BlackPearl Announces First Quarter 2018 Financial and Operating Results

May 2, 2018 8:30 PM

CALGARY, May 2, 2018 /CNW/ – BlackPearl Resources Inc. (“BlackPearl” or the “Company”) (TSX: PXX) (NASDAQ Stockholm: PXXS) is pleased to announce its financial and operating results for the three months ended March 31, 2018.

Highlights include:

At Onion Lake, construction of the phase 2 thermal expansion project was completed during the quarter and we commenced steam injection in the first pad of wells in February and into the second pad of wells in March. In late April, we converted the wells on the first pad over to oil production. When fully ramped-up, in 9 to 12 months, the two phases of the thermal project will have name-plate production capacity of 12,000 bbls/d. With only minor capital spending remaining, total capital costs of the project are expected to be approximately $178 million, which was under our budget of $180 – $185 million.
Total capital investment for the quarter was $35.2 million, the majority of which related to the Onion Lake thermal expansion project.
Crude oil prices were higher in the first quarter of 2018, with WTI oil prices averaging US$62.87 per bbl compared to US$51.91 per bbl during the first quarter of 2017. However, the increase in WTI oil prices was offset by significantly wider heavy oil differentials during the quarter. Due to takeaway capacity constraints the heavy differential averaged US$24.33 per bbl in the first quarter compared to US$14.61 per bbl in the first quarter of 2017. More recently, heavy oil differentials have narrowed into the range of US$15 to $18 per bbl, which should result in improved Company netbacks going forward.
Production for the quarter averaged 9,927 barrels of oil equivalent (boe) per day, a 6% decrease compared to Q4 2017 volumes. Lower production volumes in Q1 2018 were due, in part, to the Company’s response to wider heavy oil differentials and transportation constraints during the quarter. We elected to defer certain typical well servicing activities on our conventional heavy oil program until differentials and takeaway capacity improve. Thermal oil production was also temporarily impacted during the quarter as a result of integrating the phase 2 operations at Onion Lake into the existing phase 1 project. Phase 1 of the thermal project has now been on production for two and a half years; to the end of March we have produced nearly five million barrels of oil from the thermal project. We are planning to drill our first pad of sustaining wells for the project later this year to maintain production at design capacity.
Oil and natural gas revenues in the first quarter of 2018 were $30.9 million compared with $37.2 million in the same period in 2017. The decrease in revenues reflect significantly wider heavy oil differentials in Q1 2018. For the three months ended March 31, 2018, the Company incurred a net loss of $8.8 million. The net loss is primarily a result of unrealized losses of $9.8 million on risk management contracts that are required under the Company’s long-term debt covenants.
Thermal operating costs, including energy costs, during Q1 2018 were under $10/bbl, which reflects the continued top tier performance from our Onion Lake project.
The Company maintained its strong financial position with $125 million of its $195 million of total credit facilities drawn as at March 31, 2018. The syndicate of lenders in the Company’s senior credit facilities completed its semi-annual review with no changes to the borrowing base or terms of our credit facilities.
As a result of the recent improvements in oil prices, differentials and transportation bottlenecks, we are maintaining our full year production and have increased our funds flow guidance despite the lower production and funds flow amounts experienced during the first quarter. We expect to exit 2018 with production of approximately 14,000 boe/d, 40% higher than the start of the year.

John Festival, President of BlackPearl commented “Q1 was a challenging quarter for us and other heavy oil producers as a result of wider than normal heavy oil differentials and takeaway capacity constraints. However, I am pleased with our response to these challenges as we successfully completed a significant capital project while still maintaining our strong financial position. The challenges faced in Q1 have eased somewhat in Q2; however, it reiterates the importance to the energy sector and the Canadian economy that additional pipeline capacity is built. Over the next few months we look forward to seeing the growth in our oil production and free cash flow from the expansion of our thermal project at Onion Lake.”

Financial and Operating Highlights


		Three months ended March 31
		2018	2017

Daily sales volumes
	Oil (bbl/d)	9,397	10,105
	Bitumen (bbl/d) ⁽¹⁾	438	542
	Combined	9,835	10,647
	Natural gas (mcf/d)	549	638
	Combined (boe/d) ⁽²⁾	9,927	10,753

Product pricing ($)
	Crude oil – per bbl	36.41	40.75
	Natural gas – per mcf	1.86	2.50
	Combined – per boe	36.16	40.48

Netback ($/boe)
	Sales	36.16	40.48
	Realized gains (losses) on risk management contracts	(0.05)	0.37
	Royalties	4.58	5.90
	Transportation costs	2.66	2.67
	Operating costs	14.65	15.00
	Netback ⁽⁵⁾	14.22	17.28

($000’s, except per share and boe amounts)
Revenue
	Oil and gas revenue – gross	30,881	37,204

Net income (loss) for the period		(8,789)	7,814
	Per share, basic and diluted	(0.03)	0.02

Adjusted funds flow ⁽³⁾		9,063	12,924
Cash flow from operating activities ⁽⁴⁾		14,353	14,786

Capital expenditures		35,177	13,356

Working capital deficiency (surplus) ⁽⁷⁾		10,486	(4,180)
Long term debt		123,149	–
Net debt (surplus) ⁽⁶⁾		133,635	(4,180)

Shares outstanding, end of period		336,557,573	336,195,568

(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 decommissioning costs incurred and changes in non-cash working capital related to operations. 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.

(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.

(7)”Working Capital” represents current assets less current liabilities, excluding the fair value of risk management contracts and deferred consideration.

Production

Oil and gas production averaged 9,927 barrels of oil equivalent per day in the first quarter of 2018, an 8% decrease compared with the first quarter of 2017.

Average Daily Sales Volume


Area (boe/d)	Q1 2018	Q4 2017	Q1 2017
Onion Lake – thermal	5,860	6,204	6,182
Onion Lake – conventional	1,706	1,917	2,147
Mooney	1,056	1,178	942
John Lake	691	699	808
Blackrod	438	481	542
Other	176	121	132
	9,927	10,600	10,753

Financial Results

Oil and natural gas revenues were $30.9 million in the first quarter of 2018, 17% lower than in the same period in 2017. The decrease in revenues is attributable to an 8% decrease in sales volumes and an 11% decrease in the average realized sale price received.

Our realized oil price (before the effects of risk management activities) in Q1 2018 was $36.41 per barrel compared to $40.75 per barrel in 2017. The decrease is primarily attributable to wider heavy oil differentials during the quarter. In Q1 2018 the heavy oil differential was US$24.33 per barrel compared to US$14.61 per barrel in Q1 2017.

Total production costs were $12.5 million in the first quarter of 2018, 9% lower than the comparable period in 2017. The decrease in production costs is primarily attributable to lower production volumes in 2018. On a per boe basis, total production costs were comparable, with costs in Q1 2018 averaging $14.65 per boe and $15.00 per boe in the same period in 2017.


			Q1 2018	Q4 2017	Q1 2017
Conventional Production
	Production costs ($000s)		7,446	7,834	8,858
	Per boe ($)		22.80	21.75	24.43
Thermal Production
	Production costs ($000s)		5,064	4,664	4,925
	Per boe ($)		9.60	8.17	8.85
		Energy costs	3.68	2.30	4.27
		Non-energy costs	5.92	5.87	4.58
Total Production
	Production costs ($000s)		12,510	12,498	13,783
	Per boe ($)		14.65	13.43	15.00

Adjusted funds flow in Q1 2018 was $9.1 million compared with $12.9 million in the first quarter of 2017. The decrease reflects lower revenues as a result of a decrease in realized sales prices and reduced sales volumes. Net loss for the quarter was $8.8 million compared to net income of $7.8 million in Q1 2017. The loss is Q1 2018 was primarily attributable to unrealized losses on our risk management contracts.

Capital spending was $35.2 million during Q1 2018, with the majority of costs spent on the expansion of the Onion Lake thermal project.

At March 31, 2018, the Company had long-term debt of $125 million, made up of $50 million of bank debt and second lien notes of $75 million. The total credit facilities available to the Company are currently $195 million. The lenders in our banking syndicate recently completed their semi-annual review of our credit facilities and no changes were made to the borrowing base available to the Company. The next review of these facilities are expected to be completed by November 30, 2018.

Outlook – Guidance

We are still planning to spend between $80 and $85 million on capital projects for the year. The focus in the first quarter was on completing the expansion of the Onion Lake thermal project. For the remainder of 2018, our capital plans remain unchanged which includes drilling on some of our conventional heavy oil projects and the drilling of a sustaining well pad for the Onion Lake thermal project.

A significant portion of these capital costs will continue to be funded with our anticipated adjusted funds flow, which is expected to be between $65 and $70 million, up 8% from our previous guidance. The increase is attributable to higher forecast oil prices. For the reminder of the year we have assumed a WTI oil price of US$66.00 per bbl, heavy oil differential of US$20.00 per bbl, a US$ to CDN$ exchange rate of $0.79 and an AECO gas price of CDN$1.50 per GJ. Year-end 2018 debt levels are expected to be between $130 and $135 million, down from our previous guidance of between $130 and $140 million.

We still anticipate oil and gas production to average between 11,000 and 12,000 boe/d in 2018, and we expect to exit 2018 at approximately 14,000 boe/d.

The 2018 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).

Non-GAAP Measures
Throughout this release, the Company uses terms “adjusted funds flow”, “netback” and “net debt”. These terms do not have any standardized meaning as prescribed by GAAP and, therefore, may not be comparable with the calculation of similar measures presented by other issuers.

“Adjusted funds flow” is a non-GAAP measure commonly used in the oil and gas industry to assist in measuring a company’s ability to finance its capital programs, decommissioning costs, debt repayments and other financial obligations. Adjusted funds flow is defined as cash flow from operating activities before decommissioning costs incurred and changes in non-cash working capital related to operations. Adjusted funds flow is not intended to represent cash flow from operating activities or other measures of financial performance in accordance with GAAP.

The following table reconciles non-GAAP measure adjusted funds flow to cash flow from operating activities, the nearest GAAP measure.

	Three months ended March 31,
($000s)	2018	2017
Cash flow from operating activities	14,353	14,786
Add (deduct):
Decommissioning costs incurred	36	42
Changes in non-cash working capital related to operations	(5,326)	(1,904)
Adjusted funds flow	9,063	12,924

“Netback” is calculated as oil and gas revenues less royalties, production costs and transportation costs on a dollar basis, divided by total production for the period on a boe basis. Netback is a non-GAAP measure commonly used in the oil and gas industry to assist in measuring operating performance against prior periods on a comparable basis. Our operating netback calculation is consistent with the definition found in the Canadian Oil and Gas Evaluation (COGE) Handbook.

“Net debt” is calculated as long-term debt less working capital for the period ended. Working capital consists of cash and cash equivalents, trade and other receivables, inventory, prepaid expenses and deposits, less accounts payable and accrued liabilities and current portion of decommissioning liabilities. Management utilizes net debt as a key measure to assess the liquidity of the Company.

[expand title=”Advisories & Contact”]Forward-looking Statements
This release contains certain forward-looking statements and forward-looking information (collectively referred to as “forward-looking statements”) within the meaning of applicable Canadian securities laws. All statements other than statements of historic fact are forward-looking statements. Forward-looking statements are typically identified by such words as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” or similar words suggesting future events or future performance.

In particular, this release contains forward-looking statements pertaining to the expectation that the Onion Lake thermal project will reach 12,000 bbl/d within the next 9 to12 months, the expectation that the final capital costs of the Onion Lake expansion project will be approximately $178 million, the expectation of improved netbacks as result of tighter heavy oil differentials, the expectation that we will exit 2018 with production of 14,000 boe/d and all the information under 2018 Outlook – Guidance.

The forward-looking information is based on, among other things, expectations and assumptions by management regarding its future growth, future production levels, future oil and natural gas prices, continuation of existing tax, royalty and regulatory regimes, foreign exchange rates, estimates of future operating costs, timing and amount of capital expenditures, performance of existing and future wells, recoverability of the Company’s reserves and contingent resources, the ability to obtain financing on acceptable terms, availability of skilled labour and drilling and related equipment on a timely and cost efficient basis, general economic and financial market conditions, environment matters and the ability to market oil and natural gas successfully to current and new customers. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their nature, forward-looking statements involve numerous known and unknown risks and uncertainties that contribute to the possibility that actual results will differ from those anticipated in the forward looking statements. These risks include, but are not limited to, risks associated with fluctuations in market prices for crude oil, natural gas and diluent, general economic, market and business conditions, volatility of commodity inputs, substantial capital requirements, conditions including receipt of necessary regulatory and stock exchange approvals with respect to the issuance of common shares, uncertainties inherent in estimating quantities of reserves and resources, extent of, and cost of compliance with, government laws and regulations and the effect of changes in such laws and regulations from time to time, the need to obtain regulatory approvals on projects before development commences, environmental risks and hazards and the cost of compliance with environmental regulations, aboriginal claims, inherent risks and hazards with operations such as fire, explosion, blowouts, mechanical or pipe failure, cratering, oil spills, vandalism and other dangerous conditions, financial loss associated with derivative risk management contracts, potential cost overruns, variations in foreign exchange rates, variations in interest rates, diluent and water supply shortages, competition for capital, equipment, new leases, pipeline capacity and skilled personnel, uncertainties inherent in the SAGD bitumen and ASP recovery process, credit risks associated with counterparties, the failure of the Company or the holder of licences, leases and permits to meet requirements of such licences, leases and permits, reliance on third parties for pipelines and other infrastructure, changes in royalty regimes, failure to accurately estimate abandonment and reclamation costs, inaccurate estimates and assumptions by management, effectiveness of internal controls, the potential lack of available drilling equipment and other restrictions, failure to obtain or keep key personnel, title deficiencies with the Company’s assets, geo-political risks, risks that the Company does not have adequate insurance coverage, risk of litigation and risks arising from future acquisition activities. Readers are also cautioned that the foregoing list of factors is not exhaustive. Further information regarding these risk factors may be found under “Risk Factors” in the Annual Information Form.

Undue reliance should not be placed on these forward-looking statements. There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will be realized. Actual results will differ, and the differences may be material and adverse to the Company and its shareholders. Furthermore, the forward-looking statements contained in this release are made as of the date hereof, and the Company does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included 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.

The information in this release is subject to the disclosure requirements of the Company under the EU Market Abuse Regulation and the Swedish Securities Markets Act. The information was publicly communicated on May 2, 2018 at 8:30 p.m. Mountain Time.

SOURCE BlackPearl Resources Inc.

View original content: http://www.newswire.ca/en/releases/archive/May2018/02/c7945.html

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BlackPearl Announces First Quarter 2018 Financial and Operating Results

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