Pan Orient Energy Corp. 2020 third quarter financial & operating results

The Company is today filing its unaudited consolidated financial statements as at and for the nine months ended September 30, 2020 and related management’s discussion and analysis with Canadian securities regulatory authorities.  Copies of these documents may be obtained online at www.sedar.com or the Company’s website, www.panorient.ca.

Commenting today on Pan Orient’s 2020 third quarter results, President and CEO Jeff Chisholm stated: “The L53-DD9 appraisal well has just completed drilling and has encountered a combined approximately 29 meters of net oil pay in the four main producing sands (AA, BB, CC and DD). Of particular note, the CC sand was encountered five meters structurally higher than any previous well, with an estimated 18.4 meters of net oil pay. The drilling rig will now be stacked near the L53-DD field pad and further appraisal drilling is expected to recommence in approximately mid-February 2021. Testing of L53-DD9 is expected to commence within the next 10 days.

In addition to conducting a successful appraisal drilling program at L53-DD, the Company has spent the past three months incorporating the newly drilled wells into the L53-DD oil field reservoir model as part of a reservoir simulation study that will be completed in late Q4 2020. This information will form the basis for the determination of the year-end 2020 Thailand reserves.

Prior to year-end 2020 we also anticipate the conversion of the L53-DD8 well to water disposal, reducing annual operating costs by approximately US$1.2 million (net to Pan Orient’s 50.01% interest) and conducting workovers at L53-DD4 and L53-B1 that will see the perforation of new oil zones.

The Company is currently in a strong financial position with approximately $29.9 million in combined working capital and deposits in Canada and Thailand, and no debt. Pan Orient is committed to maintaining a strong cash position during these uncertain times while continuing to seek out and evaluate compelling opportunities.

The focus for the remainder of 2020 will be on development related activities in Thailand, growing our cash balance by maximizing funds generated from Thailand operations and on achieving full recognition of L53-DD field oil reserves in the year-end 2020 independent third party reserves report.”

HIGHLIGHTS

Thailand (net to Pan Orient’s 50.01% equity interest in the Thailand Joint Venture)

• 2020 drilling program with eight wells to date:
  • The L53-DD6ST2, L53-DD8 and L53-DD7 appraisal wells in the L53-DD field were drilled and brought onto production during the first three quarters of 2020. Net to Pan Orient’s 50.01% equity interest, these wells added 188 BOPD in the first quarter, 181 BOPD in the second quarter, 358 BOPD in the third quarter and 706 BOPD in October.
  • The L53-DD9 appraisal well has just completed drilling and has encountered a combined approximately 29 meters of net oil pay in the four main producing sands (AA, BB, CC and DD). Testing of L53-DD9 is expected to commence within the next 10 days.
  • The L53-AA2 exploration well represents a potential new pool discovery, outside the recently approved L53 South AA Production Area. The well was placed on production September 1st and, net to Pan Orient’s 50.01% equity interest, added 45 BOPD in September and is currently producing at 29 BOPD. Production performance of the L53-AA2 well will be monitored over the remaining period of the 90 day production test. A final decision will be made at the end of the 90 day period whether to proceed, or not, with a Production Area application for the L53-AA2 structure.
  • The L53-AA1 exploration well and the L53-AAST1 sidetrack exploration well were abandoned after failing to encounter oil bearing sands.
  • The L53-BB1ST1 exploration well had only minor indications of oil and will be abandoned.
• Net to Pan Orient’s 50.01% equity interest in the Thailand Joint Venture, oil sales from Concession L53 in the first nine months of 2020 were 1,120 BOPD. With the L53-DD8, L53-DD7 and L53-AA2 wells brought onto production in September, oil sales increased to 1,575 BOPD in September 2020 and 1,417 BOPD in October.
• Adjusted Thailand funds flow from operations of $9.2 million in the first nine months of 2020, with $3.5 million ($34.52 per barrel) in the third quarter, $2.0 million ($20.91 per barrel) in the second quarter and $3.7 million ($34.11 per barrel) in the first quarter. The realized price of Concession L53 crude oil averaged 96% of the Brent reference price in the first nine months of 2020 and the monthly Brent reference price has largely recovered from a low of US$18.38 in April 2020 to US$40.91 in September 2020.
• Despite weaker oil prices in early 2020, Thailand had adjusted funds flow from operations of $9.2 million in the first three quarters of 2020 to fund $8.6 million of Thailand exploration and development activities. In addition, the Thailand Joint Venture has paid two dividends to Pan Orient in 2020 totaling $7.1 million and Pan Orient’s share of working capital and long-term deposits in Thailand at September 30, 2020 was $3.5 million.

Indonesia East Jabung Production Sharing Contract (Pan Orient is non-operator with a 49% ownership interest)

• The operator of the East Jabung Production Sharing Contract (“PSC”) provided notice to the Government of Indonesia in January 2020 of withdrawal from the East Jabung PSC and is determining final steps to be taken for formal approval of the expiry from the Government of Indonesia, including reclamation requirements. Pan Orient is withdrawing from operations in Indonesia and the office in Jakarta was closed March 31, 2020.
• Activities of the Company in Indonesia are reported in 2020 as discontinued operations. For the first nine months of 2020, discontinued operations in Indonesia were $223 thousand of G&A expense, $103 thousand in realized and unrealized foreign exchange losses on currency exchange rates since the end of 2019 and a $674 thousand recovery of exploration expense resulting from adjustment of previously booked capital expenditures at the East Jabung PSC.

Sawn Lake (Operated by Andora Energy Corporation (“Andora”), in which Pan Orient has a 71.8% ownership)

• Significantly lower prices for heavy oil and bitumen since March 2020 due to geopolitical events and the collapse of global demand for crude oil resulting from COVID-19, and the associated deterioration in the economics for commercial expansion at Sawn Lake, indicated there is no expected commercial development at Sawn Lake in the current market. The Company reported a non-cash net impairment charge of $80.2 million, $57.6 million attributable to common shareholders of Pan Orient, on Sawn Lake Exploration and Evaluation assets at March 31, 2020.
• After the impairment of Sawn Lake recorded at March 31, 2020, no operating expenses or G&A are capitalized. For the second and third quarters of 2020, Pan Orient reports total operating expense of $156 thousand associated with the Sawn Lake suspended SAGD facility and wellpair.
• In July, Andora surrendered a 100% owned oil sands lease (nine sections) which was not prospective and for which no contingent resources had been assigned in the September 30, 2019 Contingent Resources Report.
• At September 30, 2020 Andora had negative working capital, excluding the convertible demand loan, of $0.2 million and the convertible demand loan with Pan Orient of $2.25 million. The January 2018 convertible demand loan facility with Andora of $2.5 million has an expiry date of December 31, 2022 and Pan Orient has the option to convert the loan into Andora’s common shares at a price of $0.15 per share. It is unlikely that Pan Orient will exercise the option to convert the convertible demand loan.
• In order to fund ongoing operations, Andora and Pan Orient entered into an additional convertible demand loan agreement for up to $500,000 in November 2020 with the expiry date of December 31, 2022. Pan Orient has the option to convert the loan into Andora’s common shares at a price of $0.01 per share.
• Andora will consider other alternatives to move the Sawn Lake project forward and achieve value for Andora and Pan Orient shareholders.

Corporate

• Total corporate adjusted funds flow from operations (including Pan Orient’s 50.01% equity interest in the Thailand Joint Venture) of $8.0 million ($0.15 per share) in the first nine months of 2020, with $2.4 million ($0.05 per share) in the third quarter of 2020. The increase from $1.2 million ($0.02 per share) in the second quarter of 2020 is largely due to the 32% higher realized crude oil prices in Thailand.
• The loss attributable to common shareholders for the first nine months of 2020 was $59.2 million ($1.12 loss per share), with a net $57.6 million impairment charge for the Sawn Lake, Alberta Exploration and Evaluation assets at March 31, 2020 and $1.6 million loss attributable to other operations. The loss attributable to common shareholders for the third quarter of 2020 was $1.1 million ($0.02 loss per share).
• Pan Orient has repurchased 2,419,500 common shares in 2020 at an average price of $0.61 per share, with 98,000 common shares repurchased in the third quarter of 2020 at an average price of $0.61 per share.
• Pan Orient retains a strong financial position with working capital and non-current deposits of $26.4 million and no long-term debt at September 30, 2020. In addition, the Thailand Joint Venture has $3.5 million in working capital and long-term deposits, net to Pan Orient’s 50.01% equity interest, and Thailand funds flow from operations are expected to fund remaining exploration and development activities at Concession L53.

OUTLOOK

THAILAND

Concession L53 Onshore (Pan Orient Energy (Siam) Ltd., in which Pan Orient has 50.01% ownership)

The focus for the remainder of 2020 will be on development activities in Thailand, growing our cash balance by maximizing funds generated from Thailand operations and on achieving full recognition of L53-DD field oil reserves in the year-end 2020 independent third party reserves report.  No further exploration drilling is anticipated in 2020 given the current oil price environment.

CANADA

Corporate

Pan Orient is committed to maintaining a strong cash position during these uncertain times while continuing to seek out and evaluate compelling opportunities.

COVID-19 Coronavirus

The operations in Thailand of Pan Orient Energy (Siam) Ltd. (“POS”) continue to be somewhat affected by the worldwide COVID-19 coronavirus pandemic.  The Thailand government imposed a state of emergency in late March, giving it wide-ranging powers to address the crisis.  Domestic travel restrictions have now been eased but a travel ban on most foreigners entering Thailand remains in effect.  Overall, the infection and death rate has been much lower in Thailand than in most western nations.

Prudent measures have been taken by POS to help protect the health and safety of staff, which are of paramount importance.  Fortunately, POS has so far been able to proceed with its 2020 Thailand drilling program.  POS and Pan Orient are well-positioned to withstand these unprecedented events.  The Company is optimistic about a return to normal operations and less volatile market conditions but the outlook for world oil prices remains somewhat uncertain.

Pan Orient is a Calgary, Alberta based oil and gas exploration and production company with operations currently located onshore Thailand and Western Canada.

[/expand]