FINANCIAL & OPERATING HIGHLIGHTS
In this press release, annual comparisons are 2012 compared to 2011 and quarterly comparisons are fourth quarter 2012 compared to fourth quarter 2011, unless otherwise noted. All references to well counts are on a net basis.
| Summary of Results | |||||
| Three months ended December 31, |
Year ended December 31, |
||||
| 2012 | 2011 | 2012 | 2011 | ||
| Oil and natural gas revenue | 296,584 | 366,881 | 1,104,983 | 1,195,476 | |
| Funds flow from operations (1) | 168,342 | 231,428 | 597,096 | 710,162 | |
| Per share – basic ($)(1) (2) | 0.88 | 1.24 | 3.17 | 3.79 | |
| Adjusted Net income(1) | 106,951 | 76,849 | 262,718 | 215,787 | |
| Per share – basic ($)(1)(2) | 0.56 | 0.41 | 1.39 | 1.15 | |
| Net Capital Expenditures(1) | 368,973 | 239,481 | 320,383 | 909,169 | |
| Net debt (1) | 2,042,814 | 1,390,563 | |||
| Dividends per share ($)(1) (3) | 0.24 | 0.24 | 0.96 | 0.96 | |
| Cash dividends per share($)(1) (3) | 0.09 | 0.24 | 0.40 | 0.96 | |
| Common Shares, end of period (000) (4) | 192,452 | 187,342 | |||
| Operating netback ($/boe) (1) (5) (6) | 47.60 | 59.21 | 47.89 | 54.76 | |
| Average daily production (boe) (5) | 47,192 | 48,007 | 42,784 | 40,998 | |
(1) Non-GAAP measure. See “Non-GAAP Measures” section.
(2) Calculated using shares outstanding of PetroBakken Energy Ltd. prior to the reorganization in December 2012.
(3) Dividends paid by PetroBakken Energy Ltd. prior to the reorganization in December 2012.
(4) Denotes basic common shares outstanding.
(5) Six Mcf (thousand cubic feet) of natural gas is equivalent to one barrel of oil equivalent (“boe”).
(6) Net of transportation expenses.
OPERATING RESULTS
Consistent with our plan to invest proceeds from dispositions, we achieved a record level of activity in the fourth quarter during which we drilled 79 wells, completed 106 wells, brought 99 wells on production and exited the year with 21 wells in inventory. Our inventory partly reflects the acceleration of capital from 2013 into 2012, a portion of which was used to drill wells late in the fourth quarter that will contribute to production volumes in the first quarter of 2013. Fourth quarter activity is broken down by operating area as follows:
| Q4 2012 Drilling Activity | ||||||||
| Drilled | Completed | On Production | Inventory(1) | |||||
| Business Unit | Gross | Net | Gross | Net | Gross | Net | Gross | Net |
| Bakken | 37 | 28 | 48 | 40 | 50 | 43 | 4 | 1 |
| Conventional (SE SK) | 20 | 14 | 17 | 12 | 18 | 13 | 9 | 4 |
| Cardium (central AB) | 37 | 33 | 60 | 51 | 49 | 41 | 17 | 14 |
| Alberta/BC | 4 | 4 | 3 | 3 | 2 | 2 | 2 | 2 |
| Total | 98 | 79 | 128 | 106 | 119 | 99 | 32 | 21 |
(1) Inventory refers to the number of wells pending completion and/or tie-in at December 31, 2012.
| 2012 Drilling Activity | ||||||||
| Drilled | Completed | On Production | Inventory(1) | |||||
| Business Unit | Gross | Net | Gross | Net | Gross | Net | Gross | Net |
| Bakken | 127 | 97 | 126 | 98 | 121 | 96 | 4 | 1 |
| Conventional (SE SK) | 52 | 32 | 46 | 26 | 41 | 24 | 9 | 4 |
| Cardium (central AB) | 108 | 84 | 128 | 104 | 102 | 80 | 17 | 14 |
| Alberta/BC | 4 | 4 | 6 | 6 | 3 | 3 | 2 | 2 |
| Total | 291 | 217 | 306 | 234 | 267 | 203 | 32 | 21 |
(1) Inventory refers to the number of wells pending completion and/or tie-in at December 31, 2012.
Production in the fourth quarter of 2012 averaged 47,192 boepd, an increase of 23% over the third quarter of 2012. The majority of the production additions were concentrated in December as our new facility in the Brazeau area of the Cardium came on-stream. In December, we achieved a monthly production record of 53,200 boepd.
Production additions during 2012 more than offset the approximately 4,200 boepd of production that was disposed of in late December 2011 and the first quarter of 2012, with our average production rate increasing 4% over 2011 to 42,784 boepd. Total production for the year was 84% light oil and liquids weighted.
| Average Daily Production | ||||||
| Three months ended December 31, 2012 |
Year ended December 31, 2012 |
|||||
| Business Unit | Oil &NGL (bbl/d) | Gas (Mcf/d) | Total (boe/d) | Oil &NGL (bbl/d) | Gas (Mcf/d) | Total (boe/d) |
| Bakken | 18,746 | 5,967 | 19,741 | 16,828 | 5,629 | 17,766 |
| Conventional (SE SK) | 5,399 | 1,347 | 5,623 | 5,359 | 1,396 | 5,592 |
| Cardium (central AB) | 14,218 | 29,020 | 19,055 | 12,725 | 23,043 | 16,566 |
| Alberta/BC | 1,103 | 10,020 | 2,773 | 1,011 | 11,095 | 2,860 |
| 39,466 | 46,354 | 47,192 | 35,923 | 41,163 | 42,784 | |
Bakken Business Unit Update
Operations in the Bakken generated free operating cash flow (after all capital expenditures) of $18 million and disposition proceeds of $427 million through the sale of primarily non-core, non-operated properties. Our average production in the Bakken business unit for the fourth quarter was 19,741 boepd, up 25% from the third quarter as we drilled 28 wells and brought 43 wells on production. In 2012, we drilled a total of 97 wells, of which 67 were bilateral wells. We also continued to advance our enhanced oil recovery (“EOR”) efforts at our five EOR projects in the Bakken that are currently at various stages of implementation. The potential for future EOR-related reserve growth in the Bakken is encouraging and we have received initial 2P reserve recognition for the early stage success of our natural gas flood pilots. Early indications suggest the technology has the potential to further increase recovery rates and attenuate declines.
Cardium Business Unit Update
In Alberta, we continue to grow production in the Cardium business unit, which averaged 19,055 boepd during the fourth quarter of 2012, an increase of 29% over the third quarter of 2012. During the fourth quarter, we drilled 33 wells and brought 41 wells on production, bringing our yearly total to 84 wells drilled at a 100% success rate. 2P reserves in the Cardium business unit increased 30% year over year, from 72.2 MMboe in 2011 to 93.7 MMboe in 2012, replacing production by 461%. The Cardium business unit will continue to be a key source of growth for PetroBakken, with a development drilling inventory of over 580 net locations.
Other Activity
The remainder of our 2012 production came from our southeast Saskatchewan Conventional business unit and our Alberta/BC business unit.
Our southeast Saskatchewan Conventional business unit continued to provide strong individual well economics and generated free annual operating cash flow (after all capital expenditures) in 2012 of $26 million. In 2012, we drilled 32 wells in the business unit.
In our Alberta/BC business unit, we have assembled over 563 net sections of land in potential new oil resource plays. In 2012, we drilled 3 horizontal wells at Deer Mountain located in our Swan Hills resource play. Two of these wells have been completed and put on production and we are encouraged by initial results. Activity levels will increase in 2013 as we continue our early stage development of this area.
FINANCIAL RESULTS
Our production and operating netbacks resulted in funds flow from operations of $597 million ($3.17 per basic share) for 2012, a 16% decrease from 2011. Funds flow from operations was primarily impacted by variability in oil prices and early year dispositions. Our average operating netback in 2012 of $47.89/boe was primarily impacted by a lower average realized price of $70.57, a 12% decrease from the prior year. Pricing differentials in 2012 were wider and more volatile than historic levels, as they were negatively impacted by refinery turnarounds, short term pipeline interruptions and the growth of North American supply which created infrastructure bottlenecks. 2012 adjusted net income was $263 million ($1.39 per basic share), a 22% increase from 2011 due to gains on the dispositions made in 2012 and a deferred income tax recovery resulting from the reorganization of Petrobank Energy and Resources Ltd. (“Petrobank”) in December 2012. Net capital expenditures totaled $320 million in 2012, after giving effect to the completion of non-core asset divestitures in 2012 for proceeds of $636 million. Total capital spending of $956 million in 2012, prior to dispositions, was essentially at the same level as 2011.
Early in the year we completed certain initiatives to strengthen our financial position and increase balance sheet liquidity. This included issuing US$900 million of unsecured high yield notes due February 2020 and disposing of non-core properties. As a result of accessing new sources of capital, increasing the term of our debt portfolio, completing accretive asset divestitures and executing on our capital program, we exited the year with $800 million of liquidity under our credit facility, up from $160 million at the end of 2011.
In December 2012, holders of $293.4 million of convertible debentures elected to put them back to PetroBakken at par value plus accrued interest. We chose to repay these debentures in cash on the settlement date of February 8, 2013 through our $1.4 billion credit facility, which was approximately $600 million drawn at the end of 2012. After giving effect to the February 2013 settlement of the debentures, our pro forma liquidity at December 31, 2012 was approximately $500 million. The credit facility currently has a maturity date of June 2015 and has the potential to be increased to $1.5 billion under an accordion feature.
In 2012, we declared $182 million in dividends, having maintained a monthly dividend of $0.08 per share since the Company’s inception. In January 2012, we implemented our dividend reinvestment program (“DRIP”) allowing shareholders to receive shares instead of a cash dividend and during the year approximately 57% of the dividends were paid in shares.
In addition to the DRIP, in January of 2013 we also adopted a share dividend program (“SDP”) that enables Canadian and most non-Canadian shareholders to participate (the DRIP is only available to Canadian shareholders). The DRIP and the SDP both allow shareholders to effectively receive their monthly PetroBakken dividends as PetroBakken shares at a 5% discount to the market price at the date of the dividend payment. For the first two months of 2013, our combined DRIP and SDP participation was approximately 30%.
COMPLETION OF CORPORATE REORGANIZATION
On December 31st, 2012, Petrobank and PetroBakken completed a corporate reorganization which resulted in Petrobank shareholders effectively receiving Petrobank’s share holdings in PetroBakken while maintaining their interest in the remaining Petrobank assets. This transaction eliminated Petrobank’s 56% ownership in PetroBakken through the distribution of the 107.8 million shares owned by Petrobank to the Petrobank shareholders. This resulted in our market float increasing from approximately 83 million shares to 191 million shares, providing investors with increased trading liquidity.
2013 OUTLOOK
Production in February 2013, based on field estimates, was over 49,400 boepd (83% light oil and liquids). Our 2013 capital expenditure plan of $675 million is more balanced throughout the year, which will help us reduce production volatility and manage declines while delivering anticipated year-over-year average production growth of 8% to 12%. The 2013 capital plan is expected to deliver an average daily production rate of 46,000 to 48,000 boepd and exit 2013 production of approximately 49,000 to 52,000 boepd.
INVESTOR CONFERENCE CALL
Management of PetroBakken will be holding a conference call for investors, financial analysts, media and any interested persons on Tuesday, March 12th at 9:00 a.m. (MST) (11:00 a.m. EST) to discuss PetroBakken’s fourth quarter and year-end financial and operating results.
The investor conference call details are as follows:
Live call dial-in numbers: 416-340-2216 / 866-226-1792
Replay dial-in numbers: 905-694-9451 / 800-408-3053
Replay pass code: 6800116
The live audio webcast link will be available at: http://events.digitalmedia.telus.com/petrobakken/031213/index.php
DRIP AND SDP ENROLLMENT
For further information regarding our SDP and DRIP, please visit PetroBakken’s website at www.petrobakken.com or contact Olympia Trust Company at 403-668-8887, toll free at 1-800-727-4493 or via email at corporateactions@olympiatrust.com.
FOURTH QUARTER AND YEAR-END FINANCIAL & OPERATING TABLES
The following table provides a summary of PetroBakken’s financial and operating results for the three months and years ended December 31, 2012 and 2011. The consolidated financial statements with the Management’s Discussion and Analysis (“MD&A”) are available on the Company’s website at www.petrobakken.com and will be available on the SEDAR website at www.sedar.com.
| Three months ended December 31, | Years ended December 31, | |||||||||||||||
| 2012 | 2011 | % Change | 2012 | 2011 | % Change | |||||||||||
| Financial ($000s, except where noted) | ||||||||||||||||
| Oil and natural gas sales | 296,584 | 366,881 | (19 | ) | 1,104,983 | 1,195,476 | (8 | ) | ||||||||
| Funds flow from operations (1) | 168,342 | 231,428 | (27 | ) | 597,096 | 710,162 | (16 | ) | ||||||||
| Per share – basic ($)(1) (2) | 0.88 | 1.24 | (29 | ) | 3.17 | 3.79 | (16 | ) | ||||||||
| – diluted ($)(1) (2) (3) | 0.88 | 1.13 | (22 | ) | 3.17 | 3.49 | (9 | ) | ||||||||
| Adjusted Net Income(1) | 106,951 | 76,849 | 39 | 262,718 | 215,787 | 22 | ||||||||||
| Per share – basic ($)(1) (2) | 0.56 | 0.41 | 37 | 1.39 | 1.15 | 21 | ||||||||||
| – diluted ($)(1) (2) | 0.55 | 0.41 | 34 | 1.37 | 1.14 | 20 | ||||||||||
| Dividends(1) (4) | 45,958 | 44,999 | 2 | 182,070 | 179,691 | 1 | ||||||||||
| Per share ($)(1) | 0.24 | 0.24 | – | 0.96 | 0.96 | – | ||||||||||
| Payout ratio(1) (4) | 27 | % | 19 | % | – | 30 | % | 25 | % | – | ||||||
| Cash dividends(1) (4) | 18,045 | 44,999 | (60 | ) | 77,546 | 179,691 | (57 | ) | ||||||||
| Cash dividend payout ratio(1) (4) | 11 | % | 19 | % | – | 13 | % | 25 | % | – | ||||||
| Net capital expenditures(1) | 368,973 | 239,481 | 54 | 320,383 | 909,169 | (65 | ) | |||||||||
| Net debt (1) | 2,042,814 | 1,390,563 | 47 | |||||||||||||
| Total debt(1) | 2,049,380 | 2,153,313 | (5 | ) | ||||||||||||
| Common shares, end of period (000) | ||||||||||||||||
| Basic(5) | 192,452 | 187,342 | 3 | |||||||||||||
| Diluted(2) (5) | 209,148 | 220,823 | (5 | ) | ||||||||||||
| Operations | ||||||||||||||||
| Operating netback($/boe except where noted) (1)(6) | ||||||||||||||||
| Oil and NGL revenue ($/bbl) (7) | 77.29 | 92.13 | (16 | ) | 80.54 | 88.65 | (9 | ) | ||||||||
| Natural gas revenue ($/mcf) (7) | 3.30 | 3.44 | (4 | ) | 2.63 | 3.92 | (33 | ) | ||||||||
| Oil, NGL and natural gas revenue (7) | 67.88 | 82.69 | (18 | ) | 70.17 | 79.38 | (12 | ) | ||||||||
| Royalties | 8.92 | 12.51 | (29 | ) | 9.89 | 12.41 | (20 | ) | ||||||||
| Production expenses | 11.36 | 10.97 | 4 | 12.39 | 12.21 | 1 | ||||||||||
| Operating netback | 47.60 | 59.21 | (20 | ) | 47.89 | 54.76 | (13 | ) | ||||||||
| Average daily production | ||||||||||||||||
| Oil and NGL (bbls) | 39,466 | 41,660 | (5 | ) | 35,923 | 35,156 | 2 | |||||||||
| Natural gas (mcf) | 46,354 | 38,083 | 22 | 41,163 | 35,052 | 17 | ||||||||||
| Total (boe) (6) | 47,192 | 48,007 | (2 | ) | 42,784 | 40,998 | 4 | |||||||||
(1) Non-GAAP measure. See “Non-GAAP Measures” section within this document.
(2) Calculated using shares outstanding of PetroBakken Energy Ltd. prior to the reorganization in December 2012.
(3) Consists of common shares, stock options, deferred common shares, incentive shares and convertible debentures as at the period end date.
(4) Dividends paid out by PetroBakken Energy Ltd. prior to the reorganization in December 2012.
(5) Shares outstanding at December 31, 2011 are the PetroBakken Energy Ltd. shares outstanding. See “Reorganization”.
(6) Six Mcf of natural gas is equivalent to one barrel of oil equivalent (“boe”).
(7) Net of transportation expenses.
PetroBakken Energy Ltd. is an oil and gas exploration and production company combining light oil Bakken and Cardium resource plays with conventional light oil assets, delivering industry leading operating netbacks, strong cash flows and production growth. PetroBakken is applying leading edge technology to a multi-year inventory of Bakken and Cardium light oil development locations, along with a significant inventory of opportunities in the Horn River and Montney gas resource plays in northeast BC. Our strategy is to deliver accretive production and reserves growth, along with an attractive dividend yield.
Non-GAAP Measures. This press release contains financial terms that are not considered measures under IFRS, such as funds flow from operations, adjusted net income, funds flow per share, adjusted net income per share, dividends paid, dividends paid per share, cash dividends paid, cash dividends paid per share, payout ratio, cash payout ratio, net debt, total debt, operating netback and net capital expenditures. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders. Specifically, funds flow from operations reflects cash generated from operating activities before changes in non-cash working capital. Funds flow per share is calculated as funds flow from operations divided by the weighted average number of shares outstanding based on the PetroBakken Energy Ltd. shares outstanding prior to the reorganization. Adjusted net income is determined by adding back to net income from continuing operations any losses or deducting any gains on the derivative liabilities, adding back any losses or deducting any gains on settlement of convertible debentures, adding back impairments and non-controlling interest. Dividends paid are the dividends paid by PetroBakken Energy Ltd. prior to the reorganization in December 2012. Dividends paid per share reflects total dividends paid divided by the total shares outstanding in PetroBakken Energy Ltd. prior to the reorganization. Cash dividends paid are cash dividends paid by PetroBakken Energy Ltd prior to the reorganization. Cash dividends paid per share reflects cash dividends divided by the total shares outstanding in PetroBakken Energy Ltd. prior to the reorganization. Payout ratio is determined as dividends paid as a percentage of funds flow from operations. Cash payout ratio is determined as cash dividends paid as a percentage of funds flow from operations.
Management considers funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, dividends paid, dividends paid per share, cash dividends paid, cash dividends paid per share, payout ratio, and cash payout ratio important as it helps evaluate performance and demonstrate the ability to generate sufficient cash to fund future growth opportunities, pay dividends and repay debt. Net debt includes bank debt outstanding (excluding any amounts held by Petrobank Energy and Resources Ltd. prior to the reorganization) plus accounts payable less accounts receivable and prepaid expenses. Total debt includes net debt plus the full value outstanding on the convertible debentures converted to Canadian dollars at the exchange rate on the period end date. Net debt and total debt are used to evaluate PetroBakken’s financial leverage. Profitability relative to commodity prices per unit of production is demonstrated by an operating netback. Operating netback reflects revenues less royalties, transportation costs, and production expenses divided by production for the period. Net capital expenditures represent capital expenditures from continuing operations, including exploration and evaluation expenditures, less proceeds from asset dispositions. Funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, dividends paid, dividends paid per share, cash dividends, cash dividends per share, payout ratio, cash payout ratio, net debt, total debt, operating netbacks, and net capital expenditures may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations or other measures of financial performance calculated in accordance with IFRS. Further information in respect of these non-GAAP measures is set forth in our MD&A.
Forward Looking Statements. Certain information provided in this press release constitutes forward-looking statements. Specifically, this press release contains forward-looking statements relating to financial results, results from operations, future production rates, proposed exploration and development activities, the potential for EOR projects, our drilling prospect inventory, and the timing of certain projects. The forward-looking statements are based on certain key expectations and assumptions, including expectations and assumptions concerning the availability of capital, the success of future drilling, completion, recompletion and development activities, the performance of new and existing wells, prevailing commodity prices and economic conditions, the availability of labour and services, teh ability to access transportation and processing infrastructure to produce and market our products, weather and access to drilling locations and the geological nature of the formations targeted. Although we believe that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because we can give no assurance that they will prove to be correct. Since forward-looking statements 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, risks associated with the oil and gas industry in general (e.g., 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 estimates; the uncertainty of estimates and projections relating to production, costs and expenses, reliance on industry partners, availability of equipment and personnel, availability of transportation and processing infrastructure, uncertainty surrounding timing for drilling and completion activities resulting from weather and other factors, changes in applicable regulatory regimes and health, safety and environmental risks), commodity price and exchange rate fluctuations and general economic conditions. Certain of these risks are set out in more detail in our Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com. Except as may be required by applicable securities laws, PetroBakken assumes no obligation to publicly update or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.
Natural gas volumes have been converted to barrels of oil equivalent (“boe”). Six thousand cubic feet (“Mcf”) of natural gas is equal to one barrel of oil equivalent based on an energy equivalency conversion method primarily attributable at the burner tip and does not represent a value equivalency at the wellhead. Boes may be misleading, especially if used in isolation.
PetroBakken Energy Ltd.
John D. Wright
President and Chief Executive Officer
(403) 268-7800
PetroBakken Energy Ltd.
Peter D. Scott
Senior Vice President and Chief Financial Officer
(403) 268-7800
PetroBakken Energy Ltd.
William A. Kanters
Vice President Capital Markets
(403) 268-7800
ir@petrobakken.com
www.petrobakken.com