BNK Petroleum Inc. Announces Third Quarter 2019 Results with Positive Net Income

All amounts are in U.S. Dollars unless otherwise indicated:

TSX ticker symbol; BKX
OTCQX ticker symbol; BNKPF

CAMARILLO, CA, Nov. 7, 2019 /CNW/ -

THIRD QUARTER HIGHLIGHTS

• Average production for the third quarter of 2019 was 1,341 BOEPD, compared to third quarter 2018 average production of 1,534 BOEPD, which was a decrease of 13%. Average production for the third quarter of 2019 was only 1% lower than the second quarter 2019 production. The decrease compared to the prior year quarter was primarily due to normal production decline for existing wells
• Net income for the third quarter of 2019 was $1.4 million compared to net income of $1.2 million in 2018. The Company had an unrealized gain on financial commodity contracts of $1.3 million in the third quarter of 2019, compared to an unrealized loss of $0.2 million in the third quarter of 2018
• General & administrative expenses decreased by 8% for the third quarter of 2019 compared to the third quarter of 2018. The decrease relates to management's continued efforts to reduce costs throughout the Company and the adoption of IFRS 16 which lowered rent expense
• Adjusted funds flow was $2.2 million in the third quarter 2019 compared to $3.9 million in the third quarter of 2018, which was a decrease of 42%. The decrease was mainly due to lower revenue caused by lower production and lower average prices
• Revenue, net of royalties was $4.1 million in the third quarter of 2019 compared to $6.8 million for third quarter of 2018, which was a decrease of 40%, as production decreased by 13% and average prices decreased 26% between the quarters
• Average netback from operations was $25.69 per barrel for the third quarter of 2019, which was a decrease of 33% from the prior year third quarter due to lower prices in 2019
• During the third quarter of 2019, the Company paid down $2.5 million of the outstanding amount on its BOK Financial credit facility to reduce the outstanding balance to $27.5 million
• At September 30, 2019, cash totaled $2.1 million

BNK's President and Chief Executive Officer, Wolf Regener commented:

"We are pleased with the performance of our field in the third quarter of 2019 as production has only declined by 13% from the prior year third quarter and only 1% from the second quarter of 2019 as the WLC 14-1H well that was shut-in came back on production in August and we were able to recover about 70% of the lost production.  The Company generated net income of $1.4 million and adjusted funds flow of over $2.2 million during the quarter even though our capital expenditures for the first nine months of 2019 totaled only $1.3 million.  Also, the Company continued to reduce its G&A overhead by over 8% in the third quarter.  The Company is expected to continue to generate positive cash flow for the remainder of the year and into 2020.

In the third quarter of 2019, the Company generated net income of $1.4 million compared to net income of $1.2 million in the third quarter of 2018.  This included an unrealized gain on financial commodity contracts of $1.3 million in the third quarter of 2019, compared to unrealized loss of $0.2 million in the third quarter of 2018.

The Company's G&A expenses decreased by 8% due to continued cost cutting at the Company and the implementation of the new lease accounting standard which lowered the Company's rental expense in 2019. 

Average production for the third quarter of 2019 decreased by 13% to 1,341 BOEPD, compared to third quarter 2018 average production of 1,534 BOEPD. Average production for the third quarter of 2019 was only 1% lower than the second quarter 2019 production as the WLC 14-1H well came back on production in August and the Company was able to recover approximately 70% of the lost production.  The decrease compared to the prior year quarter was primarily due to normal production decline for existing wells.

Net revenue decreased by 40% in the third quarter of 2019 and adjusted funds flow decreased by 42% to $2.2 million in the third quarter 2019 compared to $3.9 million in the third quarter of 2018 due to production and price decreases.

Average netbacks from operations for the third quarter of 2019 were $25.69 per boe, a decrease of 33% compared to the prior year due to lower prices and decreased production."

		Third Quarter			First Nine Months
		2019	2018	%	2019	2018	%
Net Income (Loss):
$ Thousands		$1,420	$1,184	20%	$1,474	$(111)	-
$ per common share		$0.01	$0.01	-	$0.01	$(0.00)	-
assuming dilution
Capital Expenditures		$195	$2,188	(91%)	$1,310	$13,771	(90%)
Average Production (Boepd)		1,341	1,534	(13%)	1,397	1,700	(18%)
Average Price per Barrel		$41.87	$56.91	(26%)	$43.89	$53.78	(18%)
Average Netback from operations per Barrel		$25.69	$38.33	(33%)	$27.47	$35.39	(22%)
Average Netback after adjustments per Barrel		$24.63	$33.73	(27%)	$25.87	$28.16	(8%)
		September 2019		June 2019		December 2018
Cash and Cash Equivalents		$2,064		$2,855		$1,456
Working Capital		$(376)		$(598)		$(2,393)

Third Quarter 2019 versus Third Quarter 2018

Oil and gas gross revenues totaled $5,166,000 in the third quarter of 2019 versus $8,378,000 in the third quarter of 2018.  Oil revenues decreased $2,740,000 or 36% as oil production decreased by 19% to 955 boepd and average oil prices decreased by $14.77 per barrel or 21% to $54.41.  Natural gas revenues increased $27,000 or 18% to $178,000 as natural gas production increased 25% to 990 mcfpd, which was offset by an average natural gas price decrease of $0.12/mcf or 6% to $1.96/mcf.  Natural gas production for the third quarter of 2018 included prior period adjustments which decreased production by 565 mcfpd.  Natural gas liquids (NGLs) revenues decreased $499,000 or 71% as NGL production was the same in both periods while average NGL prices decreased 71% to $10.18.  NGL production for the third quarter of 2018 included prior period adjustments which increased production by 17 boepd.

Average third quarter 2019 production per day decreased 13% from the third quarter of 2018.  Production in the third quarter of 2018 included prior period adjustments which decreased production by 77 boepd.  The decrease was primarily due to the normal production decline of existing wells. 

Production and operating expenses decreased to $934,000 mainly due to lower production.  Production and operating costs on a boe basis decreased by 5% to $7.57/boe due to operating cost reductions.

Depletion and depreciation expense decreased $348,000 or 19% due to a decrease in production in the third quarter of 2019 and an increase in reserves from the prior year.

General and administrative expenses decreased $74,000 or 8% in the quarter due to continued cost cutting efforts and  lower rent expense from the adoption of IFRS 16.

Stock based compensation decreased by $30,000 or 53% due to the timing of stock awards granted to employees.

Finance income increased $1.3 million in the third quarter of 2019 compared to the third quarter of 2018 due to unrealized gains on commodity contracts in the third quarter of 2019.

Finance expense decreased by $0.9 million in the third quarter of 2019 compared to the prior year quarter primarily due to higher realized losses on commodity contracts in the third quarter of 2018.

During the third quarter of 2019, the Company paid down $2.5 million of the commitment amount on its BOK Financial credit facility to reduce the outstanding balance to $27.5 million.  BOK Financial is in the process of modifying the credit facility to amortize the amount outstanding down to $26.0 million by April of 2020.

FIRST NINE MONTHS 2019 HIGHLIGHTS

• Average production for the first nine months of 2019 was 1,397 BOEPD, a decrease of 18% compared to prior year first nine months average production of 1,700 BOEPD. Production for first nine months of 2018 included prior period adjustments which increased production by 122 boepd. The decrease was primarily due to the normal production decline of existing wells.
• Net income for the first nine months of 2019 was $1.5 million compared to net loss of $0.1 million for the first nine months of 2018. The 2019 amount included an unrealized gain on financial commodity contracts of $0.6 million and the 2018 amount included an unrealized losses on commodity contracts of $2.5 million
• General & administrative expenses decreased by 10% for the first nine months of 2019 compared to the first nine months of 2018. The decrease relates to management's continued efforts to reduce costs throughout the Company, the adoption of IFRS 16 which lowered rent expense and adviser fees incurred in 2018
• Adjusted funds flow was $7.3 million in the first nine months of 2019 compared to $10.3 million in the first nine months of 2018, a decrease of 28%. The decrease was mainly due to a 18% decrease in production combined with a 18% decrease in average prices
• Revenue, net of royalties was $13.3 million for the first nine months of 2019 compared to $18.6 million for the first nine months of 2018, a decrease of 29%, due to lower prices and decreased production
• Average netback from operations for the first nine months of 2019 was $27.47 per boe, a decrease of 22% from the prior year period due to lower production and prices in 2019
• Cash totaled $2.1 million at September 30, 2019

First Nine Months of 2019 versus First Nine Months of 2018

Gross oil and gas revenues totaled $16,739,000 in the first nine months of 2019 versus $23,724,000 in the first nine months of 2018, a decrease of 29%.  Oil revenues were $15,293,000 in the first nine months of 2019 versus $20,743,000 in the same period of 2018, a decrease of 26% as average oil prices decreased 17% or $10.91 a barrel and oil production decreased by 12%.  Natural gas revenues decreased $473,000 or 39%, due to an average natural gas production decrease of 46% in the first nine months of 2019 partially offset by an increase in natural gas prices of 13%.  Natural gas production for the first nine months of 2018 included an increase of 654 mcfpd related to prior period adjustments.  NGL revenue decreased $1,062,000, or 60%, due to a decrease in NGL production of 10% and an average NGL price decrease of 56% in the first nine months of 2019.  NGL production for the first nine months of 2018 included an increase of 16 boepd related to prior period adjustments.

Average production per day for the first nine months of 2019 decreased 18% from the prior year comparable period due to two additional wells added to production in 2018.  The production for the first nine months of 2018 also included an increase of 122 boepd related to prior period adjustments. The decrease was primarily due to the normal production decline of existing wells.

Production and operating expenses decreased 22% for the first nine months of 2019 mainly due to a decrease in production.  Operating expenses averaged $7.36 per BOE for the first nine months of 2019 compared to $6.79 per BOE for the same period in 2018.  The operating expense per BOE amounts for the first nine months of 2019 include the impact of a production tax increase in July 2018 which increased the first nine months of 2019 amount by $0.41 per boe compared to the prior year period.

Depletion and depreciation expense decreased $1,443,000 due to decreased production and an increase in reserves compared to the prior year.

General and administrative expenses decreased $274,000, or 10%, due to cost cutting efforts, lower rent expense from the adoption of IFRS 16 and advisor fees incurred in the first nine months of 2018.

Finance income increased $0.6 million due to unrealized gains on financial commodity contracts in 2019. 

Finance expense decreased $3.7 million due to realized losses of $0.6 million in 2019 compared to realized and unrealized losses of $4.4 million on commodity contracts in 2018.

BNK PETROLEUM INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited, Expressed in Thousands of United States Dollars)
($000 except as noted)
	September 30		December 31
	2019		2018
Current Assets   Cash	$2,064		$1,456
Trade and other receivables	1,903		2,965
Other current assets	679		609
Fair value of commodity contracts	636		407
	5,282		5,437
Non-current assets   Property, plant and equipment	155,828		159,122
Fair value of commodity contracts	351		-
Right of use assets	137		-
	156,316		159,122
Total Assets	$161,598		$164,559
Current Liabilities   Trade and other payables	$5,515		$7,830
Lease payable	143		-
	5,658		7,830
Non-current liabilities
Loans and borrowings	27,134		29,551
Asset retirement obligations	1,152		1,127
Fair value of commodity contracts	-		9
	28,286		30,687
Equity
Share capital	289,622		289,622
Contributed surplus	22,893		22,755
Deficit	(184,861)		(186,335)
Total Equity	127,654		126,042
Total Equity and Liabilities	$161,598		$164,559

BNK PETROLEUM INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited, expressed in Thousands of  United States dollars, except per share amounts)
($000 except as noted)
			Third Quarter				First Nine Months
			2019		2018		2019		2018
Oil and natural gas revenue, net		$	4,104		6,834		13,282		18,632
Other income			-		-		2		19
			4,104		6,834		13,284		18,651
Production and operating expenses			934		1,268		2,808		3,611
Depletion and depreciation expense			1,531		1,879		4,731		6,174
General and administrative expenses			811		885		2,548		2,822
Stock based compensation			27		57		121		279
			3,303		4,089		10,208		12,886
Finance income			1,263		-		597		-
Finance expense			(644)		(1,561)		(2,199)		(5,876)
Net income (loss)			1,420		1,184		1,474		(111)
Net income (loss) per share		$	0.01		0.01		0.01		(0.00)

BNK PETROLEUM INC.
THIRD QUARTER 2019
(Unaudited, expressed in Thousands of  United States dollars, except as noted)
		Third Quarter					First Nine Months
		2019			2018		2019		2018
Oil revenue before royalties	$	4,781		7,521			15,293		20,743
Gas revenue before royalties		178		151			739		1,212
NGL revenue before royalties		207		706			707		1,769
Oil and Gas revenue		5,166		8,378			16,739		23,724
Adjusted funds flow		2,233		3,875			7,332		10,253
Additions to property, plant & equipment		195		2,188			1,310		13,771
Statistics:		3rd Quarter					First Nine Months
		2019		2018			2019		2018
Average oil production (Bopd)		955		1,182			1,019		1,154
Average natural gas production (mcf/d)		990		789			1,024		1,901
Average NGL  production (Boepd)		221		220			207		229
Average production (Boepd)		1,341		1,534			1,397		1,700
Average oil price ($/bbl)		$54.41		$69.18			$54.96		$65.87
Average natural gas price ($/mcf)		$1.96		$2.08			$2.64		$2.33
Average NGL price ($/bbl)		$10.18		$34.89			$12.50		$28.35
Average price (Boe)		$41.87		$56.91			$43.89		$53.78
Royalties (Boe)		8.61		10.62			9.06		11.60
Operating expenses (Boe)		7.57		7.96			7.36		6.79
Netback from operations (Boe)		$25.69		$38.33			$27.47		$35.39
Price adjustment from commodity contracts (Boe)		(1.06)		(5.71)			(1.60)		(4.22)
Netback including commodity contracts (Boe)		24.63		32.62			25.87		31.17
Prior period adjustments (Boe)		-		1.11			-		(3.01)
Netback after adjustments (Boe)		$24.63		$33.73			$25.87		$28.16

The information outlined above is extracted from and should be read in conjunction with the Company's unaudited financial statements for the three and nine months ended September 30, 2019 and the related management's discussion and analysis thereof, copies of which are available under the Company's profile at www.sedar.com.

NON-GAAP MEASURES

Netback from operations, netback including commodity contracts, netback after adjustments, net operating income and adjusted funds flow (collectively, the "Company's Non-GAAP Measures") are not measures recognized under Canadian generally accepted accounting principles ("GAAP") and do not have any standardized meanings prescribed by GAAP. 

The Company's Non-GAAP Measures are described and reconciled to the GAAP measures in the management's discussion and analysis, which are available under the Company's profile at www.sedar.com.

Cautionary Statements

In this news release and the Company's other public disclosure:

(a)	The Company's natural gas production is reported in thousands of cubic feet ("Mcfs"). The Company also uses references to barrels ("Bbls") and barrels of oil equivalent ("Boes") to reflect natural gas liquids and oil production and sales. Boes may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
(b)	Discounted and undiscounted net present value of future net revenues attributable to reserves do not represent fair market value.
(c)	Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.
(d)	The Company discloses peak and 30-day initial production rates and other short-term production rates.  Readers are cautioned that such production rates are preliminary in nature and are not necessarily indicative of long-term performance or of ultimate recovery.

Caution Regarding Forward-Looking Information

This release contains forward-looking information including information regarding the proposed timing and expected results of exploratory and development work including production from the Company's Tishomingo field, Oklahoma acreage, expectations regarding cash flow, the Company's reserves based loan facility, expected hedging levels and the Company's strategy and objectives. The use of any of the words "target", "plans", "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. 

Such forward-looking information is based on management's expectations and assumptions, including that the Company's geologic and reservoir models and analysis will be validated, that indications of early results are reasonably accurate predictors of the prospectiveness of the shale intervals, that previous exploration results are indicative of future results and success, that expected production from future wells can be achieved as modeled, declines will match the modeling, future well production rates will be improved over existing wells, that rates of return as modeled can be achieved, that recoveries are consistent with management's expectations, that additional wells are actually drilled and completed, that design and performance improvements will reduce development time and expense and improve productivity, that discoveries will prove to be economic, that anticipated results and estimated costs will be consistent with managements' expectations, that all required permits and approvals and the necessary labor and equipment will be obtained, provided or available, as applicable, on terms that are acceptable to the Company, when required, that no unforeseen delays, unexpected geological or other effects, equipment failures, permitting delays or labor or contract disputes are encountered, that the development plans of the Company and its co-venturers will not change, that the demand for oil and gas will be sustained, that the Company will continue to be able to access sufficient capital through financings, credit facilities, farm-ins or other participation arrangements to maintain its projects, that the Company will continue in compliance with the covenants under its reserves-based loan facility and that the borrowing base will not be reduced, that funds will be available from the Company's reserves based loan facility when required to fund planned operations, that the Company will not be adversely affected by changing government policies and regulations, social instability or other political, economic or diplomatic developments in the countries in which it operates and that global economic conditions will not deteriorate in a manner that has an adverse impact on the Company's business and its ability to advance its business strategy.

Forward looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: any of the assumptions on which such forward looking information is based vary or prove to be invalid, including that the Company's geologic and reservoir models or analysis are not validated, anticipated results and estimated costs will not be consistent with managements' expectations, the risks associated with the oil and gas industry (e.g. operational risks in development, exploration and production; delays or changes in plans with respect to exploration and development projects or capital expenditures; the uncertainty of reserve and resource estimates and projections relating to production, costs and expenses, and health, safety and environmental risks including flooding and extended interruptions due to inclement or hazardous weather), the risk of commodity price and foreign exchange rate fluctuations, risks and uncertainties associated with securing the necessary regulatory approvals and financing to proceed with continued development of the Tishomingo Field, the Company or its subsidiaries is not able for any reason to obtain and provide the information necessary to secure required approvals or that required regulatory approvals are otherwise not available when required, that unexpected geological results are encountered, that completion techniques require further optimization, that production rates do not match the Company's assumptions, that very low or no production rates are achieved, that the Company will cease to be in compliance with the covenants under its reserves-based loan facility and be required to repay outstanding amounts or that the borrowing base will be reduced pursuant to a borrowing base re-determination and the Company will be required to repay the resulting shortfall, that the Company is unable to access required capital, that funding is not available from the Company's reserves based loan facility at the times or in the amounts required for planned operations, that occurrences such as those that are assumed will not occur, do in fact occur, and those conditions that are assumed will continue or improve, do not continue or improve and the other risks identified in the Company's most recent Annual Information Form under the "Risk Factors" section, the Company's most recent management's discussion and analysis and the Company's other public disclosure, available under the Company's profile on SEDAR at www.sedar.com.

With respect to estimated reserves, the evaluation of the Company's reserves is based on a limited number of wells with limited production history and includes a number of assumptions relating to factors such as availability of capital to fund required infrastructure, commodity prices, production performance of the wells drilled, successful drilling of infill wells, the assumed effects of regulation by government agencies and future capital and operating costs. All of these estimates will vary from actual results. Estimates of the recoverable oil and natural gas reserves attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of future net revenues expected therefrom, may vary. The Company's actual production, revenues, taxes, development and operating expenditures with respect to its reserves will vary from such estimates, and such variances could be material.  In addition to the foregoing, other significant factors or uncertainties that may affect either the Company's reserves or the future net revenue associated with such reserves include material changes to existing taxation or royalty rates and/or regulations, and changes to environmental laws and regulations. 

Although the Company has attempted to take into account important factors that could cause actual costs or results to differ materially, there may be other factors that cause actual results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. The forward-looking information included in this release is expressly qualified in its entirety by this cautionary statement. Accordingly, readers should not place undue reliance on forward-looking information.  The Company undertakes no obligation to update these forward-looking statements, other than as required by applicable law.

About BNK Petroleum Inc.
BNK Petroleum Inc. is an international oil and gas exploration and production company focused on finding and exploiting large, predominately unconventional oil and gas resource plays. Through various affiliates and subsidiaries, the Company owns and operates shale gas properties and concessions in the United States. Additionally the Company is utilizing its technical and operational expertise to identify and acquire additional unconventional projects. The Company's shares are traded on the Toronto Stock Exchange under the stock symbol BKX and on the OTCQX under the stock symbol BNKPF.

SOURCE BNK Petroleum Inc.

Wolf E. Regener, President and Chief Executive Officer [phone], Email: [email protected], Website: www.bnkpetroleum.com

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