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Press release from Marketwire

PetroBakken Announces Record Fourth Quarter Production of 48,007 boepd and Record Quarterly Funds Flow From Operations of $231 Million

Wednesday, March 07, 2012

PetroBakken Announces Record Fourth Quarter Production of 48,007 boepd and Record Quarterly Funds Flow From Operations of $231 Million06:30 EST Wednesday, March 07, 2012CALGARY, ALBERTA--(Marketwire - March 7, 2012) - PetroBakken Energy Ltd. (the "Company" or "PetroBakken") (TSX:PBN) is pleased to announce our fourth quarter and year-end 2011 financial and operating results.FINANCIAL & OPERATING HIGHLIGHTS (In this press release, annual comparisons are 2011 compared to 2010 and quarterly comparisons are fourth quarter 2011 compared to fourth quarter 2010 unless otherwise noted.)December 2011 production averaged 50,250 barrels of oil equivalent per day ("boepd"), exceeding our exit production guidance estimates and setting a new corporate benchmark. This is an 18% increase over December 2010. Fourth quarter production was 48,007 boepd (87% light oil and liquids weighted), a 23% increase over the third quarter of 2011. Our operating netback for the fourth quarter was $59.21/boe, an 18% increase over the third quarter of 2011. Record fourth quarter funds flow from operations was $231 million ($1.24 per basic share), a 52% increase over the third quarter of 2011. Proved plus probable ("2P") reserves increased by 19% to 203.5 million barrels of oil equivalent ("MMboe") at December 31, 2011, replacing 2011 production by 315%. Net capital expenditures totaled $909 million in 2011, with 88% of the program invested in drilling and completions. 293 (205 net) wells were drilled in 2011 with a 99% success rate. In late 2011, and early 2012, we implemented a number of initiatives which further improves our liquidity, with available credit capacity rising to more than $1.1 billion following the completion of our non-core Bakken asset disposition in mid-March. Summary of ResultsThree months ended December 31,Year ended December 31,2011201020112010Oil and natural gas revenue366,881258,3591,195,4761,008,556Funds flow from operations (1)231,428160,817710,162646,316Per share - basic ($)1.240.853.793.51Adjusted Net income(1)76,84940,401215,787150,623Per share - basic ($)0.410.211.150.82Net Capital Expenditures(1)239,481259,187909,169678,239Net debt (1)1,390,5631,015,7741,390,5631,015,774Dividends per share ($) Shares, end of period (000) (2)187,342187,140187,342187,140Operating netback ($/boe) (1) (3) (4)59.2148.1954.7647.76Average daily production (3) (boe)48,00741,33340,99841,688(1)Non-GAAP measure. See "Non-GAAP Measures" section. (2)Denotes basic common shares outstanding. (3)Six Mcf (thousand cubic feet) of natural gas is equivalent to one barrel of oil equivalent ("boe"). (4)Net of transportation expenses. OPERATING RESULTS Early in the year we faced a prolonged spring break-up due to extreme weather conditions, particularly in southeast Saskatchewan, which resulted in shut-in production, delayed operations and higher operating costs in the second and third quarters. However, during the later part of the third and fourth quarters we were able to restore shut-in production and continually execute our drilling program, allowing us to successfully drill, complete, and equip all the wells in the 2011 plan, including those that were previously delayed. Q4 2011 Drilling ActivityDrilledCompletedOn ProductionInventory(1)Business UnitGrossNetGrossNetGrossNetGrossNetBakken2315.84331.04128.510.3Conventional (SE SK)2111.82715.02914.673.1Cardium (central AB)3422.33825.75739.6158.0Alberta/BC44. refers to the number of wells pending completion and/or tie-in. We drilled 54 net wells and brought another 85 net wells on production in the fourth quarter. Production in the fourth quarter of 2011 averaged 48,007 boepd, representing a 23% increase over the third quarter, and a 16% increase from the fourth quarter of the prior year. With reduced drilling times, utilization of additional rigs and optimization of production, we achieved a monthly production record in December 2011 of 50,250 boepd. Our average production rate in 2011 was 40,998 boepd, essentially unchanged from 2010, largely due to prolonged weather related challenges in the second and third quarters. Total production for the year was 86% light oil and liquids weighted. Average Daily ProductionThree months ended December 31,Year ended December 31,Business UnitOil & NGL (bbl/d)Gas (Mcf/d)Total (boe/d)Oil & NGL (bbl/d)Gas (Mcf/d)Total (boe/d)Bakken21,4416,88222,58819,4566,22320,493Conventional (SE SK)6,3511,5676,6125,6911,4415,931Cardium (central AB)12,77115,64315,3788,90013,79211,199Alberta/BC1,09713,9913,4291,10913,5963,37541,66038,08348,00735,15635,05240,998Bakken Business Unit Update In 2011, operations in the Bakken generated free cash flow as we continued to develop this resource play. We drilled 101 (74 net) wells in the Bakken business unit, of which 47 net were bilateral wells, and achieved a 99% success rate. Our average production in the fourth quarter was 22,588 boepd. The Bakken business unit grew 2P reserves by 7% to 88.5 MMboe as of December 31, 2011, replacing 173% of 2011 production. While our operating costs were negatively impacted by weather in the second and third quarters, they were reduced to $9.11/boe in the fourth quarter, resulting in netbacks of $62.42/boe for the quarter. The business unit generated free cash flow of $130 million in 2011 (after all capital expenditures). We also continued to advance our enhanced oil recovery ("EOR") efforts through the initiation of five EOR projects in the Bakken that are currently at various stages of implementation. Early indications suggest the technology has the potential to increase recovery rates and further attenuate decline rates. Cardium Business Unit Update After accumulating substantial land holdings in central Alberta for Cardium formation rights in 2010, the focus of our Cardium business unit in 2011 was the development of these assets. Through a targeted capital program, production more than doubled through the year to average 15,378 boepd in the fourth quarter of 2011, with additional production behind pipe and awaiting tie-in to conserve solution gas. In 2011, we drilled 134 (96 net) wells in the Cardium business unit and increased 2P reserves by 66% to 72.2 MMboe, replacing 2011 production by 800%. The area will continue to be a key source of growth for us with a development drilling inventory of over 650 net locations, of which only 232 net locations have been booked in our year-end 2011 independent reserves report. We will continue to refine our drilling and completion methodologies as we constantly strive to increase production rates and lower costs. Other Activity The remainder of our 2011 production came from our southeast Saskatchewan Conventional business unit and our Alberta/BC business unit. Our southeast Saskatchewan Conventional business unit continued to provide strong individual well economics, and generated free annual cash flow in 2011 of over $40 million (after all capital expenditures). In 2011, we drilled 29 net wells in the area. In the third quarter of 2011, we also completed a facility upgrade improving our water handling and disposal to manage increased water production from our well optimizations. Our improved capacity provided an additional 425 boepd of production from existing wells and also allowed an opportunity for increased drilling activity in both our Bakken and conventional Mississippian plays. We anticipate that further additions to infrastructure in 2012 will continue to increase productive capacity. In our Alberta/BC business unit, we have assembled over 120,000 net acres in four potential new oil resource plays. Four horizontal test wells were drilled in the second half of 2011 to evaluate the potential of the Nordegg, Montney and Duvernay formations. All of these wells have indicated the presence of light oil. We will commence testing our Swan Hills play in the second half of 2012. In northeast British Columbia, we continue to maintain our land position but, given current natural gas prices, we have no short term growth or development plans in this area. FINANCIAL RESULTS Our production and operating netbacks resulted in funds flow from operations of $710 million ($3.79 per basic share) for 2011, a 10% increase over 2010. Fourth quarter funds flow from operations were $231 million ($1.24 per basic share), representing an increase of 44% over 2010 due to higher production and oil prices. 2011 net income was $209 million ($1.12 per basic share), a slight decrease compared to 2010 primarily due to increased cost pressures and production timing delays related to poor weather conditions, and a $50 million impairment charge. The impairment charge was caused by low natural gas prices and a lack of development activity in our northeast British Columbia natural gas assets. Net capital expenditures totaled $909 million in 2011, an increase of 34% from 2010. The increase in capital expenditures year over year was primarily a result of increased drilling and completion activity in the Cardium business unit and higher service costs. Company-wide drilling and completion costs were $802 million, representing 88% of our total net capital expenditures in 2011. In 2011, we paid $180 million in dividends compared to $177 million in 2010, having maintained a monthly dividend of $0.08 per share since the Company's inception. BALANCE SHEET MANAGEMENTSince the end of the third quarter of 2011, and continuing into early 2012, we have executed on a number of initiatives to increase our liquidity and capitalize on the value of our assets. In December 2011, we announced a Dividend Reinvestment Plan ("DRIP") that provides shareholders the opportunity to reinvest dividends in new shares at a five percent discount to market. The DRIP was implemented for the January 2012 dividend; payable in February. At the end of February, 35% of issued shares had subscribed to participate in the plan, which would reduce our cash outlay by over $60 million on an annual basis. On January 30, 2012, we completed a private placement of US$900 million of senior unsecured notes ("Notes"). The Notes bear interest at a rate of 8.625% per annum and mature on February 1, 2020. A portion of the proceeds were used to repurchase US$450 million of our convertible debentures at a price of US$99,000 per US$100,000 of principal amount, with the remaining proceeds, net of fees, applied against our credit facility. In conjunction with the Notes issuance, we exercised the accordion feature on our credit facility, which increased the borrowing limit by $150 million to $1.5 billion on January 31, 2012. On February 24, 2012, we completed the disposition of a minor working interest in the Weyburn Unit, for gross proceeds of $105 million, representing sales metrics of $25.85/boe (including 2P future development capital ("FDC") of $32 million) and $180,000/boepd. On February 16, 2012 we announced the disposition of approximately 2,900 boepd of non-core Southeast Saskatchewan Bakken assets for gross proceeds of $427 million, representing sales metrics of $47.13/boe (including 2P FDC of $67 million) and $147,250/boepd. This transaction is expected to close by mid-March 2012. Following the completion of these initiatives, we expect to have at least $1.1 billion of available liquidity, from diversified sources of credit with a layered maturity profile that better compliments the long term nature of our light oil focused assets. Our $1.5 billion revolving credit facility expires in 2014, and we anticipate having approximately $300 million drawn following the close of our non-core Bakken asset sale (our lending limit may be reduced by a maximum of $100 million to account for this asset sale, subject to review of our year-end reserves). In addition, we have US$300 million of convertible debentures that are due in 2016 (holders have a one day put right in February 2013 and we can elect to settle any exercised debenture with either cash or shares) and US$900 million of high yield debt that matures in 2020. SUMMARY, OUTLOOK & REVISED CAPITAL PLAN In 2011, we demonstrated our ability to execute and deliver results in the face of challenging operating conditions. Although the industry experienced unprecedented weather events and increased service costs, we were able to accelerate on and complete our 2011 program in the second half, resulting in a successful year where we achieved record funds flow from operations in the fourth quarter, exceeded our exit rate production guidance and grew our 2P reserves by 19% year over year.Mid-February production, based on field estimates prior to dispositions, was in excess of 49,000 boepd, up from our fourth quarter 2011 average production of approximately 48,000 boepd. Our Bakken business unit is currently producing in excess of 21,250 boepd (prior to the pending non-core asset disposition), and our Cardium business unit production exceeds 17,750 boepd, with the remainder of the production generated by our southeast Saskatchewan Conventional and AB/BC business units. Since the end of the fourth quarter we have drilled an additional 48 (33 net) wells, completed 55 (44 net) wells, and brought 28 (19 net) wells on production. We currently have 11 rigs operating, with six in southeast Saskatchewan and five in the Cardium. The 2012 capital plan is focused on the continued exploitation of our southeast Saskatchewan Bakken and conventional Mississippian assets, the development of our Cardium light oil properties in central Alberta and the continued exploration and development of our Alberta properties to leverage our significant undeveloped land base into new resource opportunities. Our 2012 capital plan is being updated as a result of the two asset dispositions and we plan to use a portion of the sales proceeds to increase our capital program by $175 million. The majority of the additional capital spending will be directed toward the Cardium play and, as a result of the increased capital expenditures we now expect 2012 exit production rates of between 52,000 boepd and 56,000 boepd. FOURTH QUARTER AND YEAR-END FINANCIAL & OPERATING TABLES The following table provides a summary of PetroBakken's financial and operating results for the three and twelve month periods ended December 31, 2011 and 2010. Consolidated financial statements with Management's Discussion and Analysis ("MD&A") is available on the Company's website at and will be available on the SEDAR website at months endedYear endedDecember 31,December 31,20112010% change20112010% changeFinancial ($000s, except where noted)Oil and natural gas revenue366,881258,359421,195,4761,008,55619Funds flow from operations (1)231,428160,81744710,162646,31610Per share- basic ($)1.240.85473.793.518- diluted ($)(2)1.130.80413.493.277Adjusted Net income(1)76,84940,40190215,787150,62343Per share- basic ($)0.410.21951.150.8240- diluted ($)0.410.21951.140.8141Net Capital expenditures(1)239,481259,187(8)909,169678,23934Total assets6,477,2825,865,005106,477,2825,865,00510Net debt (1)1,390,5631,015,774371,390,5631,015,77437Total debt(1)2,153,3131,761,724222,153,3131,761,72422Dividends44,99945,076-179,691177,2051 Per share ($)0.240.24-0.960.96-Payout ratio(1)19%28%-25%28%-Common shares, end of period (000) Basic187,342187,140-187,342187,140- Diluted(2)220,823215,0113220,823215,0113OperationsOperating netback($/boe except where noted) (1) (3) Oil and NGL revenue ($/bbl) (4)92.1375.192388.6572.7722 Natural gas revenue ($/Mcf) (4)3.443.96(13)3.924.227 Oil, NGL and natural gas revenue (4)82.6967.002379.3865.2822 Royalties12.519.842712.419.3433 Production expenses10.978.972212.218.1849 Operating netback59.2148.192354.7647.7615Average daily production (3) Oil and NGL (bbls)41,66034,7542035,15635,109- Natural gas (Mcf)38,08339,474(4)35,05239,473(11) Total (boe)48,00741,3331640,99841,688(2)(1)Non-GAAP measure. See "Non-GAAP Measures" section. (2)Consists of common shares, stock options, deferred common shares, and incentive shares on the same basis as net income. Convertible debentures have been included as at the period end date based on the conversion price as of that date. (3)Six Mcf (thousand cubic feet) of natural gas is equivalent to one barrel of oil equivalent ("boe"). (4)Net of transportation expenses. INVESTOR CONFERENCE CALL Management of PetroBakken will be holding a conference call for investors, financial analysts, media and any interested persons on Wednesday, March 7, 2011 at 9:00 a.m. (MST) (11:00 a.m. EST) to discuss PetroBakken fourth quarter and year-end financial and operating results.The investor conference call details are as follows:Live call dial-in numbers:416-340-8530 / 877-240-9772Replay dial-in numbers:905-694-9451 / 800-408-3053Replay pass code:4838524The live audio webcast link will be available at: Energy Ltd. is an oil and gas exploration and production company combining light oil Bakken and Cardium resource plays with conventional light oil assets, delivering industry leading operating netbacks, strong cash flows and production growth. PetroBakken is applying leading edge technology to a multi-year inventory of Bakken and Cardium light oil development locations, along with a significant inventory of opportunities in the Horn River and Montney gas resource plays in northeast BC. Our strategy is to deliver accretive production and reserves growth, along with an attractive dividend yield. Non-GAAP Measures.This press release contains financial terms that are not considered measures under IFRS, such as funds flow from operations, adjusted net income, funds flow per share, adjusted net income per share, payout ratio, net debt, total debt, operating netback and net capital expenditures. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders. Specifically, funds flow from operations reflects cash generated from operating activities before changes in non-cash working capital. Adjusted net income is determined by adding back any losses or deducting any gains on the derivative liabilities and adding back impairments. Payout ratio is determined as dividends paid as a percentage of funds flow from operations. Management considers funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, and payout ratio important as it helps evaluate performance and demonstrate the ability to generate sufficient cash to fund future growth opportunities, pay dividends and repay debt. Net debt includes bank debt outstanding plus accounts payable less accounts receivable and prepaid expenses. Total debt includes net debt plus the full value outstanding on the convertible debentures converted to Canadian dollars at the exchange rate on the period end date. Net debt and total debt are used to evaluate PetroBakken's financial leverage. Profitability relative to commodity prices per unit of production is demonstrated by an operating netback. Operating netback reflects revenues less royalties, transportation costs, and production expenses divided by production for the period. Net capital expenditures represent capital expenditures, including exploration and evaluation expenditures, less proceeds from asset dispositions. Funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, payout ratio, net debt, total debt, operating netbacks, and net capital expenditures may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations or other measures of financial performance calculated in accordance with IFRS. Further information in respect of these non-GAAP measures is set forth in our MD&A. Forward Looking Statements.Certain information provided in this press release constitutes forward-looking statements. Specifically, this press release contains forward-looking statements relating to financial results, results from operations, future production rates, proposed exploration and development activities, the potential for EOR projects, our drilling prospect inventory, the timing of certain projects and the proposed sale of non-core Bakken assets and the timing and use of proceeds thereof (the "Asset Sale") and our future debt levels and liquidity position. The forward-looking statements are based on certain key expectations and assumptions, including expectations and assumptions concerning the availability of capital, the success of future drilling, completion, recompletion and development activities, the performance of new and existing wells, prevailing commodity prices and economic conditions, the availability of labour and services, weather and access to drilling locations, the geological nature of the formations targeted and the ability of the parties to the Asset Sale to satisfy the conditions to the transaction and complete the sale. Although we believe that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because we can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, reliance on industry partners, availability of equipment and personnel, uncertainty surrounding timing for drilling and completion activities resulting from weather and other factors, changes in applicable regulatory regimes and health, safety and environmental risks), commodity price and exchange rate fluctuations, general economic conditions and risks that the proposed Asset Sale is not completed as a result of a failure to satisfy one of the conditions to the sale. Certain of these risks are set out in more detail in our Annual Information Form which has been filed on SEDAR and can be accessed at Except as may be required by applicable securities laws, PetroBakken assumes no obligation to publicly update or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.Natural gas volumes have been converted to barrels of oil equivalent ("boe"). Six thousand cubic feet ("Mcf") of natural gas is equal to one barrel of oil equivalent based on an energy equivalency conversion method primarily attributable at the burner tip and does not represent a value equivalency at the wellhead. Boes may be misleading, especially if used in isolation.FOR FURTHER INFORMATION PLEASE CONTACT: John D. WrightPetroBakken Energy Ltd.President and Chief Executive Officer(403) 268-7800ORPeter D. ScottPetroBakken Energy Ltd.Senior Vice President and Chief Financial Officer(403) 268-7800ORR. Gregg SmithPetroBakken Energy Ltd.Senior Vice President and Chief Operating Officer(403) 268-7800ORBill A. KantersPetroBakken Energy Ltd.Vice President Capital Markets(403) 268-7800OREighth Avenue Place, 2800, 525 - 8th Avenue S.W.PetroBakken Energy Ltd.Calgary, Alberta, T2P 1G1(403) 268-7800(403) 218-6075 (FAX)