CALGARY, ALBERTA–(Marketwired – May 3, 2017) – BlackPearl Resources Inc. (“BlackPearl” or the “Company”) (TSX:PXX)(OMX:PXXS) is pleased to announce its financial and operating results for the three months ended March 31, 2017.
- The Board of Directors sanctioned the expansion of our successful Onion Lake thermal project in Saskatchewan and construction began on the second 6,000 barrel per day phase of the project. Target date for completion of construction and first steam is mid-2018. Peak production rates are expected 9 to 12 months thereafter.
- Production averaged 10,753 barrels of oil equivalent (boe) per day, a 17% increase compared to Q1 2016 volumes. The increase is attributable to the production ramp-up on the Onion Lake thermal project, which produced 6,182 bbls/d in Q1 2017. Additionally, during the first quarter we re-started a portion of the alkali surfactant polymer (ASP) flood at Mooney.
- Oil and natural gas revenues increased 186% in the first quarter of 2017 to $37.2 million from $13.0 million in the same period in 2016.
- Net income in Q1 2017 was $7.8 million compared to a loss of $9.3 million in Q1 2016. Funds flow from operations increased to $12.9 million from $3.3 million in 2016.
- The Company maintained its strong financial position with no debt at the end of the quarter and positive working capital of $3.6 million.
- The Blackrod SAGD pilot continues to provide very positive results; over the last 24 months the pilot has produced an average of 550 bbls/d with a steam oil ratio under 3.
John Festival, President of BlackPearl commented, “We are well underway with construction of phase two of our thermal project at Onion Lake. Equipment modules are over 50% complete and we expect to start field assembly and drilling in the summer. Our success with the first phase of the Onion Lake thermal project has shown that these long-life, lower cost thermal projects in Saskatchewan provide some of the best economics in industry even in a lower commodity price environment. This success has allowed us to grow our production and lower our cost structure and we expect this will continue with our expansion of thermal development at Onion Lake.”
Financial and Operating Highlights
|Three months ended
|Daily sales volumes|
|Bitumen (bbl/d) (1)||542||584|
|Natural gas (mcf/d)||638||845|
|Combined (boe/d) (2)||10,753||9,166|
|Product pricing ($)|
|Crude oil – per bbl||40.75||16.77|
|Natural gas – per mcf||2.50||1.77|
|Combined – per boe||40.48||16.67|
|Operating netback ($/boe)|
|Realized gains on risk management contracts||0.37||7.84|
|($000’s, except per share and boe amounts)|
|Oil and gas revenue – gross||37,204||13,021|
|Net income (loss) for the period||7,814||(9,322)|
|Per share, basic and diluted||0.02||(0.03)|
|Funds flow from operations(3)||12,924||3,278|
|Cash flow from operating activities (4)||14,786||3,787|
|Working capital deficiency (surplus), end of period||(3,576)||(9,155)|
|Long term debt||–||86,000|
|Net debt (6)||(3,576)||76,845|
|Shares outstanding, end of period||336,195,568||335,638,226|
|(1) Includes production from the Blackrod SAGD pilot. All sales and expenses from the Blackrod SAGD pilot are being recorded as an adjustment to the capitalized costs of the project until the technical feasibility and commercial viability of the project is established.|
|(2) 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.|
|(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.|
|(4) Cash flow from operating activities is a GAAP measure and has a standardized meaning prescribed by Canadian GAAP.|
|(5) 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.|
|(6) 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.|
During the first quarter we commenced construction of the 6,000 bbl/d expansion of our thermal project. Similar to the first phase, we entered into a fixed sum contract for all of the major equipment modules for the central processing facilities and pad facilities. The fixed sum contract represents approximately 40% of the anticipated total costs of the expansion. These equipment modules are being built in a fabrication shop near Calgary and will be transferred to site when completed. Field construction and assembly of the equipment modules is expected to commence in the third quarter. In addition, during the first quarter we drilled water source wells which will be used to supply water for steam generation for the project and we began site preparation for the central processing facilities.
The thermal expansion at Onion Lake will utilize a combination of a modified SAGD process (using existing and new vertical wells as steam injectors and horizontal producers), which was used for phase one and the more traditional SAGD process (two horizontal wells drilled approximately 5 metres apart). The advantage of using vertical injectors is that it utilizes existing wellbores and provides us with the flexibility to steam upper hole zones at a later date. Initially, we are planning to drill 14 horizontal producer wells, three horizontal steam injector wells and 20 vertical injector/observation wells. Drilling these wells represent about 200 days of drilling time and is expected to commence in the summer.
The Company’s target for initial steam injection for the second phase is mid-2018. Peak oil production rates are expected 12 months after commencement of steam injection, which is similar to what we experienced for the first phase of thermal development. Capital costs for the second phase of this thermal project are estimated to be between $180 and $185 million, which is approximately 20% lower than the construction costs for the first phase.
We are continuing to see excellent production results from the first phase of the Onion Lake thermal project. During the first quarter of 2017 oil production averaged nearly 6,200 bbl/d with a steam oil ratio (SOR) of 2.5. Cumulatively, the thermal project has produced in excess of three million barrels of oil. Oil production will be impacted during the second quarter as a result of a facility turnaround and inspection in May. In addition, during the drilling of the wells for the second phase of the project we will have to limit steam injection in nearby phase one wells which will also temporarily impact oil production volumes.
At Blackrod, we did not undertake any new activities during the first quarter of 2017; however, our existing SAGD pilot is continuing to perform exceptionally well. During Q1 2017, production from the pilot averaged 542 bbl/d. Over the last two years the pilot has produced an average of 550 bbl/d with an SOR under 3. Cumulatively, the SAGD well pair has produced over 525,000 barrels of oil. We are planning to continue to operate the pilot as we are still acquiring valuable technical and operational data that will be helpful designing a commercial project for the area.
We have commercial development approval for an 80,000 bbl/d project on our Blackrod lands. At current commodity prices, expansion of our Onion Lake project is economically more attractive than our other projects; however, our Blackrod lands contain significant amounts of oil and we are confident that as oil prices improve development of Blackrod will provide excellent long term value to our shareholders.
At Mooney, as a result of the improvement in oil prices late last year and early in 2017 and changes to our operating procedures we decided to re-initiate the ASP (Alkalie, Surfactant, Polymer) flood over a portion of the phase one ASP flood lands. Operating costs tend to be higher for an ASP flood due to the cost of chemicals for injection and we had temporarily shut-in the ASP flood in early 2016 due to low commodity prices. During the quarter we restarted ASP injection in 20 horizontal wells. Production from the Mooney area increased in the first quarter as a result of the start-up of the flood; however, it is expected to take several months to see the full impact of the flood on Mooney production volumes. In total, we have 34 wells on production in the Mooney area.
Oil and gas production averaged 10,753 barrels of oil equivalent per day in the first quarter of 2017, a 17% increase compared with the first quarter of 2016. The increase reflects the successful ramp-up of production from our Onion Lake thermal project.
Production in our non-thermal areas increased in the first quarter of 2017 compared to the fourth quarter of 2016. With the improvement in crude oil prices we selectively brought back on production several shut-in wells at Onion Lake and re-initiated a portion of the ASP flood at Mooney. At Onion Lake, we still have approximately 500 barrels of oil per day currently shut-in.
Average Daily Sales Volume
|Production by area (boe/d)||Q1 2017||Q4 2016||Q1 2016|
|Onion Lake – thermal||6,182||6,119||4,252|
|Onion Lake – conventional||2,147||2,011||2,232|
Oil and natural gas sales increased 186% in the first quarter of 2017 to $37.2 million from $13.0 million in the same period in 2016. The increase in oil and gas sales is attributable to a 143% increase in average sale price received and a 17% increase in production volumes (on a boe basis).
Our realized oil price (before the effects of risk management activities) in Q1 2017 was $40.75 per barrel compared to $16.77 per barrel in 2016. The increase in our realized wellhead price reflects higher WTI oil prices in Q1 2017 compared with Q1 2016 (US$51.91/bbl vs US$33.45/bbl), partially offset by a stronger Canadian dollar relative to the US dollar ($0.756 vs $0.727) and slightly wider heavy oil differentials (US$14.61/bbl vs US$14.32/bbl).
During the first quarter we also realized a small gain of $0.3 million from our oil hedging program, which was the equivalent of adding $0.37 per barrel to our wellhead price in the quarter. The following summarizes the hedging contracts we currently have outstanding:
|Oil||500 bbls/d||April 1 to December 31||CDN$ WCS||CDN$ 54.30/bbl||Swap|
|Oil||500 bbls/d||April 1 to December 31||CDN$ WCS||CDN$ 52.75/bbl||Swap|
|Oil||500 bbls/d||April 1 to December 31||US$ WCS||US$ 40.15/bbl||Swap|
|Oil||1,000 bbls/d||April 1 to December 31||CDN$ WCS||CDN$ 50.00/bbl||Swap|
|Oil||1,000 bbls/d||April 1 to December 31||CDN$ WCS||CDN$ 49.50/bbl||Swap|
|Oil||500 bbls/d||April 1 to June 30||CDN$ WCS||CDN$ 40.00/bbl to 52.50/bbl||Collar|
|Oil||500 bbls/d||April 1 to June 30||CDN$ WCS||CDN$ 40.00/bbl to 47.00/bbl||Collar|
|Oil||1,000 bbls/d||April 1 to December 31||US$ WTI||US$ 60.00/bbl||Sold Call|
|Oil||500 bbls/d||July 1 to December 31||CDN$ WCS||CDN$ 53.10/bbl||Swap|
|Oil||500 bbls/d||July 1 to December 31||CDN$ WCS||CDN$ 53.00/bbl||Swap|
|Oil||500 bbls/d||January 1 to December 31||US$ WTI||US$ 70.00/bbl||Sold Call|
Total production costs increased 43% in the first quarter of 2017 to $13.8 million from $9.6 million in the same period in 2016. On a per boe basis, total production costs increased 21% in the first quarter of 2017 to $15.00 per boe from $12.35 per boe in the same period in 2016.
Thermal production costs at Onion Lake were fairly consistent between the first quarter of 2017 and the fourth quarter of 2016. During the first quarter of 2017 thermal production costs averaged $8.85 per barrel compared with $8.35 per barrel in Q4 2016 and $10.58 per barrel in Q1 2016.
The increase in total production costs during the first quarter of 2017 was primarily attributable to an increase in production costs on our non-thermal properties. The re-initialization of the ASP flood at Mooney resulted in an increase in chemical and injection costs during the quarter. In addition, we incurred workover costs on the wells we restarted at Mooney and Onion Lake. During the first quarter of 2017 production costs on our non-thermal properties averaged $24.43 per barrel compared with $18.59 per barrel in Q4 2016 and $14.09 per barrel in Q1 2016. Operating costs on our non-thermal properties are expected to decrease during the remainder of the year as our workover activities return to normal levels.
Funds flow from operations in Q1 2017 was $12.9 million compared with $3.3 million in the first quarter of 2016. The increase reflects significantly higher revenues partially offset by higher royalties, operating costs and G&A costs. Net income for the quarter was $7.8 million compared to a loss of $9.3 million in Q1 2016.
Capital spending was $13.4 million during Q1 2017, with the majority of costs spent on the expansion of the Onion Lake thermal project. In addition, during the quarter we sold some minor non-producing assets for proceeds of $3.4 million.
At March 31, 2017, the Company had no bank debt and had working capital of $3.6 million. The total credit facilities available to the Company are currently $117.5 million. The lenders next review of these facilities will be completed by May 31, 2017.
Outlook – Guidance
Our plan for the remainder of 2017 is relatively unchanged with the focus being the expansion of the Onion Lake thermal project with a target completion date of mid-2018. We are planning to spend between $185 and $190 million on capital projects, down from our initial guidance of $200 million. The decrease in capital spending is the result of deferring drilling on some our conventional heavy oil projects at John Lake, Onion Lake and other minor project areas to future periods, as well as adjusting the timing of expenditures on the Onion Lake thermal expansion.
The capital program is expected to be funded from a combination of our anticipated funds flow from operations and our undrawn credit facilities. We are also looking to supplement these sources with additional term debt financing to provide us with financial flexibility during the construction phase. Funds flow from operations is expected to be between $55 and $60 million, down from our initial guidance of $65 to $70 million. The decrease in funds flow from operations reflects a change in the average wellhead price we expect to receive for the remainder of the year. Year-end 2017 debt levels are anticipated to be between $130 and $135 million, down from our initial guidance of $135 and $140 million. The decrease in year-end debt levels reflects a decrease in capital spending for the remainder of the year. We anticipate oil and gas production to average between 10,000 and 11,000 boe/d in 2017, unchanged from our initial guidance.
The 2017 first 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).