Fourth Quarter 2012 Highlights:
Highlights from the fourth quarter of 2012 include:
2012 Highlights:
Highlights of the year ended December 31, 2012 include:
2012 in Review
Reserves
Painted Pony”s business strategy in 2012 focused on continued delineation of its Montney play in northeast British Columbia. The Company”s light oil program provided for continued development of its Saskatchewan light oil assets while commencing exploratory drilling in Alberta. The emphasis was on adding proved and probable gas reserves and contingent resources. At December 31, 2012, the Company”s proved plus probable reserves increased to 1.15 Tcfe, equating to 191 mmboe, up 40% from 137 mmboe at December 31, 2011. A best estimate as at December 31, 2012 of contingent resources for the Company”s Montney asset was 3.15 Tcfe equating to 525 mmboe.
Land
During the 2012 year, Painted Pony actively sought to acquire additional Montney holdings through land sales and asset purchases, to expand the Company”s prospective drilling inventory. The Company closed several asset acquisitions on this play, including buying approximately 25 net contiguous sections in the Kobes-Townsend area and consolidating its existing holdings in the Cypress area through the further purchase of approximately 13 net sections. In conjunction with ongoing crown land sales, these transactions brought the Company”s overall Montney landholdings to 187 net sections by the end of 2012.
Production
Painted Pony grew production by 56% in 2012 to average 6,589 boe/d. Sales were weighted 77% to gas in 2012 compared to 62% in 2011. In the fourth quarter of 2012, the Company grew the average daily production to 7,289 boe/d (weighted 76% to gas) an increase of 15% compared to the third quarter of 2012. With average gas sales of 33.4 mmcf/d, Painted Pony is pleased to have achieved a new production record, with incremental volumes of 14% over third quarter 2012 and 58% over fourth quarter 2011.
Fiscal Management
In response to continued volatility in commodity prices, in 2012, the Company adhered to a conservative fiscal policy. A bought-deal equity financing raised $172.5 million before costs, allowing Painted Pony continued flexibility. The Company exited the year with a positive working capital position of $45.2 million and an undrawn demand credit facility of $100 million.
Drilling
Expenditures on exploration and development in 2012 totaled $118 million. Painted Pony drilled 34 (26.4 net) wells. In British Columbia, Painted Pony drilled 10 (6.6 net) wells on the Company”s Blair, West Blair and Cameron lands. In Saskatchewan, the Company focused on development drilling on Bakken and Mississippian light oil projects, principally in the Flat Lake and greater Midale areas. During 2012, Painted Pony drilled 21 (16.8 net) wells in Saskatchewan, including 11 (9.3 net) wells at Flat Lake. During 2012, Painted Pony initiated a light oil exploration program in Alberta. The Company drilled 3 (3.0 net) wells, targeting the Viking formation at Wimborne and Corbett. While the 2 (2.0 net) wells drilled in the Wimborne area failed to produce commercial volumes of hydrocarbons, Painted Pony is planning further drilling in the Corbett area during 2013, following up on the first 100% well drilled in 2012 and tested earlier this year.
Outlook
The Company”s Montney assets are strategically located to become potential integral components of Canada”s developing liquefied natural gas (“LNG”) industry. In 2013, the Company is primarily focused on developing and expanding these Montney assets. The projected capital budget for 2013 is forecast at $145 million, of which approximately 81% ($117 million) will be directed towards gas projects. Consistent with the objective of acquiring incremental acreage, the Company”s Montney lands in northeastern British Columbia now total approximately 121,900 net acres, or 190 net sections. Field production for the first two months of 2013 is estimated at 8,200 boe/d, weighted 78% to gas.
In 2013, the Company expects to complete drilling operations on a total of 13 (10.4 net) Montney wells. This proposed program is expected to include activity on the Company”s Blair, West Blair, Cameron, and Cypress projects, including at least 3 (2.8 net) wells on the recently acquired Townsend (Kobes) project.
Painted Pony believes that the combination of significant reserves, the more than 2,000 potential net drilling locations and fiscal prudence will allow the Company to enhance its operational and financial results already produced to-date through 2013 and beyond. Painted Pony is in the process of developing a five year model for accelerated production on the Montney lands through to 2017 along with continued delineation. The Company is at a crossing point in its less than six year history.
Painted Pony is a Canadian oil and gas exploration company that trades on the TSX Venture Exchange under the symbol “PPY”.
For more information please visit www.paintedpony.ca.
Financial and Operational Highlights
| Three Months ended | Year ended | ||||||
| December 31, | December 31, | ||||||
| 2012 | 2011 | 2012 | 2011 | ||||
| Financial ($ millions, except per share and shares outstanding) | |||||||
| Petroleum and natural gas revenue(1) | 22.8 | 20.5 | 74.3 | 73.9 | |||
| Funds flow from operations(2) | 12.4 | 12.5 | 39.3 | 44.2 | |||
| Per share – basic(3) | 0.17 | 0.19 | 0.56 | 0.74 | |||
| Per share – diluted(4) | 0.17 | 0.19 | 0.55 | 0.73 | |||
| Cash flows from operating activities | 12.3 | 12.9 | 39.7 | 44.9 | |||
| Comprehensive income (loss) | (40.7 | ) | 1.5 | (48.1 | ) | 6.5 | |
| Per share – basic and diluted(3) (4) | (0.56 | ) | 0.02 | (0.68 | ) | 0.11 | |
| Capital expenditures(5) | 156.8 | 54.5 | 241.3 | 162.9 | |||
| Working capital | 45.2 | 68.3 | 45.2 | 68.3 | |||
| Total assets | 612.2 | 478.7 | 612.2 | 478.7 | |||
| Shares outstanding(6) | 88,051,760 | 69,693,027 | 88,051,760 | 69,693,027 | |||
| Diluted weighted-average shares | 73,040,967 | 66,470,874 | 70,824,894 | 60,829,382 | |||
| Operational | |||||||
| Daily sales volumes | |||||||
| Gas (mcf per day) | 33,430 | 21,151 | 30,248 | 15,589 | |||
| Oil (bbls per day) | 1,473 | 1,449 | 1,342 | 1,460 | |||
| Condensate (bbls per day) | 90 | 63 | 64 | 54 | |||
| NGLs (bbls per day) | 154 | 151 | 142 | 108 | |||
| Total (boe per day) | 7,289 | 5,189 | 6,589 | 4,221 | |||
| Realized prices | |||||||
| Gas ($ per mcf) | 3.31 | 3.28 | 2.54 | 3.60 | |||
| Oil ($ per bbl) | 83.49 | 95.80 | 85.67 | 93.07 | |||
| Field operating netbacks ($ per boe) | |||||||
| British Columbia | 13.32 | 13.05 | 9.08 | 14.12 | |||
| Saskatchewan | 47.54 | 59.59 | 48.69 | 58.34 | |||
| Company combined | 21.21 | 28.43 | 18.46 | 31.34 | |||
| 1. | Before royalties. |
| 2. | This table contains the term “funds flow from operations”, which should not be considered an alternative to, or more meaningful than “cash flows from operating activities” as determined in accordance with International Financial Reporting Standards (“IFRS”) as an indicator of the Company”s performance. Funds flow from operations and funds flow from operations per share (basic and diluted) does not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the Company”s ability to generate the cash necessary to fund future capital investment. The reconciliation between funds flow from operations and cash flows from operating activities can be found in “Management”s Discussion and Analysis”. Funds flow from operations per share is calculated using the basic and diluted weighted average number of shares for the period, consistent with the calculations of earnings per share. |
| 3. | Basic per share information is calculated on the basis of the weighted average number of shares outstanding in the period. |
| 4. | Diluted per share information reflects the potential dilution effect of options, which may be anti-dilutive. Comprehensive income in 2011 was adjusted for the amount of finance expense applicable to the Class B shares for the period. |
| 5. | Including acquisitions, decommissioning obligations, and share-based payments. |
| 6. | Class A shares at December 31, 2011 were re-designated as Common shares effective June 7, 2012. |
Advisory
This news release also contains other industry benchmarks and terms, such as net working capital position (calculated as current assets less current liabilities) and operating netbacks (calculated on a per unit basis as oil, gas and natural gas liquids revenues less royalties and transportation and operating costs), which are not recognized measures under IFRS. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders. Painted Pony”s method of calculating operating netbacks may not be comparable to that used by other companies. Operating netbacks should not be viewed as an alternative to cash flow from operations or other measures of financial performance calculated in accordance with IFRS.
For further information regarding the reserves and contingent resources of the Company, please see the news release of Painted Pony dated February 27, 2013 which is available on SEDAR at www.sedar.com.
Special Note Regarding Forward-Looking Information
This news release contains certain forward-looking statements, which are based on numerous assumptions including but not limited to: (i) drilling success; (ii) production; (iii) future capital expenditures; and (iv) cash flows from operating activities. In addition, and without limiting the generality of the foregoing, the key assumptions underlying the forward-looking statements contained herein include the following: (i) commodity prices will be volatile, and natural gas prices will remain low, throughout 2013; (ii) capital, undeveloped lands and skilled personnel will continue to be available at the level Painted Pony has enjoyed to date; (iii) Painted Pony will be able to obtain equipment in a timely manner to carry out exploration, development and exploitation activities; (iv) production rates in 2013 are expected to show growth from 2012; (v) Painted Pony will have sufficient financial resources with which to conduct the capital program; and (vi) the current tax and regulatory regime will remain substantially unchanged. The reader is cautioned that certain or all of the forgoing assumptions may prove to be incorrect.
Certain information regarding Painted Pony set forth in this news release, including its future plans and operations, anticipated well results, and the planning and development of certain prospects, may constitute forward-looking statements and forward-looking information (collectively “forward-looking statements”) under applicable securities laws and necessarily involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Painted Pony”s control, including without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, environmental risks, inability to obtain drilling rigs or other services, capital expenditure costs, including drilling, completion and facility costs, unexpected decline rates in wells, wells not performing as expected, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, and stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof. Readers are cautioned that the foregoing list of factors is not exhaustive. Painted Pony”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 therefrom. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.
Additional information on these and other factors that could affect Painted Pony”s operations and financial results are included in the Company”s Management”s Discussion and Analysis for the year ended December 31, 2012 which will be filed on SEDAR later today and the Company”s Annual Information Form for the year ended December 31, 2011 and in reports which are on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or Painted Pony”s website (www.paintedpony.ca).
The forward-looking statements contained in this document are made as at the date of this news release and Painted Pony does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Special Note Regarding Oil and Gas Disclosure
The reserves data of the Company are based upon independent evaluations by GLJ Petroleum Consultants Ltd. (“GLJ”) and Sproule Associates Limited (“Sproule”) each with an effective date of December 31, 2012 as contained in the consolidated report of GLJ dated February 26, 2013 (the “Painted Pony Reserves Report”). The information contained in this news release in respect of Painted Pony”s crude oil, NGLs and natural gas reserves and the net present values of future net revenue attributable to such reserves, are as evaluated in the Painted Pony Reserves Report, based on GLJ”s January 1, 2013 forecast prices and costs assumptions. GLJ evaluated the Company”s reserves on its British Columbia properties and Sproule evaluated the Company”s reserves on its Saskatchewan properties. Sproule incorporated the GLJ forecast prices and costs assumptions in their evaluation. GLJ prepared the Painted Pony Reserves Report by consolidating the GLJ evaluation results with the Sproule evaluation results, all run on the GLJ forecast prices and costs assumptions.
Operating netback reflects revenues less royalties and transportation and operating costs divided by production for the period. Painted Pony”s method of calculating operating netbacks may not be comparable to that used by other companies.
Barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of gas (“mcf”) to one barrel of oil (“bbl”) (6 mcf:1 bbl) is used as an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this news release are derived by converting natural gas to oil in the ratio of six mcf of gas to one barrel of oil. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio of 6:1 may be misleading as an indication of value. Mcfes may be misleading, particularly if used in isolation. A mcfe conversion ratio of 1 bbl: 6 mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
In addition to evaluating the Company”s reserves, GLJ was engaged to prepare an independent contingent resources evaluation of the Company”s BC Montney properties, using forecast prices and costs, dated effective December 31, 2012. The most significant positive and negative factors with respect to the contingent resources estimates relate to the fact that the field is currently at an evaluation/delineation stage. The Montney formation is aerially extensive in this region, however well control is limited. Both resources-in-place and productivity may be higher or lower than current estimates. Additional drilling and testing are required to confirm volumetric estimates and reservoir productivity for the contingent resources to be reclassified as reserves.
Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies (the “contingent resources”). Contingencies which must be overcome to enable the reclassification of contingent resources as reserves can be categorized as economic, non-technical and technical. The Canadian Oil and Gas Evaluation Handbook identifies nontechnical contingencies as legal, economic, environmental, political and regulatory matters or a lack of markets. There are several non-technical contingencies that prevent the classification of the contingent resources estimated above as being classified as reserves. The primary contingency which prevents the classification of the Company”s contingent resources as reserves is the current early stage of development. Additional drilling, completion, and testing data is generally required before Painted Pony can commit to their development. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. Contingent resources are further classified in accordance with the level of certainty associated with the estimates and may be subclassified based on project maturity and/or characterized by their economic status. As additional drilling takes place, it is expected that the contingent resources will be booked into the reserves category. Estimates of contingent resources described herein, including the corresponding estimates of before tax present value estimates, are estimates only; the actual resources may be higher or lower than those calculated in the GLJ British Columbia Montney Contingent Resources Evaluation. There is no certainty that it will be commercially viable or technically feasible to produce any portion of the resources described in the evaluation.
The most significant positive and negative factors with respect to the contingent resource estimates relate to the fact that the field is currently at an evaluation/delineation stage. Resource-in-place, productivity and capital costs may be higher or lower than current estimates. Additional drilling and testing are required to confirm volumetric estimates and reservoir productivity for the contingent resources to be reclassified as reserves.
Estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties due to the effects of aggregation.
Painted Pony Petroleum Ltd.
Patrick R. Ward
President & CEO
(403) 475-0440
(403) 238-1487
Painted Pony Petroleum Ltd.
Joan E. Dunne
Vice President, Finance & CFO
(403) 475-0440
(403) 238-1487
Painted Pony Petroleum Ltd.
300, 602 – 12 Ave SW
Calgary, AB T2R 1J3
www.paintedpony.ca