Unaudited fourth quarter and year-end 2012 results proved a record year for the Company in many respects. Average production for 2012 is estimated at 2,125 boe/d, representing a 54% increase over the 2011 average. Similarly, fourth quarter 2012 average production is estimated at 2,480 boe/d, representing a 50% increase over the same period in 2011. Palliser’s production has grown in each of the last fifteen consecutive quarters while also achieving strong production per share growth during this time period. The Company realized significant reductions in operating expenses in 2012, largely as a result of expansion of Company owned and operated salt water disposal infrastructure. Operating expenses are estimated to be approximately $23/boe for the 2012 average, representing a greater than 25% improvement over the 2011 average.
The result of increased production and reduction in operating expenses is estimated to boost the Company’s 2012 funds flow from operating activities to $17 million, a 286% increase from 2011. Although differentials between West Texas Intermediate (“WTI”) and Western Canadian Select (“WCS”) widened late in the fourth quarter, the Company’s funds flow from operating activities are estimated to reach a record $5.5 million for the fourth quarter of 2012, supported by the Company’s hedge position and increased shipments of heavy oil by rail.
2013 Capital Budget and Outlook
In light of the current wider heavy oil differential, the Board of Directors has approved a 2013 capital budget of $24 million. This capital program is anticipated to increase average production in 2013 by approximately 30% to 2,700 – 2,800 boe/d, with a 98% heavy oil weighting. This internally generated, organic growth driven capital program is to be funded by cash flow and credit facilities. On January 14, 2013 the Company announced an increase to its credit facility to a total of $52 million. The credit facility increase provides the Company with increased financial flexibility. The current 2013 budget forecasts funds flow from operating activities of $20 million with year-end net debt of $39 million, assuming $93.00 WTI per barrel and $63.00 WCS per barrel pricing.
Management anticipates heavy oil differentials will narrow toward the second half of 2013, largely as a result of the BP Whiting refinery coming back into service and will look to prudently expand capital expenditures at that time. Management will also closely monitor, and look to take advantage of the current attractive heavy oil acquisition market. Although the Company’s projects are economic at current heavy oil prices, Palliser is in a strong position to see where differentials trend through the first half of 2013 as the majority of its capital spending typically takes place in the second half of the year.
Despite current wider heavy oil differentials, the Company is expecting 2013 realized operating netbacks to be approximately $26 per boe due to the Company’s forecasted strong operational efficiencies, augmented by its hedge position and its increasing shift to shipping heavy oil by rail. Palliser commenced shipping by rail in September 2012, and is targeting 1000 bbl/d by the end of the first quarter of 2013, representing over 30% of corporate production shipped by rail. With minimal additional capital, Palliser can increase its percentage shipped by rail to in excess of 50% by year-end, if current wide heavy oil differentials persist. Palliser is benefiting from its operating infrastructure philosophy, whereby the majority of its production has double tank systems installed at its single well batteries, allowing the majority of its production to be able to ship clean and making it available to meet the specifications of the rail terminals.
The Company’s high volume lift (“HVL”) strategy has not only proven its consistency with a track record of 15 consecutive quarters of production growth, but has also proven to be economically viable with sustainable low operating expenses and high netbacks in comparison to our peers in the Lloydminster heavy oil area. Generally well performances continue to meet or exceed internal estimates, and further performance history continues to demonstrate additional increases to recovery factors.
Palliser continues to expand its heavy oil prospect inventory which currently stands at 170 locations, all of which are unbooked in the 2011 independent reserve report. This inventory provides the Company with a multi-year drilling and re-activation program, and significant growth opportunities for future capital programs. As of December 31, 2012, the Company’s undeveloped heavy oil land position was 32,542 net acres.
Palliser anticipates releasing fourth quarter and year-end audited 2012 financial and operating results in late March to early April. The Company anticipates release of its year-end independent reserve report either prior to, or in conjunction with the year-end 2012 financial results.
Palliser is pleased to announce the appointment of Mr. Brett Frostad to the position of Vice President Exploration. Mr. Frostad has been with Palliser since June 2012 as Exploration Manager. The Company is also pleased to announce the appointment of Mr. Ken Staniforth to the position of Production Manager. Mr. Staniforth has been with the Company since April 2011 as Senior Production Engineer.
An updated corporate presentation may be viewed on the Company’s website at www.palliserogc.com.
About Palliser Oil & Gas Corporation
Palliser is a Calgary-based junior oil and gas company focused on high netback heavy oil production in the greater Lloydminster area of Alberta and Saskatchewan.
Certain statements contained herein constitute forward-looking statements or information (collectively “forward-looking statements“) within the meaning of applicable securities legislation, including, but not limited to management’s assessment of future plans and operations, including: commodity focus; drilling plans and potential locations; expected production levels; development plans; reserves growth; production and operating sales and expenses; reservoir characteristics; the results of applying certain operational development techniques; certain economic factors; and capital expenditures. Forward-looking statements are typically identified by words such as “anticipate”, “estimate”, “expect”, “forecast”, “may”, “will”, “project” and similar words suggesting future events or performance or may be identified by reference to a future date. In addition, statements relating to oil and gas reserves and resources are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves or resources described, as the case may be, exist in the quantities predicted or estimated and can be profitably produced in the future. With respect to forward-looking statements herein, Palliser has made assumptions regarding, among other things; future capital expenditure levels; future oil and natural gas prices; “differentials” between West Texas Intermediate and Western Canadian Select benchmark pricing; future oil and natural gas production levels; future water disposal capacity; future exchange rates and interest rates; ability to obtain equipment and services in a timely manner to carry out development activities; ability to market oil and natural gas successfully to current and new customers; the impact of increasing competition; the ability to obtain financing on acceptable terms; and the ability to add production and reserves through development and exploitation activities. Although Palliser believes that the expectations reflected in the forward-looking statements contained herein, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included herein, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous risks and uncertainties that contribute to the possibility that the forward-looking statements will not occur, which may cause Palliser’s actual performance and financial results in future periods to differ materially from any estimates or projections. Additional information on these and other factors that could affect Palliser’s results are included in reports on file with Canadian securities regulatory authorities, including the Company’s Annual Information Form, and may be accessed through the SEDAR website at www.sedar.com.
The forward-looking statements contained herein speak only as of the date hereof. Except as expressly required by applicable securities laws, Palliser does not undertake any obligation to, nor does it intend to, publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement. In addition, readers are cautioned that historical results are not necessarily indicative of future performance.
Production volumes are commonly expressed on a barrel of equivalent (“BOE”) basis whereby natural gas volumes are converted at a ratio of six thousand cubic feet to one barrel of oil. The intention is to convert oil and natural gas measurement units into one basis for improved analysis of results and comparisons with other industry participants. The term BOE may be misleading, particularly if used in isolation. The conversion ratio is based on an energy equivalent method primarily applicable at the burner tip and does not represent an economic value equivalency at the wellhead.
Within this press release, references are made to terms commonly used in the oil and gas industry which are not defined within International Financial Reporting Standards (“IFRS”), including, but not limited to funds flow from operating activities and operating netbacks (the “Non-IFRS Measures”). Management of the Company believes these Non-IFRS Measures are a useful tool in analyzing operating performance. The Company’s method of calculating the Non-IFRS Measures may differ from methods used by other issuers. Therefore, the Company’s use of the Non-IFRS Measures may not be comparable to similar measures presented by other issuers. These Non-IFRS Measures should be read in conjunction with the financial statements (or other financial information) of the Company and should not be viewed as an alternative to other measures of financial performance calculated in accordance with IFRS.
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 press release.