CALGARY, ALBERTA – BlackPearl Resources Inc. (“BlackPearl” or the “Company”) (TSX: PXX) (NASDAQ Stockholm: PXXS) is pleased to announce its financial and operating results for the three and six months ended June 30, 2017.
- We continued with construction of the 6,000 barrel per day (bbl/d) Phase 2 expansion of our successful Onion Lake thermal project. Facility modules started being delivered to site and we have commenced drilling injector and producer wells. Our target completion date for the expansion is mid-2018, unchanged from our original target completion date.
- We completed the funding for the Onion Lake expansion project with the successful closing of a $75 million term debt financing in June. In addition, we maintained our strong financial position as we exited the quarter with a renewed undrawn $120 million bank credit facility and had positive working capital of $43 million.
- Production for the quarter averaged 10,386 bbls/d, 7% higher than Q2 2016. The increase is primarily attributable to production from the Onion Lake thermal project and the partial re-initiation of the ASP flood at Mooney.
- Net income for the first half of 2017 was $16.1 million compared to a loss of $18.3 million in the first half of 2016. Adjusted funds flow nearly doubled in the first half of 2017 to $27 million compared to the first half of 2016.
John Festival, President of BlackPearl commenting on Q2 activities indicated that “our focus in the near term is the expansion of our very successful low cost, long life thermal project at Onion Lake. We completed the financing for the project during Q2 and we are part way through construction which will see nameplate capacity double to 12,000 bbls/d. We remain on time and on budget for a mid-2018 start-up and first oil in late 2018. The on-going operating performance from the first phase of the project supports our view that Saskatchewan thermal projects are in the top decile of North American oil projects.”
Financial and Operating Highlights
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| Six months ended
|Daily sales volumes|
|Bitumen (bbl/d) (1)||437||553||489||568|
|Natural gas (mcf/d)||633||847||635||846|
|Combined (boe/d) (2)||10,386||9,698||10,568||9,432|
|Product pricing ($) (before the effects of hedging transactions)|
|Crude oil – per bbl||41.93||34.44||41.33||25.89|
|Natural gas – per mcf||2.58||1.29||2.54||1.53|
|Combined – per boe||41.65||34.03||41.06||25.63|
|Oil and gas sales||41.65||34.03||41.06||25.63|
|Realized gain on risk management contracts||(0.04)||2.35||0.17||5.01|
|($000’s, except per share amounts)|
|Oil and gas revenue – gross||37,702||28,318||74,906||41,339|
|Net income (loss) for the period||8,318||(8,945)||16,132||(18,267)|
|Per share, basic and diluted||0.02||(0.03)||0.05||(0.05)|
|Adjusted funds flow(3)||14,179||11,497||27,103||14,775|
|Cash flow from operating activities (4)||15,080||7,184||29,866||10,971|
|Working capital deficiency (surplus), end of period||(43,680)||(4,497)||(43,680)||(4,497)|
|Long term debt||72,320||80,000||72,320||80,000|
|Net debt (6)||28,640||75,503||28,640||75,503|
|Shares outstanding, end of period||336,250,902||335,646,559||336,250,902||335,646,559|
(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) Adjusted funds flow is a non-GAAP measure that represents cash flow from operating activities before changes in non-cash working capital related to operations and decommissioning costs. Adjusted funds flow does not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies. See non-GAAP measures.
(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. See non-GAAP measures.
(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. See non-GAAP measures.
Construction of the second 6,000 barrel per day phase of the Onion Lake thermal project continued throughout the quarter. The modules for the central processing facilities and well pads are being constructed in a fabrication shop near Calgary and we began moving these modules to site in July. Site preparation was completed during the quarter and field construction will ramp-up throughout the summer and fall.
In early July, we commenced drilling the steam injector and oil production wells. In total, we are planning to drill 23 injector/observation wells and 14 horizontal producer wells. Drilling is expected to be completed by the end of the year.
Our estimated capital cost of the second phase of the Onion Lake thermal project remains unchanged at $185 million, 20% lower than phase one costs, and first steam is scheduled to commence in mid-2018. Peak production rates are expected to be reached twelve months after commencement of steam injection, which is similar to what we achieved for phase one. Once the phase two expansion is completed, our Onion Lake thermal project will have a design capacity of 12,000 bbls/d. In addition, we are planning for further thermal expansion opportunities on our Onion Lake lands.
We are continuing to realize excellent operating performance from the first phase of the Onion Lake thermal project. Production averaged 5,816 bbls/d for the quarter, with a steam oil ratio of 2.5 and operating costs of $10.60 per barrel (energy costs – $4.16; non-energy – $6.44). Production, as well as operating costs, in the second quarter was impacted by a planned facility turnaround and inspection which began in late June. The turnaround was planned to coincide with drilling some of the phase two wells to reduce the amount of facility downtime. Phase one production is expected to return to full rates in August or early September.
We have also commenced a five well (2.5 net) primary drilling program in July at Onion Lake. These wells are being drilled outside of the current thermal development area.
Although there were no new activities undertaken in the second quarter, we continue to be pleased with the results achieved for the Blackrod SAGD pilot. After 27 months of maintaining production in excess of 500 bbls/d, we started to see natural declines in production during the second quarter, which is line with our expectations for the pilot. The pilot has cumulatively produced nearly 600,000 barrels of oil. Q2 2017 production was also impacted by a facility turnaround in June. Blackrod’s commercial operation will have the ability to further improve on oil production rates and SOR’s through applying our learnings from the pilot well and industry proven co-injection with gas or solvents. Pilot well learnings to increase production and improve SOR’s include the benefits of having bound wells that get pressure support from offsetting wells, longer horizontal well lengths and improved completion techniques using inflow control devices. We are planning to continue to operate the pilot as it produces positive cash flow and to fully understand the well characteristics through a full life cycle.
During the second quarter, we continued to see a positive response from the re-initiation of the ASP (Alkali, Surfactant, Polymer) flood at Mooney. Production from the Mooney field averaged 1,103 bbls/d in Q2 2017, a 17% increase from Q1 2017 and a 41% increase from Q4 2016 when the ASP flood was restarted. We will continue to defer expansion of the ASP flood to our phase two and three lands until we see a sustained improvement in crude oil prices.
Oil and gas production averaged 10,386 barrels of oil equivalent per day (boe/day) in the second quarter of 2017, a 7% increase compared with the second quarter of 2016. The increase in oil production reflects the successful ramp-up of production from our Onion Lake thermal project as well as increased production at Mooney as a result of the re-initiation of the ASP flood on the phase one lands earlier this year.
Average Daily Sales Volume
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|Six months ended
|Onion Lake – thermal||5,816||5,221||5,998||4,737|
|Onion Lake – conventional||2,087||2,138||2,117||2,185|
Oil and natural gas sales increased 33% in the second quarter of 2017 to $37.7 million from $28.3 million in the same period in 2016. The increase in oil and gas sales is attributable to a 22% increase in average sale price received and a 7% increase in production volumes (on a boe basis) in the second quarter of 2017 compared to the same period in 2016.
Our realized oil price (before the effects of risk management activities) in Q2 2017 was $41.93 per barrel compared to $34.44 per barrel for the same period in 2016. The increase in our realized wellhead price reflects higher WTI reference oil prices in Q2 2017 compared with Q2 2016 (US$48.29/bbl vs US$45.59/bbl) and tighter heavy oil differentials (US$11.14/bbl vs US$13.30/bbl), in addition to a weaker Canadian dollar relative to the US dollar ($0.743 vs $0.776).
Operating costs in Q2 2017 were similar to the first quarter of 2017 at $14.97 per barrel but were higher than the comparable period in 2016. The increase from the prior year reflects the re-start of the ASP flood at Mooney as well as the turnaround costs related to the facility maintenance on the Onion Lake thermal facility during the quarter.
Stronger crude oil prices and higher production volumes in Q2 2017 had a positive impact on our adjusted funds flow during the quarter. In Q2 2017 our adjusted funds flow was $14.2 million, significantly higher than the $11.5 million generated for the same period in 2016.
First half 2017 capital expenditures were $67 million with the majority of spending on the Onion Lake thermal expansion project.
On June 30, 2017 we issued $75 million aggregate principal amount of senior secured second lien notes (”Notes”) to Prudential Capital Group. The Notes were issued at par, bear interest at 8.00% per year and mature on June 30, 2020. Proceeds from the issuance of the Notes were initially used to repay amounts outstanding under our existing credit facilities and will also be used to fund the construction of the expansion of our Onion Lake thermal project and for general corporate purposes.
In conjunction with the issuance of the Notes, the Company also amended its existing credit facilities with its banking syndicate. The amendments include an increase in the borrowing base amount from $117.5 million to $120 million. The next borrowing base review is scheduled to occur by November 30, 2017. At June 30, 2017, we had not drawn any amounts under these facilities.
The 2017 second 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).
We have not changed our plans for the remainder of 2017, 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 $195 and $200 million on capital projects, up from our previous guidance of $185 and $190 million. The increase in capital spending is the result of 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 adjusted funds flow, proceeds from the recent issuance of the $75 million senior secured second lien notes and our undrawn senior credit facilities. Adjusted funds flow is expected to be between $52 and $57 million, down slightly from our previous guidance of $55 to $60 million. The decrease in adjusted funds flow is primarily attributable to lower forecast oil prices than what we used in previous guidance updates. For the remainder of the year we have used a WTI oil price of US$48.75, a heavy oil differential of US$11.00 and a US$ to Cdn$ exchange rate of $0.80. We have also entered into a number of hedging transactions that fix the WCS oil price on 4,500 bbl/d for the last six months of the year at a price of approximately $52.40 per barrel. Year-end 2017 debt levels are anticipated to be between $140 and $145 million, up from our previous guidance of $130 and $135 million. The increase in year-end debt levels reflects an increase in capital spending and slightly lower forecasted adjusted funds flow 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 previous guidance. Production from the Onion Lake thermal facility was temporarily impacted by a facility turnaround which began in late June. Phase one production is expected to return to full rates in August or early September; however, as a result of the turnaround, corporate production for Q3 2017 is expected to be between 9,000 and 9,500 boe/d.