BlackPearl Resources Inc. (TSX:PXX)(FIRST NORTH:PXXS) ("BlackPearl" or the "Company") is pleased to announce its financial and operating results for the three and nine months ended September 30, 2012.
Third quarter highlights include:
-- Oil and gas production averaged 9,340 boe/day in the third quarter, a
14% increase from 2011;
-- Blackrod pilot has performed in line with expectations, pilot to be
expanded with a second well pair to be drilled in Q1 2013;
-- Continued favourable response from the ASP (Alkali, Surfactant, Polymer)
flood at Mooney; total field production of 2,500 boe/day in Q3;
-- At Onion Lake, third quarter drilling activity identified additional
primary drilling locations and a potential extension to our planned SAGD
-- Revenues increased 12% to $50.1 million compared to Q3 2011;
-- Cash flow from operations increased 9% to $20.7 million in Q3 compared
with $18.9 million in Q3 2011 due primarily to higher production
-- No debt at September 30 and planned 2013 capital program fully funded
with existing credit facilities.
John Festival, President of BlackPearl, commenting on Q3 2012 activities, indicated that:
"We continued to move all of our projects forward during the quarter. The commercialization of the Blackrod SAGD project is rapidly moving ahead. We are assembling our project management team and will select EPC contractors in the next few weeks. Response from the Mooney ASP flood is very encouraging and gives us confidence we will be able to achieve our anticipated production levels for the flood during 2013. Production from Onion Lake continues to be our main source of operating cash flows and we will continue our conventional development program while we advance a thermal development plan.
Our next step is to put in place our financing strategy for the continued development of these projects, which we expect to finalize in the next few months."
Blackrod SAGD Pilot Project
The SAGD pilot continues to perform in-line with our expectations. The well has produced in excess of 100,000 barrels of oil since start-up and reached commercial production rates of over 400 barrels of oil per day in May. We took the well down for facility inspection and well servicing to re-configure the downhole set-up. The well was brought back on production in June. Now that we have confirmed the reservoir can perform at commercial rates we have begun testing alternate operating strategies in an effort to better understand the best way to operate these wells and potentially incorporate these strategies in the final commercial development design. Some of the items we have been testing since the well was brought back on production include changes to the steam delivery system to ensure uniform heat distribution, different pump types, and testing different steam chamber operating pressures.
We have received regulatory approval to expand our existing pilot and we are planning to drill the second horizontal well pair during the first quarter of 2013. This well will be drilled longer and deeper in the reservoir than the original horizontal well pair, which should have a positive impact on production rates and steam oil ratios compared to the first well pair which was only 700 metres long. The second well pair will closely follow the design anticipated for the first phase of commercial development. Optimal production strategies learned from operating the first well pair will be incorporated in this second well pair.
We are assembling our project management team for the construction of the first commercial phase of the Blackrod project. One of the initial decisions for the team is the selection of EPC (Engineering, Procurement and Construction) contractors for the project. The team is currently evaluating contractor proposals and expects to award the contracts before year-end.
Regulatory authorities are continuing to review our commercial development application which was filed in May. Typically, applicants receive an initial set of supplementary information requests (SIRs) several months after filing of the application. We expect to receive our first SIRs by year-end. While it is difficult to establish a project time line until regulatory approval is received, our current plans assume 2013 will include detailed engineering design and ordering of long lead time items, field construction will occur in 2014 and 2015, and first steam in the ground will occur in late 2015.
At Onion Lake, we drilled seven conventional wells in September. These wells will be completed and put on production in the fourth quarter. We also plan to drill an additional 11 wells during the remainder of 2012. This recent drilling has extended the pool to the south and has increased our primary drilling inventory in the area. In addition, some of the recent wells drilled indicated that the net pay is likely sufficient to extend our planned thermal SAGD development.
Regulatory authorities are continuing to review our 12,000 barrel per day SAGD commercial development application.
At Mooney, we continue to see favourable response from our ASP flood. Production during Q3 was 843 barrels of oil per day from the flood area. This represents an 11% production increase from Q2 2012 volumes and an increase of over 200% since the flood was initiated in 2011. Production from the ASP flood in November is now in excess of 1,200 barrels of oil per day. We expect production to continue to ramp-up, with peak production levels of 3,000 to 4,000 barrels per day sometime during 2013.
New activity on the Phase 2 lands was limited in Q3 as a result of wet weather. However, we plan to drill 15 to 20 horizontal wells on these lands in Q4 and the first quarter of 2013. A portion of these lands could be added to the existing ASP flood as early as Q4 2013.
In addition, the construction of the heavy oil processing facility to handle the increasing fluid volumes from the Mooney area was commissioned in September.
The Alberta government has indicated that it is considering the adoption of a new royalty scheme for EOR projects in the province. Our initial evaluation of the proposed scheme is that it would be neutral or slightly positive for our Mooney project.
Oil and gas production averaged 9,340 boe (barrels of oil equivalent) per day in the third quarter of 2012, a 14% increase from the comparable quarter in 2011. The increase in production is mainly attributable to response from the ASP flood at Mooney and drilling last fall on the Phase 2 lands at Mooney. Production at Onion Lake during Q3 2012 was lower than the comparable quarter last year due to natural production declines
and limited new drilling to offset these declines.
As with a number of oil producers, BlackPearl has started to ship some of its Onion Lake and Mooney volumes by rail to the Gulf Coast and West Coast to avoid the pipeline bottlenecks, particularly in the US mid-continent, and improve our sales prices for our oil. Although shipping by rail is more expensive than shipping by pipeline, the improved sales price for our oil more than offsets the increase in transportation costs. Currently, BlackPearl is railing between 1,200 and 1,500 barrels of oil per day.
Three months ended Nine months ended
September 30, September 30,
(boe/day) 2012 2011 2012 2011
Onion Lake 5,889 7,065 6,313 6,092
ASP flood area 843 175 680 274
Non-flood areas 1,652 334 1,591 408
John Lake 624 401 547 320
Blackrod 318 49 289 16
Other 14 138 47 135
9,340 8,162 9,467 7,245
Oil and gas revenues increased 12% in the third quarter of 2012 to $50.1 million compared with $44.6 million in Q3 2011. The increase is primarily attributable to an 11% increase in oil and gas sales volumes in 2012 and a small increase in our wellhead sales price.
Our realized oil wellhead price was $60.76 per barrel in Q3 2012 compared with $59.87 per barrel in 2011, reflecting higher WTI reference oil prices in Q3 2012 compared with Q3 2011, partially offset by wider heavy oil differentials.
Operating costs were $16.99 per boe in Q3 2012 compared with $18.31 per boe in Q3 2011. The decrease is primarily a result of lower work-over and well servicing costs at Mooney and Onion Lake. Transportation costs increased significantly in the third quarter of 2012 compared to 2011 as a result of increased trucking costs of Mooney production to further delivery locations as a result of infrastructure constraints in the area and due to the movement of some barrels to rail loading facilities.
Cash flow from operations (before working capital adjustments) increased 9% in Q3 2012 to $20.7 million compared to $18.9 million in Q3 2011, primarily as a result of the increase in sales volumes and a slightly improved realized oil price.
Financial and Operating Highlights
Three months ended Nine months ended
September 30 September 30
2012 2011 2012 2011
Daily production / sales
Oil (bbl/d)(2) 9,259 8,077 9,408 7,049
Natural gas (mcf/d) 485 512 352 1,176
Combined (boe/d)(1) 9,340 8,162 9,467 7,245
Product pricing ($)
Crude oil - per bbl 60.76 59.87 62.73 62.18
Natural gas - per mcf 2.20 4.10 2.16 3.91
Combined - per boe 60.34 59.70 62.41 61.46
Oil and gas revenue - gross 50,081 44,564 156,956 121,283
Royalties ($/boe) 13.05 13.82 13.80 15.84
Transportation costs ($/boe) 3.07 0.31 2.67 0.49
Operating costs ($/boe) 16.99 18.31 17.79 17.80
Net income (loss) for the
period 530 (51) 4,322 3,407
Per share, Basic 0.00 0.00 0.02 0.01
Diluted 0.00 0.00 0.01 0.01
Cash flow from operating
activities, before working
capital adjustments 20,678 18,924 64,027 49,355
Capital expenditures 28,991 40,499 104,913 135,660
Working Capital, end of
period 1,394 64,167 1,394 64,167
Long term debt - - - -
Shares outstanding, end of
period 285,401,346 284,732,011 285,401,346 284,732,011
(1) 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.
(2) Includes production from the Blackrod SAGD pilot.
In 2013, we have planned a capital expenditure program of between $140 and $160 million. Over 40% of the budget will be at Blackrod, where we will expand the pilot with a second well pair, commence detailed engineering for the project and order long lead-time equipment for the commercial processing facility. At Mooney we will continue development of the phase 2 lands with 20 to 25 horizontal wells planned to be drilled and we will upgrade the road and pipeline infrastructure on these expansion lands. We expect these lands will then be converted to ASP flood injection late in 2013 or early 2014. At Onion Lake we will continue primary development and drill 20 to 30 vertical wells and upgrade the water handling facilities.
It is expected that this capital program will be funded from anticipated cash flow from operations and the Company's undrawn credit facilities of $115 million. We have a lot of flexibility in our capital program and can adjust capital spending if required. In 2013, we also expect to put our longer term financing strategy in place to fund the first phase of development at Blackrod.
Exit production levels for 2013 are expected to be between 11,000 and 12,000 boe per day, 10 - 20% higher than 2012. The most significant increase in production is expected to come from the response of phase one of the ASP flood at Mooney and additional conventional production from phase 2 lands.
Cash flow from operations is expected to be between $75 and $85 million, using a WTI oil reference price of US$88 per barrel. Operating costs will increase as we expect to begin expensing the Mooney polymer injection costs sometime in 2013 which, to date, have been capitalized during the re-pressurization phase of the ASP flood.
The 2012 third 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).
This news release includes terms commonly used in the oil and natural gas industry, such as cash flow and cash flow from operations which represent cash flow from operating activities expressed before changes in non-cash working capital. These terms are used by the Company to analyze operating performance, leverage and liquidity and to provide shareholders and investors with additional information to measure the Company's performance and efficiency and its ability to fund a portion of its future activities and to service any long-term debt if incurred in the future. These terms do not have standardized meanings prescribed by GAAP and therefore may not be comparable with the calculation of similar measures by other entities. Consequently, these are referred to as non-GAAP measures.
This news 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 historical fact are forward-looking statements. Forward-looking information typically contains statements with words such as "anticipate", "believe", "plan", "target", "continuous", "estimate", "expect", "may", "will", "project", "should", or similar words suggesting future outcomes. In particular, this document contains forward-looking statements pertaining to the potential production of the Blackrod SAGD pilot well, determination of commercial rates for the Blackrod project, anticipated timing for the design and construction of the first phase of the Blackrod SAGD project, potential new drilling locations and expansion of thermal development from the recent drilling activity at Onion Lake, timing and potential production from the Mooney ASP flood, timing to finance capital expenditure programs and the guidance information included in the Outlook section above.
Statements relating to reserves and contingent resources are forward-looking, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and contingent resources described exist in the quantities predicted or estimated and can profitably be produced in the future.
Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward-looking statements will not occur. 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.
With respect to forward-looking statements contained in this press release, management has made assumptions regarding future production levels; future oil and natural gas prices; future operating costs; timing and amount of capital expenditures; the ability to obtain financing on acceptable terms; availability of skilled labour and drilling and related equipment; general economic and financial market conditions; continuation of existing tax and regulatory regimes; 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 very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and risks that the goals or figures contained in forward-looking statements will not be achieved. These factors 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, substantial capital requirements, 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, potential cost overruns, variations in foreign exchange rates, diluent supply shortages, competition for capital, equipment, new leases, pipeline capacity and skilled personnel, uncertainties inherent in the SAGD bitumen 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.
Further information regarding these risk factors may be found under "Risk Factors" in the Annual Information Form. Readers are cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate at the time of preparation, may prove to be incorrect. Accordingly, readers are cautioned that the actual results achieved will vary from the information provided herein and the variations could be material. Readers are also cautioned that the foregoing list of factors is not exhaustive. Consequently, there is no representation by the Corporation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained in this report are made as of the date hereof, and the Corporation 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.
BlackPearl Resources Inc.
President and Chief Executive Officer
BlackPearl Resources Inc.
Chief Financial Officer
(403) 265-8324 (FAX)