Petrobank Energy earns $3.73-million in Q1
2007-05-15 04:40 MT - News Release
Mr. John Wright reports
PETROBANK ANNOUNCES FIRST QUARTER RESULTS
Petrobank Energy & Resources Ltd. has released its financial results for the three months ended March 31, 2007.
Highlights of the first quarter of 2007 include:
-production increased by 26 per cent to 6,139 barrels of oil equivalent per day from 4,869 barrels of oil equivalent per day in the first quarter of 2006. Canadian business unit production increased by 17 per cent to 4,097 barrels of oil equivalent per day while production from the Latin American business unit increased by 51 per cent to 2,042 barrels of oil per day and in early May has increased to approximately 3,200 barrels of oil per day;
-capital expenditures were $72.6-million -- $31-million in Canada; $32.3-million in Latin America; and $9.3-million in the heavy oil business unit;
-funds flow from operations increased to $18.2-million, 59 per cent higher than the first quarter of 2006. On a per-diluted-share basis, funds flow from operations increased by 47 per cent to 25 cents in the first quarter of 2007 from 17 cents in the first quarter of 2006;
-recorded net income of $3.7-million, compared with $3.2-million in the same period a year earlier. On a per diluted-share basis, net income remained constant period over period at five cents per share. Continued to achieve positive results at the company's Whitesands Thai project;
-increased the estimated gross discovered resources of gross bitumen-in-place on its Whitesands oil sands leases by 63 per cent to 2.6 billion barrels and increased contingent recoverable bitumen resource by 21 per cent up to 799 million barrels;
-drilled 12 (10.5 net) successful conventional oil wells in Canada;
-achieved industry-leading results from Bakken horizontal wells;
-increased its land position on the Bakken light oil resource play by 132 per cent to 114,000 net acres;
on April 2, 2007, issued four million common shares at $21 per share for gross proceeds of $84-million;
-and on May 4, 2007, issued $250-million (U.S.) of 3-per-cent convertible notes.
Operational update
Heavy oil business unit
Resource delineation
In the first quarter of 2007, Petrobank drilled eight delineation wells on the Whitesands lands and increased the gross discovered resources of bitumen-in-place on the company's oil sands leases to 2.6 billion barrels, as estimated in a March, 2007, McDaniel & Associates Ltd. report. This represents a one-billion-barrel increase from the 1.6 billion barrels first announced in May, 2006. McDaniel Associates assigned a recoverable bitumen resource of up to 799 million barrels at March 1, 2007, which compares with 660 million barrels estimated at Dec. 31, 2006. Further drilling is expected to add additional recoverable volumes and since these reports have been based only on SAGD technology, the incorporation of the Thai process into this evaluation is also expected to materially increase future estimated recoverable bitumen resources.
Whitesands operations
Combustion operations continued on the first two well pairs during the first quarter. The preignition heating cycle (PIHC) began on the third well pair in late December, 2006, which was initially targeted for air injection by the end of the first quarter. Air injection operations on the third well pair were delayed by mechanical problems with the company's rental steam generator used in the PIHC. The repairs by the supplier took approximately six weeks to complete. The elapsed time of the PIHC for the third well, excluding the temporary steam generator downtime, should be similar to the second well pair and the company expects to be initiating air injection and in situ combustion shortly.
The company has been continuously injecting air on the first well since July 20, 2006, and on the second well since Jan. 10, 2007. During the first quarter, the first two well's unrestricted gross fluid production capability rates were demonstrated to be over 1,000 barrels per day each, with oil cuts over 50 per cent. Due to higher-than-anticipated sand production; however, the company has had to run the wells on a very low choke setting in order to achieve higher on stream factors through the surface facilities. A sand knock-out vessel was installed on the first well which has demonstrated that the sand can easily be removed from the produced fluids and enabled the company to design a larger vessel that would allow it to operate the wells at their demonstrated capacity. These facilities have been ordered for each of the three wells and are expected to be installed in the third quarter.
In addition to the retrofitting of the facilities for sand handling, the company has also initiated a debottlenecking and expansion engineering project to be able to process production from up to three additional well pairs anticipated to be drilled later this year. These wells will incorporate the Capri process in which an upgrading catalyst is added around the outside of the wellbore to enhance the upgrading of the oil in situ and a modified liner completion to reduce sand production. Lessons learned from the current project will be incorporated into the design of a 10,000-barrel-per-day facility. The company expects to be filing an application for the 10,000-barrel project in the third quarter of 2007.
Upgraded Thai oil
Some of the positive secondary benefits of the Thai process include the potential to upgrade the oil in situ and a higher quality of produced water. During the first quarter, the company began to see evidence of upgraded oil from both of the producing wells. While the majority of the company's early production remains similar to raw bitumen (500,000-centipoise, 7.6 API gravity), quality is variable, and the company's upgraded samples have ranged between viscosities of 2,000 to 75 centipoise with API gravities ranging between 10.6 degrees and 14.1 degrees. Asphaltenes were also significantly reduced and the content of light components increased compared with raw bitumen. The produced water has also been of a higher quality (low in total dissolved solids) and management believes that with minor additional processing it could be of a quality suitable for value- added industrial use. The combination of oil and water quality has also led to cleaner oil/water separation and a lack of difficulties associated with treating the produced fluids.
Increasing Whitesands ownership
On May 11, 2007, the minority shareholder of the company's Whitesands Insitu Ltd. subsidiary exercised their exchange right pursuant to the Whitesands unanimous shareholders agreement (USA). As a result, the company will acquire all of the remaining shares of Whitesands, increasing Petrobank's ownership from 84 per cent to 100 per cent, for $120-million. Petrobank has the option to finance the acquisition with cash or through a combination of cash and the issuance of Petrobank common shares. In the event Petrobank chooses to issue common shares to the minority shareholder to finance all or part of the acquisition, the issue price will be set at $22.496 per Petrobank common share, pursuant to the terms of the United States. The transaction is expected to close on or about June 11, 2007. The minority shareholder has also indicated that it is reserving all rights to challenge this valuation amount.
Canadian business unit
The Canadian business unit produced 4,097 barrels of oil equivalent per day in the first quarter of 2007 an increase of 17 per cent over the 3,513 barrels of oil equivalent per day produced in the first quarter of 2006. The majority of this increase relates to new Bakken light oil which continues to be brought on stream. In addition, the company completed the tie-in of several natural gas wells that were drilled in 2006, which contributed to this production increase. The Canadian business unit drilled 12 (10.5 net) successful oil wells during the quarter with the majority of the activity focused on the Bakken light oil resource play in southeast Saskatchewan.
Bakken light oil resource play
The Bakken formation is found in the Williston basin, underlying much of North Dakota, eastern Montana and extending up into Southern Saskatchewan. The Mississippian-aged Bakken is an extensive regional resource play with the oil contained mostly in siltstones and thin sandstone reservoirs with low porosity and permeability. The Bakken formation is capable of high initial production rates of sweet, light, 41-plus degree API gravity oil, and liquid-rich solution gas. This resource is significant with approximately 4.5 million barrels of original oil-in-place per section of land within the defined play area. The key to unlocking the potential in the Bakken has been recent advances in horizontal well techniques, particularly the application of new horizontal fracturing and completion technologies. Horizontal wells allow maximum exposure to the reservoir, and new completion techniques allow fracturing of the siltstone along the full extent of the wellbore to maximize production. These technologies have unlocked the production and recovery potential of the Bakken resource. The company's horizontal drilling and fracture stimulation technique allows it to avoid fracturing out of the Bakken zone, thereby minimizing associated high water production common in other recent Bakken horizontal wells, and thereby significantly improving Bakken oil productivity. Ultimately, the company expects this to lead to substantially improved recovery rates. Petrobank's independent reserve evaluator, Sproule Associates Ltd., currently assigns a proved-probable-plus-possible (3P) reserves estimate of 125,000 barrels per Bakken well. With the company's high initial production rates from the company's 100-per-cent working interest wells, it is producing in excess of the forecast-type curves used in this preliminary evaluation. Petrobank's internal estimate is that each Bakken well will recover 150,000 barrels. With continued positive Bakken results, the company anticipates updating the company's reserve evaluation later in 2007.
Following the success of the company's Bakken drilling program in late 2006, the company proceeded, in early 2007, to drill a series of exploration wells to extend the boundaries of the Bakken resource play prior to the major April, 2007, Saskatchewan Crown land sale. By the end of 2006, the company's land base on the Bakken light oil resource play stood at 62,448 (49,105 net) acres. Since the beginning of 2007, through Crown land sales and acquisitions, the company has increased its acreage to a total of 138,000 (114,000 net) acres. The majority of this increase was Crown land purchased at the April Crown land sale, where it spent $59.5-million to acquire 41,800 (41,800 net) acres. In addition, the company closed an acquisition of a 50-per-cent working interest in certain producing properties in the Viewfield/Stoughton area of southeast Saskatchewan, with extensive undeveloped acreage and an continuing farm-in with a third party, for $8.5-million. The acquisition included four (two net) Bakken horizontal oil wells that were producing at unstimulated rates of 80 (40 net) barrels of oil per day and 9,426 (4,813 net) acres of undeveloped land with the potential to earn a further 13,598 (6,799 net) acres with additional drilling. In a reserve report effective Dec. 31, 2006, McDaniel and Associates Consultants assigned total proved reserves of 251,000 barrels, and total proved-plus-probable reserves of 730,000 barrels, to these acquired lands. Recompletion of these wells using Petrobank's fracture stimulation technique is expected to significantly improve both production and reserves.
The company's Bakken results have allowed it to confidently pursue this land acquisition strategy, and an aggressive Bakken drilling program for 2007. Prior to spring breakup, the company's two rigs had drilled nine wells this year. The company has recently added two new drilling rigs bringing the company's active Bakken rig count to four with a goal to drill 60 Bakken wells by the end of the year. The expansion of the company's Bakken land base and the company's 2007 drilling program enable it to build critical operating mass in the area. This will allow it to optimize the company's facilities for production of oil and to recover significant volumes of solution gas and natural gas liquids, positively impacting the company's Bakken production and reserve base.
The majority of the company's Bakken land base is expected to yield four horizontal wells per section. Currently, the company estimates its Bakken drilling inventory at 550 (500 net) locations. With these recent acquisitions, the Bakken light oil resource play is expected to be the Canadian business unit's primary focus area in 2007 and for years to come. The company's highly effective Bakken drilling and stimulation program, along with the addition of a significant land base has strategically positioned Petrobank to be a key Bakken light oil player.
Additional Canadian business unit focus areas
In addition to the company's Bakken light oil asset, the company continues to develop its long-term legacy shallow gas and CBM asset at Jumpbush with an inventory of over 175 low-risk development drilling locations. Petrobank is also aggressively moving forward on new, potentially high-impact exploration prospects in two key areas of northwestern Alberta where it planned to test multizone oil and gas prospects with at least two exploration wells in 2007. The first of these two wells was recently completed and cased as a potential light oil well. This initial result has led to an expanded northwest Alberta drilling program and it now plans to drill at least two additional wells in this area by the end of 2007. Petrobank continues to leverage its large undeveloped land base into exciting new opportunities.
Latin American business unit
During the first quarter of 2007, the activities of Petrobank's Latin American business unit, operated through the company's 80.7-per-cent-owned subsidiary, Petrominerales Ltd., were focused on continuing development in Orito, and commencing the 2007 exploration drilling program in the Llanos basin.
First quarter 2007 production averaged 2,042 barrels of oil per day, compared with 1,356 barrels of oil per day in the first quarter of 2006 and 2,372 barrels of oil per day in the fourth quarter of 2006. The significant increase from the prior-year period is mainly due to the success of the Orito-117 and 118 completions at the end of the first quarter of 2006 which proved up a significant southwest extension to the Orito field. The decrease from the prior quarter is mainly a result of certain wells being shut in during the period for workovers, delays in bringing new production on-line and also due to natural declines. Of particular note, the Orito-118 well was offline for 38 days in the quarter while the field operator, Ecopetrol performed a pump replacement operation. Production in early May has now increased to approximately 3,200 barrels of oil per day.
Orito
Since closing the initial public offering at the end of the second quarter of 2006, Petrominerales has now drilled seven new wells at Orito, but was delayed in bringing production on-line due to limited access to equipment and services and downhole mechanical problems. Since the end of the first quarter, the company has now started to see the effects of this drilling program with increasing production. There is still one additional well awaiting completion and fracture stimulation and the company continues to optimize its recent production additions. Access to equipment, services and manpower remain a significant challenge for its operations group given the record activity levels in the Colombian oil industry. Upon completion of the Llanos basin drilling program, the company will have two drilling rigs working in the Putumayo basin, where it expects to continue to generate significant increases in production.
Neiva
At Neiva, production has increased as a result of the company's first phase of fracture stimulations along with initial success from the company's pilot waterflood program. Due to the results from these fracture stimulations, the company has considering deferring drilling the six wells the company had planned for the second half of 2007 in favour of performing additional fracture stimulations. Early results from its pilot waterflood show pressure and production response in nearby wells quicker than originally anticipated. Accordingly, it is also evaluating an expanded waterflood program that could be implemented by the end of 2007.
Two thousand seven exploration program
Petrominerales is in the process of executing a five-well 2007 exploration program with four wells in the Llanos basin and one well at Las Aguilas in the Putumayo basin adjacent to the Orito block.
Joropo block
The Ojo de Tigre 2 well on the Joropo block in the Llanos basin was initially drilled to a total depth of 8,309 feet and logged and evaluated. Based on the company's evaluation, and the geological and hydrocarbon indications in this initial well, a decision was made to side track to a more favourable bottom-hole location. This second well, Ojo de Tigre-2 Side-Track, was drilled to a total depth of 8,419 feet and was cased as a potential oil well. The well was cored through certain prospective intervals with indications of high-quality oil-bearing sands, which was confirmed by subsequent logs indicating a primary target with net oil pay in excess of 25 feet. The well was completed and initial production testing commenced, but was suspended with the onset of the rainy season. Initial test rates reached 450 barrels of fluid per day with a water cut of 20 per cent and a gravity of 29-degree API. The test interpretation indicated very high skin damage which was likely caused by the gravel pack completion. The company will be returning to remediate the skin damage and conduct further testing of the well after the end of the rainy season in late 2007 or early 2008. The ultimate size of the prospect will be determined through long-term production testing and follow-up drilling. Successful development of this discovery will most likely include upgraded surface access, which will support year-round production.
This initial result at Joropo is very encouraging as the company has only evaluated a very small part of the 72,257-acre Joropo block to date, and it has now submitted applications for two blocks adjoining Joropo totalling an additional 69,122 acres. These two blocks, Jabali and Jaguar, are in the final stage of negotiations with the ANH.
Casimena block
Drilling and logging operations were completed at the Mapuro-1 exploration well on the Casimena block in the Llanos basin, which was drilled to the planned depth of 8,530 feet. Logs indicated that the sands in the Tertiary Carbonera and Mirador formations as well as the Cretaceous Guadalupe, Gacheta and Ubaque formations are predominantly wet or contain non-commercial hydrocarbon accumulations. As a result, the Mapuro-1 well was plugged and abandoned. Despite the results from this first well, this area of the Llanos basin continues to be highly prospective and the company is in the process of identifying its next Casimena location which can be drilled early in 2008.
Casanare Este block
The Casanare Este-1 exploration well, was spudded on April 25, 2007, the company is currently drilling at 8,125 feet and the company expects to reach a total depth of 10,000 feet on this well in late May.
Corcel block
The Corcel-1 exploration well was spudded on April 8, 2007, the company is currently drilling at 9,929 feet and it expects to reach a total depth of 12,800 feet in mid-June. Upon completion of this well, the drilling rig will move to Orito to drill additional development wells and the Las Aguilas exploration well.
Exploration summary
The company has either executed or the company is finalizing 13 exploration block contracts totalling 1.5 million acres in the Llanos and Putumayo basins, making Petrominerales one of the largest exploration landholders in Colombia. To date, Petrominerales has acquired 357 square kilometres of 3-D seismic and reprocessed all available 2-D seismic data. The company now has 20 leads and prospects on these lands and in 2007, it plans to acquire an additional 190 square kilometres of 3-D seismic and 576 kilometres of reconnaissance 2-D seismic which are expected to result in an expanded exploration drilling program for 2008 and beyond.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(in thousands of dollars, except per-share amounts)
For the three months
ended March 31,
2007 2006
Revenues
Oil and natural gas $ 29,471 $ 21,593
Royalties (2,992) (3,208)
Interest income 81 71
Expenses 26,560 18,456
Production 4,497 2,726
Transportation 124 144
General and administrative 2,537 2,098
Stock-based compensation 1,090 471
Interest 136 1,516
Foreign exchange loss 117 79
Other 17 47
Depletion, depreciation and accretion 11,854 6,193
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20,372 13,274
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Income before taxes and non-controlling interests 6,188 5,182
Taxes 860 663
Future income taxes 1,161 1,277
Income before non-controlling interests 4,167 3,242
Income applicable to non-controlling interests 428 -
Net income 3,739 3,242
Retained earnings (deficit), beginning of period 19,030 (4,076)
Retained earnings (deficit), end of period 22,769 (834)
Basic and diluted earnings per share
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