The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from CNW Group

Pinecrest Energy Inc. announces its 2012 first quarter results

Tuesday, May 15, 2012

Pinecrest Energy Inc. announces its 2012 first quarter results23:50 EDT Tuesday, May 15, 2012TSX Venture Exchange:  PRYCALGARY, May 15, 2012 /CNW/ - Pinecrest Energy Inc. ("Pinecrest" or the "Company") is pleased to announce that it has filed on SEDAR its audited financial statements and related Management's Discussion and Analysis ("MD&A") for the three month period ending March 31, 2012.  The statements will be available for review at or following are the highlights of Pinecrest's operations for the quarter ended March 31, 2012:Increased Q1 2012 average daily production (99% light oil) to 3,358 boe/d from 2,225 boe/d in Q4 2011 and from 753 boe/d in Q1 2011, representing 51% and 346% increases respectively;Generated a field netback of $71.60/boe, before hedging losses (or $69.51/boe after realized hedging losses);Increased Q1 2012 funds from operations by 39% to $20.3 million from $14.6 million in Q4 2011 and from $3.6 million in Q1 2011, a 464% increase;Increased the Company's net acreage by 34% to approximately 157,893 net acres with an average working interest of 93% from Q4 2011;Reduced Q1 2012 production and transportation costs per boe by approximately 6.6% to $13.82 from $14.79 in Q4 2011 and from $18.04 in Q1 2011, a 24% decrease.In January 2012, Pinecrest's bank line was increased from $30 million to $75 million.  Subsequent to March 31, 2012, the Company's bank line has been further increased to $125 million;Closed a strategic acquisition in the Company's core area adding an additional 6 drilling locations to bring the Company's inventory to over 235 (4 wells per section) and 435 (8 wells per section) net Slave Point drilling locations;Closed a $60 million bought deal financing in March 2012 in which 18.5 million shares were issued at $3.25 per share; andBased on field estimates, current production is approximately 3,500 boe/d (99% light oil).  Included in this rate are 4 gross (4 net) wells that have only been on production for approximately 2 weeks and are still in the initial clean up phase recovering completion fluids so have not yet reached their expected stabilized oil rate.   In addition, the Company currently has 2 gross (2 net) wells, drilled and completed in Q1, yet to be brought on production.FINANCIAL AND OPERATIONAL HIGHLIGHTSThe following is a review of Pinecrest's financial and operating performance for the three months ended March 31, 2012 and 2011:          Three months ended March 31  20122011% ChangeFINANCIAL ($ except per share amounts)Petroleum and natural gas sales   28,191,3686,099,936362Funds flow from operations(1)20,274,8273,592,975464   Per share - basic   $0.10$0.02400 Per share - diluted   $0.09$0.02350Net income (loss)   5,947,418(326,621)1,585   Per share - basic   $0.03($0.00)100   Per share - diluted   $0.03($0.00)100Capital expenditures   66,025,03547,487,67839Net debt and working capital surplus (deficit)   (18,563,723)5,712,947(425)Common Shares Outstanding         Weighted average - basic   199,086,694169,923,20217   Weighted average -  diluted   231,203,958169,923,20236OPERATING Number of days   9190 Production        Crude oil (bbls/d)   3,346748347  Natural gas (mcf/d)   3613,500  NGL (bbls/d)   6520  Barrels of oil equivalent (boe/d-6:1)   3,358753346Average realized price        Crude oil ($/bbl)   92.4290.302  Natural gas ($/mcf) (2)   2.05(18.99)111  NGL ($/bbl)   78.6058.5634  Barrels of oil equivalent ($/boe- 6:1)   92.2690.032Netback per boe ($)(1)         Petroleum and natural gas sales   92.2690.032 Realized loss on risk management contracts   (2.09)-(100)  Royalties   (6.84)(11.67)(41)  Production & transportation expenses   (13.82)(18.04)(24)  Production netback   69.5160.3219Wells drilled        Gross   910(10)  Net   8.757.025  Success rate (%)   100100-(1)Non-GAAP measure(2)Natural gas prices were negative for the 3 months ended March 31, 2011 reflecting a revenue accrual reversal from December 31, 2010 associated with property acquisitions in Alberta which closed at the end of November 2010.  OPERATIONS UPDATE Continued drilling success in the Company's Red Earth area of Alberta has seen Pinecrest's first quarter production increase by approximately 51% compared to the quarter ended December 31, 2011.  Current production is approximately 3,500 boe/d (99% light oil).  Included in this rate are 4 gross (4 net) wells that have only been on production for approximately 2 weeks and are still in the initial clean up phase recovering completion fluids so have not yet reached their expected stabilized oil rate.   In addition, the Company currently has 2 gross (2 net) wells, drilled and completed in Q1, yet to be brought on production.  Current production levels have been affected by limited access to wellsites as a result of spring break-up.  As well, a portion of the Company's planned first quarter capital spending was deferred to later in the year to take advantage of:anticipated cost savings created by a general slowdown in industry activity related to depressed prices for natural gas andthe lower cost structure associated with summer operations.At this time, Pinecrest is not altering its 2012 forecasted capital program and remains committed to its previously stated guidance of achieving year-end production of 5,000 - 5,200 barrels of light oil per day.During the quarter ended March 31, 2012, Pinecrest drilled a total of 9 (8.75 net) wells in Red Earth. Initial rates and overall reservoir quality continue to meet the Company's expectations that these wells will be assigned on average between 210 and 250 thousand barrels of reserves.A summary of results for the Slave Point horizontal wells that Pinecrest has drilled or has otherwise participated in since the Company's inception, that have been on production for a minimum of 30 days, is as follows: Average Daily Production Rate (bopd) Months on ProductionPinecrest WellsType 2Slave Point WellType 3Slave Point WellNumber ofWells1174200250302201190240303185172221274175158204265186145190186162133177177136123165158114114164149112106145141011199136141190931281312838712111138282115914777710971592731032Pricing for Canadian crude has experienced significant volatility in recent months. Edmonton light has gone from trading at a premium to West Texas Intermediate ("WTI") in the fourth quarter of 2011 to a discount in the first quarter of 2012. The volatility can be partially explained by seasonal refinery turnarounds, however, pipeline takeaway capacity and turnaround schedules in the light oil refining market have also impacted short term pricing on Canadian crude. During the first quarter of 2012, WTI pricing averaged US$102.84 per barrel and differentials on Edmonton light crude averaged $10.23 per barrel, with Pinecrest realizing a price of Cdn$92.26 per barrel.  The differential has since narrowed significantly, closer to historic norms, however Pinecrest sees the potential for volatility in Edmonton light crude pricing over the next 12 to 18 months.OUTLOOK - GREATER RED EARTH AREA, ALBERTAIn just under two years, Pinecrest has established itself as one of the dominant interest holders in the high quality Slave Point light oil resource play in the greater Red Earth area.  The Company has over 235 net risked drilling locations on its lands which, as previously disclosed in Pinecrest's March 22, 2012 press release, contain an estimated 580 million barrels of Discovered Oil Initially In Place (1)(2) with very low recovery to date. Sproule & Associates Ltd. conducted an assessment (the "Assessment") of Pinecrest's Contingent Slave Point Oil Resources(3) and has assigned the Company a contingent resource Best Estimate(4) of 67.5 million barrels using, a 13% recovery factor based on a drilling density of 4 wells per section.  The Company believes that significant upside potential, over and above the contingent resource assignment, can be achieved through further infill drilling and water flooding.  The Assessment was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and NI 51-101(5).This resource capture is consistent with the Company's stated strategy of focusing its capital and resources on large light oil accumulations with high netback production, long term upside and the ability to increase recovery factors through the application of horizontal infill wells, multi-stage fracture stimulations and implementing waterflood recovery schemes. Analogous Slave Point waterfloods in the immediate area have proven to be very effective and have been assigned incremental recovery factors ranging between 50 and 100 percent over primary recovery.For the balance of 2012, Pinecrest will execute an integrated capital program that will include drilling wells for primary production (4 wells per section), initial injection on 2-3 operated waterflood schemes and infill drilling (8 wells per section) for planned future horizontal water injection.  As well, Pinecrest is in the initial planning stages for the construction of a facility and gathering system for its eastern Red Earth focus area.  This investment will diminish the need for trucking, further reduce production and transportation costs and allow for more continuous production during spring break-up and wet conditions.Additionally, the Company has made strategic investments in the acquisition of undeveloped land, increasing its position in the Slave Point light oil resource play through Crown land sales and asset acquisitions.  Pinecrest has successfully grown its land holdings in its Red Earth core area to a current total of approximately 160,300 net acres with an average working interest of over 98%.  Pinecrest currently has a risked development drilling inventory of 235 (4 wells/section) or 435 (8 wells/section) net Slave Point drilling locations.  This is expected to provide the Company with six to ten years of drilling inventory at a density of four wells/section.  In addition, Pinecrest operates its own production facilities and infrastructure which can allow for quick, cost effective tie-in of wells.Notes(1)  "Discovered Oil Initially In Place" or "DOIIP" means that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production.  The recoverable portion of discovered petroleum initially in place includes production, reserves and contingent resources.  There is no certainty that it will be commercially viable to produce any portion of these resources.(2)   All DOIIP other than cumulative production, reserves and contingent resources have been categorized as unrecoverable.(3)"Contingent Oil Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies.  Contingencies may include factors such as distance from existing production, economic, legal, environmental, political, and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage.(4) "Best Estimate" is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.(5) Please refer to the Company's March 22, 2012 press release for additional details in respect of the Assessment.ANNUAL GENERAL AND SPECIAL MEETINGPinecrest's Annual General and Special Meeting is scheduled for 10:00 am on June 5, 2012 at the Bow Valley Conference Center, Angus/Northcote Room, located at 300, 205 - 5th Avenue S.W., Calgary. Alberta, T2P 2V7.Advisory  The information in this press release contains certain forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar expressions. In particular, forward looking statements in this press release includes, but is not limited to: Pinecrest's capital program and 2011 business objectives, Pinecrest's 2011 budget, oil recovery rates, the effects of waterfloods on recovery factors, decline rates and type curves for wells, production rates, exit rates for production and bank debt, downspacing opportunities, the quantity of reserves, and projections of market prices and costs. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Pinecrest's control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves. Pinecrest's actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits that Pinecrest will derive from them. Except as required by law, Pinecrest undertakes no obligation to publicly update or revise any forward-looking statements. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources or reserves described can be profitably produced in the future.The Corporation uses the following terms for measurement within this press release that do not have a standardized prescribed meaning under GAAP and these measurements may differ from other companies and accordingly may not be comparable to measures used by other companies. The terms "funds from operations" and "operating netback" are not recognized measures under the applicable GAAP. Management of the Corporation believes that these terms are useful, in addition to profit and loss and cash flow from operating activities as defined by GAAP, for evaluating the Corporation's operating performance and leverage. Funds from operations is expressed as cash flow from operating activities before changes in non-cash working capital and asset retirement expenditures. Operating netback is a measure of operating margin used in capital allocation decisions. Pinecrest defines operating netback as average realized price per BOE, less royalties per BOE, less operating and transportation expenses per BOE, plus any realized gain or loss per BOE on financial instruments.Certain information provided in this press release in relation to the results of waterflooding Slave Point reservoirs on lands in close proximity to the land in which the Company has an interest, is considered analogous information under National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.  Such information is based on publicly available information from governmental agencies and other industry producers and has been provided to give an indication of possible incremental recovery factors in the specified area.  Other than comparing such information to the Company's own limited results in the specified area, the Company has not independently confirmed the accuracy of this information.  There is no certainty that such incremental recovery factors will be obtained of even if so obtained, whether such factors can be achieved on an economic basis.Barrels of Oil Equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of 6MCF:1bbl 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.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 news release.   For further information: Pinecrest Energy Inc. Suite 500, 255 - 5th Avenue S.W. Calgary, Alberta  T2P 3G6 Wade Becker, President and CEO or Dan Toews, V.P. Finance & CFO Tel: (403) 817-2550 or Fax: (403) 817-2599