CALGARY, ALBERTA–(Marketwired – Nov. 3, 2016) – BlackPearl Resources Inc. (“BlackPearl” or the “Company”) (TSX:PXX)(OMX:PXXS) is pleased to announce its financial and operating results for the three and nine months ended September 30, 2016.
- After a rigorous review process, regulatory and environmental approval was received for our 80,000 barrel per day (bbl/d) SAGD commercial development application at Blackrod. With this approval and the success of our pilot, we will look at opportunities to accelerate development of this project;
- Our Onion Lake thermal project continued to demonstrate that it is a top tier thermal project with production in the quarter averaging in excess of 6,400 bbl/d with an SOR of 2.5; planning and design has begun for the phase two expansion of the project that would increase capacity to 12,000 bbl/d. In addition, project production costs continued to drop during Q3 2016, averaging $8.79/boe;
- Corporately, production averaged 10,951 barrels of oil equivalent (boe) per day in Q3 2016, a 46% increase compared to Q3 2015 volumes; the increase is attributable to the production ramp-up on the Onion Lake thermal project;
- Net debt (bank debt less working capital) was reduced to $64 million as at September 30, 2016, which represents a net debt to funds flow ratio (a non-GAAP measure) of less than 1.2 times on an annualized basis; the Company’s bank debt is $30 million lower than the peak amount in the fourth quarter of 2015;
- Oil and gas revenues in Q3 2016 were $32.4 million, 56% higher than last year, and funds flow from operations (a non-GAAP measure) was $14.2 million, 40% higher than Q3 2015; year to date we have generated revenues of $74 million and funds flow from operations of $29 million;
- We continued to generate reductions in our cost structure with operating and transportation costs averaging $14.24/boe during the quarter, 32% lower than in Q3 2015.
John Festival, President of BlackPearl commenting on Q3 2016 activities stated that “Our thermal projects are some of the best in the industry. The successful start-up of our Onion Lake project as well as our SAGD pilot at Blackrod demonstrates the success of our transition to a thermal heavy oil operator. We like these thermal projects because they are low decline assets that have 20+ year project lives with very attractive operating metrics. Receiving regulatory approval for Blackrod represents a significant milestone in the development of this large resource. We have started planning the expansion at Onion Lake and expect to sanction phase two in the next few months as we finalize funding for the project. We have prudently managed our operations during the downturn and as prices recover will shift our focus to development and growth of our assets.”
Financial and Operating Highlights
|Three months ended
|Nine months ended
|Daily production / sales volumes|
|Natural gas (mcf/d)||815||2,178||836||2,495|
|Combined (boe/d) (1)||10,951||7,478||9,942||7,930|
|Product pricing ($) (before the effects of hedging transactions)|
|Crude oil – per bbl||34.15||35.02||28.97||38.15|
|Natural gas – per mcf||2.10||2.88||1.72||2.69|
|Combined – per boe (1)||33.87||34.05||28.69||36.90|
|Netback ($/boe) (1) (2)|
|Oil and gas sales||33.87||34.05||28.69||36.90|
|Realized gain (loss) on risk management contracts||2.24||12.99||3.98||13.47|
|($000’s, except per share amounts)|
|Oil and gas revenue – gross||32,367||20,814||73,706||73,641|
|Net income (loss) for the period||556||5,402||(17,711)||(15,621)|
|Per share, basic and diluted||0.00||0.01||(0.05)||(0.05)|
|Funds flow from operations(3)||14,202||10,156||28,977||38,064|
|Working capital deficiency (surplus)||(3,384)||(8,254)||(3,384)||(8,254)|
|Net Debt (4)||63,616||88,746||63,616||88,746|
|Shares outstanding, end of period||335,646,559||335,638,226||335,646,559||335,638,226|
|(1) Boe amounts are based on a conversion ratio of 6 mcf of gas to 1 barrel of oil. Boe’s may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.|
|(2) Netback is a non-GAAP measure that does not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies.|
|(3) Funds flow from operations is a non-GAAP measure that represents cash flow from operating activities before decommissioning costs incurred and changes in non-cash working capital related to operations. Funds flow from operations does not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies. See reconciliation table between these measures under Non-GAAP Measures.|
|(4) Net debt is a non-GAAP measure that does not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies.|
Construction of the first phase of the Onion Lake thermal project was successfully completed in mid-2015 and has now been on production for just over a year. By June 2016, oil production reached name plate capacity of 6,000 bbl/d as production continued to ramp-up. During the third quarter, oil production average 6,472 bbl/d, with a steam oil ratio of 2.5. The successful start-up and on-going operations generated very good operating results, with production costs, including natural gas, under $10 per barrel during the third quarter.
We have begun planning for the expansion of the Onion Lake thermal project. The expansion would see capacity of the project doubled to 12,000 bbl/d. This expansion would include the construction of additional steam generation and oil handling facilities, water source wells, pipelines and drilling of up to 20 injection wells and 15 horizontal production wells. We estimate construction will take 12 to 15 months from the date of sanctioning and construction costs are estimated to be between $175 and $185 million, which is approximately 20% lower than the cost of the first phase of the project. The timing for sanctioning the project is dependent on finalizing funding for the project. We are currently exploring various financing options in addition to using our operating cash flows and capacity under our existing credit facility.
On September 16, 2016, the Alberta Energy Regulator and the Alberta government approved the Company’s 80,000 bbl/d commercial development application for our Blackrod SAGD project, located in the Athabasca Oil Sands in northern Alberta. The approval represents a significant milestone for the Company and provides us with the certainty needed to plan the next steps in the development of this large resource. Blackrod is expected to be developed in phases, with the first phase likely to be between 10,000 and 20,000 bbl/d. We have not established timing for initial development of Blackrod as we need to secure financing to fund the development. We will consider taking on a joint venture partner to accelerate development. At December 31, 2015, our independent reserves evaluator assigned 180 million barrels of proved plus probable reserves and 566 million barrels of unrisked contingent resources (best estimate) to our Blackrod leases.
The existing SAGD pilot has provided us with important technical information that validated the applicability of the SAGD process on our lease, as well as providing valuable operating data for the design of a commercial project. The second pilot well pair continues to produces in excess of 500 bbl/d, with a steam oil ratio under three and, cumulatively, this well has produced over 400,000 barrels of oil.
No new activities were undertaken at Mooney during the third quarter. The majority of the ASP flood remained shut-in during the quarter as our primary focus at Mooney has been on our cost reduction initiatives in the field. With the recent increase in crude oil prices we are in the process of selectively bringing several wells back on production in the phase one flood area.
Oil and gas production averaged 10,951 barrels of oil equivalent per day in the third quarter of 2016, a 46% increase compared with the third quarter of 2015. The increase in oil production reflects the successful ramp-up of production from our Onion Lake thermal project partially offset by a reduction in our conventional oil production as a result of natural declines, limited new drilling activity and our decision earlier in the year to selectively shut-in some of our production at Onion Lake and Mooney due to low oil prices.
Average Daily Sales Volume
|Three months ended
|Nine months ended
|Onion Lake – thermal||6,472||251||5,319||85|
|Onion Lake – conventional||2,162||3,285||2,177||3,621|
Oil and gas revenues in Q3 2016 were $32.4 million, a 56% increase compared to the third quarter of 2015. The increase in revenues is attributable to a 46% increase in production volumes partially offset by a 3% decrease in our realized sales price.
Our realized oil price (before the effects of risk management activities) in Q3 2016 was $34.15 per barrel compared to $35.02 per barrel in Q3 2015. The decrease in our realized wellhead price reflects lower WTI reference oil prices in Q3 2016 compared with Q3 2015 (US$44.94/bbl vs US$46.43/bbl), and slightly wider heavy oil differentials (US$13.51/bbl vs US$13.39/bbl).
We have entered into various oil hedges to mitigate some of the negative impact of the low oil price environment in 2016. During the first nine months of 2016 we realized a gain of $10 million from our oil hedging program, which was the equivalent of adding $3.98 per barrel to our wellhead price. The table below summarizes the Company’s outstanding commodity contracts as at September 30, 2016:
|Subject of Contract||Volume||Term||Reference||Strike Price||Type|
|Oil||1,000 bbls/d||October 1 to December 31||CDN$ WCS||CDN$ 51.15/bbl||Swap|
|Oil||2,000 bbls/d||October 1 to December 31||CDN$ WCS||CDN$ 47.60/bbl||Swap|
|Oil||2,000 bbls/d||October 1 to December 31||US$ WTI||US$ 65.00/bbl||Sold Call|
|Oil||1,000 bbls/d||January 1 to December 31||CDN$ WCS||CDN$ 50.00/bbl||Swap|
|Oil||1,000 bbls/d||January 1 to December 31||CDN$ WCS||CDN$ 49.50/bbl||Swap|
|Oil||500 bbls/d||January 1 to June 30||CDN$ WCS||CDN$ 40.00/bbl to 52.50/bbl||Collar|
|Oil||500 bbls/d||January 1 to December 31||CDN$ WCS||CDN$ 40.00/bbl to 47.00/bbl||Collar|
|Oil||1,000 bbls/d||January 1 to December 31||US$ WTI||US$ 60.00/bbl||Sold Call|
|Oil||500 bbls/d||January 1 to December 31||US$ WTI||US$ 70.00/bbl||Sold Call|
Operating costs and transportation costs in Q3 2016 were $13.6 million, or $14.24 per boe, compared to $12.8 million or $21.01/boe in Q3 2015. The increase in operating costs reflects higher production volumes. The decrease in per unit operating costs reflects the lower cost of production related to our Onion Lake thermal operations.
Higher production revenues contributed to an increase in funds flow from operations during the third quarter. Funds flow from operations increased to $14.2 million during the quarter compared to $10.2 million for the same period in 2015.
During the third quarter we continued to use our operating cash flows to reduce our debt. Bank debt as at September 30, 2016 was $67 million, $21 million lower than at the beginning of the year. Net debt (bank debt less working capital) at September 30 was $64 million. The total credit facilities available to the Company are currently $117.5 million. The lenders next review of these facilities is expected to be completed by November 30, 2016.
The 2016 third quarter report to shareholders, including the financial statements, management’s discussion and analysis and notes to the financial statements are available on the Company’s website (www.blackpearlresources.ca) or SEDAR (www.sedar.com).
Our plans are largely unchanged from guidance previously provided in the Q2 and Q1 updates. As a result of higher oil prices our estimated funds flow from operations for the year is expected to be between $42 and $45 million, up from our Q2 guidance of $35 to $40 million and year-end 2016 debt levels are anticipated to be between $52 and $55 million, down from our Q2 guidance of $60 to $65 million. We anticipate average oil and gas production in 2016 to be approximately 10,000 boe/d, an increase from our Q2 guidance of between 9,000 and 10,000 boe/d. The increase is attributable to the positive performance of the Onion Lake thermal project. Our plan for 2016 was to limit capital spending and use our operating cash flows to pay down debt and as a result capital spending for the year is now expected to be between $7 and $10 million.