Palliser Oil & Gas reports second quarter 2012 results, increased credit facility, record production and funds flow, and executive appointment
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CALGARY, Aug. 9, 2012 /CNW/ - Palliser Oil & Gas Corporation ("Palliser" or the "Company") (TSXV: PXL) is pleased to report the financial and operating results for the three and six months ended June 30, 2012. Certain selected financial and operational information are set out below and should be read in conjunction with Palliser's interim financial statements complete with the notes to the financial statements and related MD&A which is available at www.sedar.com and the Company's website at www.palliserogc.com.
| HIGHLIGHTS - Three and six months ended June 30, 2012 and 2011 (unaudited) | |||||||||||||||
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||
| 2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||
| Operating | |||||||||||||||
| Wells drilled, re-entered or reactivated (gross and net) | |||||||||||||||
| Oil | 4 | - | - | 6 | 5 | 20% | |||||||||
| Salt water disposal | 1 | - | - | 2 | - | - | |||||||||
| Total | 5 | - | - | 8 | 5 | 60% | |||||||||
| Success (%) | 100% | - | - | 88% | 100% | -12% | |||||||||
| Undeveloped land Greater Lloydminster (net acres) | 23,617 | 17,624 | 34% | 23,617 | 17,624 | 34% | |||||||||
| Undeveloped land Medicine Hat (net acres) | 29,042 | 29,544 | -2% | 29,042 | 29,544 | -2% | |||||||||
| Total undeveloped land (net acres) | 52,659 | 47,168 | 12% | 52,659 | 47,168 | 12% | |||||||||
| Average daily production | |||||||||||||||
| Crude oil (bbl per day) | 1,877 | 1,173 | 60% | 1,810 | 1,160 | 56% | |||||||||
| Natural gas (Mcf per day) | 390 | 322 | 21% | 383 | 319 | 20% | |||||||||
| Barrels of oil equivalent (boe per day, 6:1) | 1,942 | 1,227 | 58% | 1,874 | 1,213 | 54% | |||||||||
| Crude oil production (%) | 97% | 96% | 1% | 97% | 96% | 1% | |||||||||
| Average sales prices | |||||||||||||||
| Crude oil ($ per bbl) | $ | 60.67 | $ | 73.33 | -17% | $ | 65.50 | $ | 67.05 | -2% | |||||
| Natural gas ($ per Mcf) | $ | 1.80 | $ | 3.87 | -53% | $ | 1.97 | $ | 4.36 | -55% | |||||
| Barrels of oil equivalent ($ per boe, 6:1) | $ | 59.00 | $ | 71.68 | -18% | $ | 63.79 | $ | 65.33 | -2% | |||||
| Operating netback ($ per boe) | |||||||||||||||
| Petroleum and natural gas revenue | $ | 59.00 | $ | 71.68 | -18% | $ | 63.79 | $ | 65.33 | -2% | |||||
| Realized gain on financial derivatives | $ | 3.53 | $ | - | - | $ | 0.72 | $ | - | - | |||||
| Royalties | $ | 12.69 | $ | 18.26 | -31% | $ | 14.37 | $ | 16.14 | -11% | |||||
| Production & operating expenses | $ | 21.75 | $ | 31.56 | -31% | $ | 24.05 | $ | 31.15 | -23% | |||||
| Operating netback (1) | $ | 28.09 | $ | 21.86 | 28% | $ | 26.09 | $ | 18.04 | 45% | |||||
| Financial ($000's except per share amounts) | |||||||||||
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| 2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||
| Oil and natural gas revenue | $ | 10,428 | $ | 7,991 | 30% | $ | 21,756 | $ | 14,342 | 52% | |
| Funds flow from operating activities (2) | $ | 3,666 | $ | 1,435 | 155% | $ | 6,366 | $ | 1,591 | 300% | |
| Per share - basic and diluted | $ | 0.07 | $ | 0.03 | 133% | $ | 0.12 | $ | 0.04 | 200% | |
| Income (loss) and | |||||||||||
| comprehensive income (loss) | $ | 4,538 | $ | (333) | - | $ | 5,139 | $ | (1,578) | - | |
| Per share - basic and diluted | $ | 0.08 | $ | (0.01) | - | $ | 0.09 | $ | (0.04) | - | |
| Weighted average shares outstanding | 54,130 | 43,004 | 26% | 54,130 | 40,194 | 35% | |||||
| Shares outstanding | 54,130 | 43,004 | 26% | 54,130 | 40,194 | 35% | |||||
| Capital expenditures (3) | $ | 6,491 | $ | 5,196 | 25% | $ | 15,597 | $ | 23,731 | -34% | |
| Working capital (net debt) (4) | $ | (30,098) | $ | (12,359) | 144% | $ | (30,098) | $ | (12,359) | 144% | |
| Shareholder's equity | $ | 45,698 | $ | 36,207 | 26% | $ | 45,698 | $ | 36,207 | 26% | |
| (1) | Operating netback is a non-IFRS measure and is the net of petroleum and natural gas sales, realized gain or loss on financial derivatives, royalties and production & operating expenses. | ||
| (2) | Funds flow from operating activities is a non-IFRS measure that represents income and comprehensive income before non-cash items such as depletion, depreciation, and amortization, accretion expense, share-based compensation, deferred tax and decommissioning liability. Per share amounts are calculated using weighted average shares outstanding consistent with the calculation of net income per share. Funds flow from operating activities is a key measure as it demonstrates the Company's ability to generate the funds necessary to achieve future growth through capital investment. This table also contains other industry benchmarks and terms, such as working capital (calculated as current assets less current liabilities) and operating netbacks (calculated on a per unit basis as production sales less royalties, transportation and operating costs), which are not recognized measures under IFRS. Management believes these are useful supplemental measures of, firstly, the total net position of current assets and current liabilities of the Company and secondly, the profitability relative to commodity prices. Other entities may calculate these figures differently than Palliser. | ||
| (3) | Capital expenditures exclude decommissioning liability costs and capitalized share-based compensation. | ||
| (4) | Working capital (net debt) is a non-IFRS measure representing the total bank loan, accounts payable and accrued liabilities, less accounts receivable, deposits and prepaid expenses. |
Report to Shareholders
Palliser Oil & Gas Corporation ("Palliser" or the "Company") is pleased to report to shareholders on the Company's activities in the second quarter of 2012.
Second Quarter 2012 Operational Highlights
- Achieved 13 consecutive quarters of production growth;
- Increased average production to 1,942 boe/d, 59% higher than 1,225 boe/d in Q2 2011 and 8% higher than 1,806 boe/d in Q1 2012;
- Improved production and operating expenses to $21.75/boe, 31% lower than $31.56/boe in Q2 2011 and 18% lower than $26.52/boe in Q1 2012;
- Increased operating netbacks to $28.09/boe, 28% higher than $21.86/boe in Q2 2011 and 17% higher than $23.93 in Q1 2012;
- Increased funds flow from operating activities to $3.7 million ($0.07/share), 164% higher than Q2 2011 and 36% higher than $2.7 million in Q1 2012;
- Recorded income of $4.5 million compared to a loss of $0.3 million in Q2 2011;
- Executed a $6.5 million capital program, which included drilling and re-activating four heavy oil wells with 100% success; drilling one salt water disposal well; commissioning one new salt water disposal facility; and tying-in two producing heavy oil wells into Company-owned salt water disposal infrastructure;
- Increased the Company's prospect inventory of drilling, re-entries and reactivations to 160 locations at the end of the second quarter; and
- Expanded the Company's undeveloped heavy oil land position to 23,617 net acres, a 20% increase from 19,618 net acres in Q1 2012.
Operations
Palliser achieved record production of 1,942 boe/d (97% oil weighting) during the second quarter of 2012, representing 13 consecutive quarters of production growth. Capital expenditures amounted to $6.5 million in the second quarter, bringing expenditures for the first half of 2012 to $15.6 million, or just over half of our $30 million capital budget for 2012. The first half of the year has been largely focused on salt water disposal infrastructure, allowing operating costs to continue to trend lower, with second quarter 2012 operating costs of $21.75/boe as compared to $26.52/boe in the first quarter of 2012.
Despite wet weather, Palliser accomplished most of its budgeted projects for the second quarter. At Edam, one new salt water disposal well was drilled, providing sufficient spare capacity to handle multiple future heavy oil wells. One new well was also re-entered for heavy oil production during the quarter. At Lloydminster, one new salt water disposal facility was commissioned and brought into service during the quarter. Two new heavy oil wells were also reactivated, with one of these wells being tied into the new facility. At Manitou, one new well was drilled, and one additional well was tied into existing salt water disposal infrastructure. All four new wells were cased for heavy oil production, resulting in a 100% success rate.
Outlook
Over the past year, we have transitioned from the test phase of high volume lift ("HVL") to the development and manufacturing phase of HVL. Entering 2011, we had no salt water disposal infrastructure, and today we have a total of six salt water disposal facilities, ten salt water disposal wells, and 34 heavy oil wells tied in to these facilities. Nearly 60% of our producing heavy oil wells are tied into these facilities, in nine high volume lift 'PODs'. This 100% owned and operated infrastructure has allowed us to make significant progress towards realizing the potential of our high volume lift focus.
Over the past year, quarterly production has grown by 59% to 1,942 boe/d, operating costs have improved by 31% to $21.75/boe, funds flow from operating activities has increased by 164% to $3.7 million, and the Company posted net income of $4.5 million versus a net loss in the second quarter of last year.
The focus in the second quarter of 2012 was on continued expansion of salt water disposal infrastructure, resulting in all of our high water rate wells now being tied-in directly to Palliser operated salt water disposal facilities. We are now at a point where we expect to begin to prove top tier return on investment with our high volume lift methodology, by increasing historical recovery factors in an operationally efficient manner.
While building a solid track record with 13 consecutive quarters of production growth, we have also amassed an inventory of 160 unbooked locations within our core heavy oil area, equating to approximately six years of future inventory at the current pace. We see significant scope to continue to expand our heavy oil operations by taking advantage of the knowledge base we have been developing, and applying it to numerous additional pools within the greater Lloydminster area.
Although the majority of the capital program spent in the first half of 2012 has been focused on salt water disposal infrastructure (with only six heavy oil wells drilled or re-activated), current production levels have climbed to approximately 2,300 boe/d based on field estimates. With the majority of our 2012 drilling and reactivation program ahead of us, we believe we are on track to meet previously announced exit production guidance (December 2012 average) of 2,600 - 2,800 boe/d (98% oil weighting), with average daily production targeting the lower end of the guidance range of 2,250 - 2,350 boe/d.
Our third quarter capital program is underway, and to date we have drilled and reactivated two heavy oil wells, commissioned one additional salt water disposal well (from the cased non-productive well drilled in the first quarter of 2012), and tied-in two additional wells into Palliser salt water disposal infrastructure.
With additional infrastructure now in place, operating costs are trending down as anticipated, and we are on track to meet our target $22.88/boe average for the year. Based on our production forecast and pricing assumptions (with current hedges in place), we anticipate a 50% increase in operating netbacks year-over-year to average approximately $28.00/boe in 2012.
Subsequent to quarter end, Palliser's credit facility was increased from $38.0 million to $43.0 million. At June 30, 2012, net debt totalled $30.1 million. Based on current commodity prices, and a $30.0 million capital program funded through existing credit facilities and funds flow from operating activities, net debt at year-end 2012 is forecasted to be in the range of 1.3 - 1.7 times fourth quarter annualized funds flow from operating activities.
To reduce cash flow risk from commodity price volatility, we have hedged approximately 50% of budgeted production volumes for the second half of 2012, and comparable volumes have also been hedged for the first half of 2013. These hedged volumes are at prices in the range of $10 - $15/bbl higher than current market prices, which provides the Company with greater cash flow support to offset weaker commodity prices.
Despite oil prices being down 14% compared to the first quarter of 2012, operating netbacks in the second quarter were up 17% on a per boe basis as a result of our strong operating cost improvements and hedge position. Similarly, production grew 8% from the first quarter of 2012, funds flow from operations grew 36%, and net income grew 651% over the three month period.
Executive Appointment
Palliser is pleased to announce the appointment of Mr. Allan Carswell to the position of President and Chief Operating Officer. Mr. Carswell has been with Palliser for six years, most recently as Vice President Exploration and Chief Operating Officer, and has played an instrumental role in the successful growth of the Company. Mr. Kevin Gibson will remain fully engaged in the Company's activities and continue to provide leadership to Palliser in his role as Chief Executive Officer.
We would like to pay tribute to our employees for their valuable contributions to Palliser's continued success and extend our thanks to our shareholders for their ongoing support. We look forward to delivering continued production growth and increased profitability in order to maximize value for our shareholders.
On behalf of the Board of Directors,
| "Signed" | "Signed" |
| Kevin Gibson | Allan B. Carswell |
| Chief Executive Officer | President and Chief Operating Officer |
| August 9, 2012 | |
| Calgary, Alberta |
For further information regarding Palliser Oil & Gas Corporation, the reader is invited to visit the Company's website at www.palliserogc.com.
Palliser is a Calgary-based emerging junior oil and gas company currently focused on heavy oil production in the greater Lloydminster area of both Alberta and Saskatchewan.
Forward-Looking Statements
Certain statements contained herein constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation, including, but not limited to management's assessment of future plans and operations, including: commodity focus; drilling plans and potential locations; expected production levels; development plans; reserves growth; production and operating sales and expenses; reservoir characteristics; the results of applying certain operational development techniques; certain economic factors; and capital expenditures. Forward-looking statements are typically identified by words such as "anticipate", "estimate", "expect", "forecast", "may", "will", "project" and similar words suggesting future events or performance or may be identified by reference to a future date. In addition, statements relating to oil and gas reserves and resources are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves or resources described, as the case may be, exist in the quantities predicted or estimated and can be profitably produced in the future. With respect to forward-looking statements herein, Palliser has made assumptions regarding, among other things; future capital expenditure levels; future oil and natural gas prices; "differentials" between West Texas Intermediate and Western Canadian Select benchmark pricing; future oil and natural gas production levels; future water disposal capacity; future exchange rates and interest rates; ability to obtain equipment and services in a timely manner to carry out development activities; ability to market oil and natural gas successfully to current and new customers; the impact of increasing competition; the ability to obtain financing on acceptable terms; and the ability to add production and reserves through development and exploitation activities. Although Palliser believes that the expectations reflected in the forward-looking statements contained herein, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included herein, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous risks and uncertainties that contribute to the possibility that the forward-looking statements will not occur, which may cause Palliser's actual performance and financial results in future periods to differ materially from any estimates or projections. Additional information on these and other factors that could affect Palliser's results are included in reports on file with Canadian securities regulatory authorities, including the Company's Annual Information Form, and may be accessed through the SEDAR website at www.sedar.com.
The forward-looking statements contained herein speak only as of the date hereof. Except as expressly required by applicable securities laws, Palliser does not undertake any obligation to, nor does it intend to, publicly update or revise any 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. In addition, readers are cautioned that historical results are not necessarily indicative of future performance.
Production volumes are commonly expressed on a barrel of equivalent ("BOE") basis whereby natural gas volumes are converted at a ratio of six thousand cubic feet to one barrel of oil. The intention is to convert oil and natural gas measurement units into one basis for improved analysis of results and comparisons with other industry participants. The term BOE may be misleading, particularly if used in isolation. The conversion ratio is based on an energy equivalent method and does not represent an economic value equivalency at the wellhead.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this Press release.
SOURCE: Palliser Oil & Gas Corporation
Kevin Gibson
CEO
[email protected]
(403) 209-5717
or
Allan B. Carswell
President and COO
[email protected]
(403) 209-5709
or
Ivan J. Condic
Vice President, Finance and CFO
[email protected]
(403) 209-5718
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