development. The appointment reflects Daniel's strong
technical and business contribution to Progress' capital program and the
success achieved at predecessor companies.
We are optimistic about the prospects for Progress given our high quality
asset base, inventory of opportunities, strong financial position, low cost
structure and strength of our technical and financial professionals.
We have positioned Progress to benefit from all points in the commodity
and business cycles. During periods of low natural gas prices, as we are
experiencing now, we will focus on long-term resource capture to position us
for the next up cycle. The maintenance of our healthy balance sheet will be
important in this environment and will provide the flexibility to take
advantage of unique opportunities which add long-term value for shareholders.
Our capital investment program has been adjusted from the original $350
million which was based on a natural gas price for the year of approximately
$7.50 per gj at AECO. We will be flexible responding to changes in natural gas
prices and focus on living within our means. We invested approximately $100
million in the Quarter and expect in the current commodity price environment,
to invest an additional $75 to $100 million to the end of 2009. The
investments we are making over the remainder of 2009 will focus on proving up
play concepts, such as the Montney, which we believe will have a material
impact on the future value of the Company and also maximizing the benefit of
the changes to the Alberta royalties. The second quarter will see minimal
capital investment due to normal break-up activities, as well as the weaker
natural gas price environment.
The factors that we expect to lead to a recovery in natural gas prices
are beginning to unfold. Drilling activity across North America has dropped by
over 50 percent since the peak in September 2008. Given the relatively high
initial decline rates of wells being drilled in unconventional plays, we
believe that natural gas production will fall throughout 2009 and 2010 without
a recovery in drilling activity. As well, credit conditions remain tight and
capital investment programs are being funded primarily from cash flows which
will remain relatively weak in the near term. On the demand side, overall
natural gas demand has fallen although by less than initially expected.
Industrial demand remains the weakest component of overall demand but will
benefit from easing economic concerns. On balance, we expect natural gas
prices will begin to strengthen in the second half of 2009 and heading into
Consolidated Financial Statements and MD&A
2009 Consolidated Financial Statements and Notes to the Consolidated
Financial Statements and Management's Discussion and Analysis for Progress
Energy Resources Corp. have been filed on SEDAR (www.sedar.com) under Progress
Energy Resources Corp. and can also be accessed on the Company's website at
Annual and Special Meeting of Shareholders
Progress' Annual and Special Meeting of Shareholders is scheduled for
Thursday, April 30, 2009 at 3:30 p.m., Calgary time, at the Calgary Petroleum
Club, 319-5th Avenue S.W. Calgary, Alberta.
Progress is a Calgary based, mid-size energy company primarily focused on
natural gas exploration, development and production in northwest Alberta and
northeast British Columbia. Common shares of Progress are listed on the
Toronto Stock Exchange under the symbol PRQ.
Three Months Ended
Income Statement ($ thousands, except per
Petroleum and natural gas revenue 102,660 123,075
Cash flow(1) 68,767 68,115
Per share - diluted 0.46 0.61
Cash dividends declared(2) 17,134 -
Per share 0.10 -
Cash distributions declared - 29,365
Per unit - 0.30
Balance Sheet ($ thousands)
Working capital deficiency 37,869 13,653
Bank debt 387,956 311,060
Convertible debentures 125,352 122,818
Total debt 551,177 447,531
Capital expenditures 97,923 41,528
Plan of Arrangement(3) 662,659 -
Average Daily Production
Natural gas (mcf/d) 174,535 127,667
Crude oil (bbls/d) 2,151 2,186
Natural gas liquids (bbls/d) 1,930 2,052
Total daily production (boe/d) 33,170 25,515
Average Realized Prices
Natural gas ($/mcf) 5.52 7.95
Crude oil ($/bbl) 44.50 89.86
Natural gas liquids ($/bbl) 38.98 65.15
Wells Drilled, Net 25.5 14.1
(1) Represents cash flow from operating activities before changes in non-
cash working capital.
(2) Includes $0.7 million of accumulated distributions paid on the
performance units that vested as a result of the Plan of Arrangement
which was completed on January 15, 2009.
(3) Reverse Takeover of ProEx Energy Ltd. on January 15, 2009.
Advisory Regarding Forward-Looking Statements
This press release and financial highlights table (collectively the
"press release") contains forward-looking statements and forward-looking
information within the meaning of applicable securities laws. The use of any
of the words "expect", "anticipate", "continue", "estimate", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans", "intends"
and similar expressions are intended to identify forward-looking information
or statements. In particular, forward looking statements in this press release
include, but are not limited to, statements with respect to the focus of
capital expenditures, the timing of capital spending and the results
therefrom; payment of dividends; projections of future land holdings;
completion of planned facility expansions and the timing thereof; future
drilling plans and programs, the timing thereof and the results therefrom;
expected commodity prices and industry conditions.
The forward-looking statements and information are based on certain key
expectations and assumptions made by Progress, including expectations and
assumptions concerning prevailing commodity prices and exchange rates,
applicable royalty rates and tax laws; future well production rates; reserve
and resource volumes; the performance of existing wells; the success obtained
in drilling new wells; and the sufficiency of budgeted capital expenditures in
carrying out planned activities; and the availability and cost of labour and
services and future operating costs. Although Progress believes that the
expectations and assumptions on which such forward-looking statements and
information are based are reasonable, undue reliance should not be placed on
the forward looking statements and information because Progress can give no
assurance that they will prove to be correct.
Since forward-looking statements and information address future events
and conditions, by their very nature they involve inherent risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors and risks. These include, but are not
limited to, the risks associated with the oil and gas industry in general such
as operational risks in development, exploration and production; delays or
changes in plans with respect to exploration or development projects or
capital expenditures; the uncertainty of reserve and resource estimates; the
uncertainty of estimates and projections relating to reserves, resources,
production, costs and expenses; health, safety and environmental risks;
commodity price and exchange rate fluctuations; marketing and transportation;
loss of markets; environmental risks; competition; incorrect assessment of the
value of acquisitions; failure to realize the anticipated benefits of
acquisitions; ability to access sufficient capital from internal and external
sources; changes in legislation, including but not limited to tax laws,
royalties and environmental regulations.
Management has included the above summary of assumptions and risks
related to forward-looking information provided in this press release in order
to provide securityholders with a more complete perspective on the Company's
future operations and such information may not be appropriate for other
purposes. The Company's actual results, performance or achievement could
differ materially from those expressed in, or implied by, these
forward-looking statements and, accordingly, no assurance can be given that
any of the events anticipated by the forward-looking statements will transpire
or occur, or if any of them do so, what benefits that the Company will derive
there from. Readers are cautioned that the foregoing lists of factors are not
exhaustive. These forward-looking statements are made as of the date of this
press 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.
Readers are cautioned that the foregoing list of factors is not
exhaustive. Additional information on these and other factors that could
affect the operations or financial results of Progress are included in reports
on file with applicable securities regulatory authorities and may be accessed
through the SEDAR website (www.sedar.com). The forward-looking statements and
information contained in this press release are made as of the date hereof and
Progress undertakes no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of new
information, future events or otherwise, unless so required by applicable
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:
For further information: Greg Kist, Vice President, Investor Relations
and Marketing, Progress Energy Resources Corp., at (403) 539-1809,