HONG KONG, Nov. 13, 2012 /CNW/ - Sunshine Oilsands Ltd. (the "Corporation" or "Sunshine", HK: 2012) today is pleased to announce its unaudited interim financial results for the three and nine month periods ended September 30, 2012. All figures are in Canadian dollars unless otherwise stated. Please see the attached announcement for further information.
Operational Update - Third Quarter of 2012:
Sunshine is a major holder and developer of oil sands resources, with approximately 70 billion barrels of total Petroleum Initially In Place ("PIIP"). The Corporation is focused on development of these assets with the first phase of a 10,000 barrels per day project, currently under construction at West Ells, scheduled for start up in mid 2013. Sunshine is also progressing regulatory approvals for two additional 10,000 barrels per day (total 20,000 barrels per day) projects at Thickwood and Legend Lake. Approvals are expected in the first half of 2013. With over 4.96 billion barrels of contingent resources and 445 million barrels of proved plus probable ("2P") reserves, the Corporation has significant commercial development potential. In addition, Sunshine has recently updated its commercial development plans in the West Ells, Thickwood and Legend Lake areas and is now targeting over 300,000 barrels per day of production from these areas, representing a 50% increase in previously announced commercial production targets.
West Ells Development
As of September 30, 2012, $110.9 million has been incurred for West Ells equipment, engineering, construction, civil works, drilling, completions and other project related expenditures. The Project is currently on schedule and on budget for completion. The Corporation estimates total capital investment for its West Ells 100,000 barrels project to approximate $3.5 billion. Sunshine remains focused on West Ells Phase One construction, which has an initial production rate of 5,000 barrels per day, followed by an already approved expansion to the planned production capacity of 10,000 barrels per day. First steam is expected to commence in mid-2013 and first production is expected in the fourth quarter of 2013.
The access road to West Ells is now complete and ready for heavy hauls. This will ensure that project milestones are met and that the project will be completed on schedule for first steam in mid 2013. Subsequent to quarter end, on October 10, 2012, pilings for the Central Process Facility ("CPF") commenced. As well, some of the major equipment, including a gas turbine generator and an evaporator was in transit to marshalling yards. Other major equipment still to be received includes steam generators, free water knockout, pumps, and heat exchangers. Civil construction of the CPF is approximately 40% finished, with facilities general engineering approximately 75% complete.
In addition to the road and CPF, the first of Well Pad 2 SAGD well pairs spudded on October 29, 2012. The camp is fully functional, and the borrow pits are complete and in use. For capital commitments, 100% of the long lead equipment has been ordered and approximately 80% of the secondary long lead equipment has been procured. Phase 1 downhole completion and production equipment have been ordered and drilling rigs arrived on August 20, 2012. Drilling rigs for the observation wells were mobilized and were spudded on October 26, 2012. No major delays have been encountered.
Thickwood and Legend Lake
In addition to the progress made on the 10,000 barrel per day project applications approvals for both the Thickwood and Legend Lake projects, the Corporation has progressed the Front End Engineering and Design ("FEED") for Thickwood. This work is approximately 10% complete. In addition, detailed baseline environmental data collection is ongoing and is expected to be completed by the end of 2012. This work provides information required for project applications larger than 12,000 barrels per day in anticipation of future commercial development plans.
Cold flow assets
The Corporation continues with the exploration and development of its Muskwa heavy oil assets. As at September 30, 2012, five pads with 39 development wells have produced a cumulative total of approximately 305,000 barrels. Muskwa cumulative production for the first 9 months of 2012 is barrels approximately 168,000, representing an average of 625 barrels per day. The Corporation continued production optimization activities in the Muskwa field by implementing new technologies and techniques for enhancing production, sand clean out and other types of wellbore stimulations. The Corporation also commenced construction of its planned pad extension to accommodate future drilling. The Corporation received regulatory approval to install electric heaters on two horizontal wellbores at its Muskwa operations. Field work commenced late in the summer and is scheduled to be completed in mid-fourth quarter of 2012. Muskwa remains in the resource definition stage for the Corporation's financial reporting purposes. As a result, the Corporation capitalizes all costs incurred to date including operating costs net of revenues.
The Board of Directors of the Corporation is pleased to announce the results of the Corporation and its wholly-owned subsidiaries for the three and nine month periods ended September 30, 2012 together with comparative figures for the corresponding period in 2011 as follows:
President's Message to Shareholders
We are pleased to present to you the unaudited interim financial results including the interim financial statements and management's discussion and analysis of Sunshine Oilsands Ltd. ("Sunshine") for the three and nine months ended September 30, 2012. This report presents a discussion of key highlights for the first nine months of 2012, a performance update, summary comments on developments and our 2013 outlook.
We would like to extend our sincere gratitude to you, our shareholders, for your continued support and interest in Sunshine. At Sunshine, we believe we have the assets and experience to continue to pursue significant value-added opportunities. We continue to focus on executing milestone undertakings in the West Ells project area, where first steam is scheduled for mid-2013. West Ells has an initial production target rate of 5,000 barrels per day, which will be followed by an approved expansion to a planned production capacity of 10,000 barrels per day. In addition to West Ells activities, Sunshine is progressing regulatory approvals for two additional 10,000 barrels per day projects, one in Thickwood and one in Legend Lake.
At the start of the third quarter, we released the results of our updated independently prepared Reserves and Resource Reports (the "Reserves and Resource Reports"). These reports, dated May 31, 2012, were prepared by GLJ Petroleum Consultants Ltd. and DeGolyer and MacNaughton Canada Limited and the results confirmed a substantial increase in our recognized reserves and resources base.
Main highlights of the independently prepared Reserves and Resource Reports include the following:
- 69 billion barrels of Total Petroleum Initially In Place ("PIIP"),
- 5 billion barrels of Best Estimate Contingent Resources with an aggregate pre-tax PV10% value of $6.9 billion (increase of 1.9 billion barrels representing 63% growth);
- 80 million barrels of proved ("1P") reserves with an aggregate pre-tax PV10% value of $312 million (increase of 78 million barrels);
- 445 million barrels of proved plus probable ("2P") reserves with an aggregate pre-tax PV10% value of $918 million (increase of 26 million barrels); and
- 603 million barrels of proved plus probable plus possible ("3P") reserves with an aggregate pre-tax PV10% of $1.6 billion (increase of 42 million barrels).
The Reserves and Resources Reports confirmed significant increases in PIIP and Best Estimate Contingent Resource recognition in both the clastics and carbonates categories. PIIP recognition increased by approximately 24 billion barrels to approximately 69 billion barrels. Clastics Best Estimate Contingent Resource recognition increased by 1.2 billion barrels to 3.6 billion barrels primarily due to the Corporation's drilling program in its core areas of Harper, Opportunity and Pelican Lake. Carbonates Best Estimate Contingent Resource recognition increased in the core areas of Goffer, Muskwa and Portage, adding over 700 million barrels. Based on this, our current share price is trading at a significant discount to our PV10% resource and reserves value. At a 10% discount rate for 2P and Best Estimate Contingent Resource before taxes, this equates to approximately HK$21.40 per share.
During the third quarter, development of our first phase Steam Assisted Gravity Drainage ("SAGD") project at West Ells progressed well. Activities throughout the summer and increasing through the fall period continued to advance construction and development at the West Ells site. The access road was completed as were the borrow pits. Our camp is now fully functional. Pilings for the Central Process Facility commenced on October 10, 2012. In addition, following quarter end, some of the major equipment was in transit to marshalling yards. Drilling rigs for the observation wells were mobilized and our first SAGD well pair was spudded subsequent to quarter end on October 29, 2012. No major delays have been encountered in our planned West Ells construction schedule.
Thickwood and Legend Lake continue to advance through the regulatory process with approvals currently expected by mid-2013 for an initial10,000 barrels per day of production in each area.
The successful completion of the initial public offering ("IPO") on March 1, 2012 and the Listing on the Stock Exchange of Hong Kong Limited have been significant achievements. Sunshine raised gross proceeds of HK$4.5 billion (approximately $570 million) and secured significant investments from cornerstone investors. With this financing, we secured a financial platform that validates our business intent to develop our large oil sands asset base.
Subsequent to the end of the third quarter, the Corporation successfully secured a $200 million credit facility with a syndicate of financial institutions, led by Alberta Treasury Branches and Bank of China (Canada). This oversubscribed facility was expanded from its original size due to strong support from financial institutions that included Bank of America N.A., Canada Branch, HSBC Bank Canada, Morgan Stanley Senior Funding, Inc., Scotiabank, Toronto-Dominion Bank, UBS AG Canada Branch and Industrial and Commercial Bank of China (Canada). This credit facility positions the Corporation well to complete construction of the West Ells project, to fund front end costs of the Thickwood project and to advance program and regulatory development to expand capacity for the West Ells, Thickwood and Legend Lake projects.
During September, the Corporation commenced a share buyback program that ran from September 16 to October 12, 2012. During that time, the Corporation repurchased approximately 61 million shares. Sunshine continues with an active investor relations effort throughout Asia, North America and globally. We continue to emphasize the attractiveness of the Corporation's value in communications with existing shareholders and with potential new shareholders. In order to increase the incentive for North American shareholders to buy our stock, we applied and obtained conditional approval to list our Class "A" common voting shares on the Toronto Stock Exchange.
Joint Venture Initiatives
Joint venture discussions continued during the third quarter. We are pleased to confirm that we are continuing to work with Sinopec International Petroleum Exploration and Production Corporation, with whom we have a Memorandum of Understanding for strategic cooperation, as well as other parties who have expressed interest for involvement in our development of our attractive assets. We look forward to reporting details of matured joint venture discussions in a timely manner.
The Corporation consistently maintains a disciplined approach in health, safety and environmental issues and remains committed to operating in a socially responsible manner with regularly conducted emergency response training, and safety and environmental audits of our operating facilities. We had no significant incidents to report during the third quarter of 2012.
Sunshine also remains committed to working with local stakeholders as we build an organization that is intended to be meaningful in a global context.
Sunshine has recently updated its commercial development plans in the West Ells, Thickwood and Legend Lake areas and is now targeting over 300,000 barrels per day of production from these areas, representing a 50% increase in previously announced commercial production targets.
With approximately 70 billion barrels of PIIP, Sunshine has a significant presence in the north-western part of the Athabasca oil sands region that represents an opportunity for investors seeking value growth. Our outlook for the remainder of 2012 and looking ahead to 2013 is one of significant promise. With over 4.96 billion barrels of contingent resources and 445 million barrels of 2P reserves, Sunshine has significant commercial development potential with considerable upside. We are confident that our internal development and evaluation efforts complemented with broadening the market's understanding of Sunshine's assets, will result in share price appreciation over time. We continue to work towards first steam at West Ells by mid-2013. Production from West Ells will provide immediate cash flows to re-invest in our other planned capital projects, Thickwood and Legend Lake. This should, combined with anticipated expansion applications and approvals for our projects, increase probable and proved reserves, which are typically ascribed to higher values in active markets.
Sunshine has achieved several milestones during the first nine months of 2012. These would not have been possible without the committed efforts of our Board of Directors and our dedicated, hard-working employees. We will continue to seek out and attract talented people to sustain a high level of excellence in execution of our corporate development plans. We believe in the immense potential of our asset base and understand that to increase shareholder value, we need to remain disciplined and focused on project milestones and within our financial means. We look forward to a busy winter season and are excited by the potential of our planned development projects.
President and Chief Executive Officer
November 14, 2012
About Sunshine Oilsands Ltd.
Sunshine Oilsands Ltd. is one of the largest non-partnered holders of oil sands leases by area in the Athabasca oil sands region, which is located in the province of Alberta, Canada. Since the Company's incorporation on 22 February 2007, Sunshine has secured over 464,897 hectares (1,148,785 acres) of oil sands leases (equal to approximately 7% of all granted leases in this area).
The Company's principal operations are the exploration, development and production of its diverse portfolio of oil sands leases. Its principal operating regions in the Athabasca area are at West Ells, Thickwood, Legend Lake, Harper, Muskwa, Goffer, Pelican and Portage. Sunshine's oil sands leases are grouped into three main asset categories: clastics, carbonates and conventional heavy oil.
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SOURCE: Sunshine Oilsands Ltd.
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