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Press release from Marketwire

BlackPearl Announces Second Quarter 2012 Financial and Operating Results

Wednesday, August 08, 2012

BlackPearl Announces Second Quarter 2012 Financial and Operating Results17:00 EDT Wednesday, August 08, 2012CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) -BlackPearl Resources Inc. ("BlackPearl" or the "Company") (TSX:PXX)(FIRST NORTH:PXXS) is pleased to announce its financial and operating results for the three and six months ended June 30, 2012. Second quarter highlights include:At Blackrod, we filed an 80,000 barrel per day SAGD commercial development application with the ERCB and Alberta Environment. Our independent reserves evaluator recognized 180 million barrels of probable reserves on the first phase of the project, as well as 476 million barrels of best estimate contingent resource for future phases; The Blackrod pilot reached commercial rates with oil production over 400 barrels per day and a steam oil ratio under 3. Production is expected to continue to ramp-up during the remainder of the year; ASP (Alkali, Surfactant, Polymer) injection continued on our Mooney project and we started to see oil production increases from the initial re-pressurization of the reservoir. Construction of the $24 million heavy oil processing facility designed to handle increased fluid production is nearing completion; At Onion Lake, we filed an amendment to the 12,000 barrel per day thermal (SAGD) application to incorporate additional lands. Upon approval of this application, anticipated later this year, we expect to be able to reclassify a portion of our contingent resource to probable reserves; Oil production for the quarter averaged 9,471 boe/day, a 45% increase compared to Q2 2011; Revenues increased 17% to $49.1 million compared to Q2 2011; Cash flow from operations increased 4% to $19.6 million in Q2 compared with $18.8 million in Q2 2011 as a result of higher production volumes partially offset by weaker realized oil prices; We increased our bank credit facilities from $25 million to $115 million. The expanded facilities together with our cash flow, is expected to fund our planned capital expenditures for the next 18 to 24 months.John Festival, President of BlackPearl, commenting on Q2 2012 activities, indicated that:"We were very pleased with the progress made in the quarter at all three of our core projects. Our strategy for our three core projects consisted of three phases: identify the potential resource; validate the potential through drilling and pilots; and commercialize each project. As we manage the third phase of commercializing our core projects, we are considering all of our financing alternatives. Given the successful milestones we have achieved, we have been reviewing financing options and we are confident we will be able to secure the appropriate financing over the next 18 months. Our goal is to minimize dilution for our shareholders without exposing the company to undue financial risk. Unlike many companies with resource potential, we have had and continue to have commercial production coming from all of our projects. As we move forward, we will allocate capital to both short term production and cash flow projects and to maintaining the development timeline for our longer term projects such as Blackrod."Property Review Blackrod SAGD Pilot Project At Blackrod, we reached a number of milestones during the second quarter. Firstly, the SAGD pilot well reached commercial rates. The well has produced over 400 barrels of oil per day, with a steam oil ratio under three, both of which exceed our minimum threshold for commercial development. We believe the well will produce over 500 barrels of oil per day when it is fully optimized later this year.Secondly, we filed our 80,000 barrels per day SAGD commercial development application with the ERCB and Alberta Environment. The first phase of the project is being designed to be 20,000 barrels of oil per day. The regulatory approval process is anticipated to take 18 to 24 months.Thirdly, our independent reserves evaluator, Sproule Unconventional Limited (Sproule), updated its December 31, 2011 evaluation of our Blackrod property and, as of May 31, 2012, assigned 180 million barrels of probable reserves to the first phase of commercial development. This is an important achievement as we believe having barrels reclassified from contingent resource to reserves is a key step in getting more of the value of our projects recognized. The updated report from Sproule also included a best-estimate recoverable contingent resource of 476 million barrels for the remainder of the project (see cautionary statement regarding contingent resources later in this release).We are planning to drill a second horizontal well pair on our existing pilot operations. The intent of the first well pair was to confirm that we could reach sufficient operating rates to support commercial development, which we have achieved. The second well pair will be drilled longer and deeper in the reservoir. The intent of this well pair is to test alternative operating strategies and potentially incorporate them in the final commercial development design. For example, if we can achieve higher production rates from longer wells, as some other operators have been able to realize, it would reduce the number of wells required to be drilled and lower our capital requirements to fully develop the project. We plan to drill the new well pair in the first quarter of 2013.We are nearing completion of the Front End Engineering Design (FEED) for the commercial project which will lead to the awarding of the EPC (Engineering, Procurement, and Construction) contract later this year. In May, we took the pilot down for scheduled maintenance and facility inspection. The well pair was put back on production in the latter half of June and production is now ramping back up through 400 barrels of oil per day. Onion Lake At Onion Lake, our focus during the second quarter was on advancing the regulatory review of our planned 12,000 barrel per day SAGD development on a portion of the Onion Lake lands. We filed an amendment to the original development application to incorporate additional lands and to make several changes to the original development plan. We still anticipate approval from the provincial government and Indian Oil and Gas (federal government) later this year or early next year. Once we receive all regulatory approvals for the project we expect our independent reserves evaluator will be in a position to reclassify a portion of the contingent resource assigned to the project to probable reserves. We have not yet established a development time table for the SAGD project but we will continue primary development at Onion Lake while we finalize our thermal development plans. We drilled 23 successful conventional wells at Onion Lake during the first half of 2012, including six in the second quarter. Mooney At Mooney, we are continuing to inject Alkali, Surfactant and Polymer (ASP) into the flood area lands with the intention of re-pressurizing the reservoir and increasing oil recovery from the area. Oil production from the flooded area increased during the second quarter as a result of the initial re-pressurization. A more significant response from the ASP is expected later this year and we anticipate reaching our target production rates of 3,000 to 4,000 barrels per day in 2013. Wells in the Mooney area have typical initial production rates of 100 to 150 barrels of oil per day but they have a relatively steep decline and drop to about half their initial rate after one year. The objective of the ASP flood is to get production back near the initial rates with much more modest decline rates going forward. We anticipate that the ASP flood could increase oil recovery rates from under 5% of oil in place to over 20% over a 15 to 20 year period.We are also continuing to develop the lands surrounding the existing Phase 1 flood area. To the end of 2011, we had drilled 14 horizontal wells on these lands and have achieved excellent results. In the first quarter we drilled an additional three wells, all successful. Our original plans were to drill an additional 15 to 20 wells on these lands during the last half of 2012; however, as a result of extremely wet conditions we are likely only going to get six of these wells drilled. The remaining wells will be deferred to our winter drilling program. All of these wells are eligible for the 5% crown royalty rate for the first year of production. After we have completed the initial re-pressurization of the Phase 1 lands we will have spare capacity with the existing ASP injection equipment and we intend to expand the ASP flood to these additional lands. This will likely occur in late 2013 or early 2014. The construction of the heavy oil processing facility to handle the increasing fluid volumes from the Mooney area is nearing completion and should be commissioned by the end of August. Non-core Areas John Lake is a conventional heavy oil project located in the Cold Lake oil sands region. Most of our existing production is from the Sparky formation, although we have also had success with wells in the Cummings formation. During the second quarter we drilled four successful horizontal wells in the area. These wells will be completed and put on production in the third quarter. We believe that John Lake has the potential to produce 1,000 to 2,000 barrels of oil per day when fully developed.ProductionOil and gas production averaged 9,471 boe (barrels of oil equivalent) per day in the second quarter of 2012, a 45% increase from the comparable quarter in 2011. The increase in production is mainly attributable to additional drilling at Onion Lake, Mooney and John Lake in the fourth quarter of 2011 and drilling at Onion Lake during the first quarter of 2012. Additional wells were drilled at Onion Lake and John Lake in the second quarter of 2012 but these wells were not completed until July and had no impact on Q2 production.Production from the ASP flooded areas at Mooney increased substantially in Q2 2012 compared to 2011. This increase is attributable, in part, to adding three wells within the flood area in late 2011. In addition, when Q2 2012 production is compared with the first quarter of the year (757 barrels per day versus 504 barrels per day) it is evident we are starting to see production increases as a result of the initial re-pressurization of the reservoir.Second quarter 2012 production was down modestly from Q1 production of 9,581 boe per day primarily due to road bans caused by wet conditions during the spring break-up period. Three months ended June 30,Six months ended June 30,(boe/day)2012201120122011Onion Lake6,3965,6666,5275,597MooneyASP flood area757265597389Non-flood areas1,5313551,560381John Lake457259508278Blackrod298-274-Other32-641349,4716,5459,5306,779Financial ResultsOil and gas revenues increased 17% in the second quarter of 2012 to $49.1 million compared with $42.0 million in Q2 2011. The increase is attributable to a 45% increase in oil sales volumes offset by a 17% decrease in our realized oil price in 2012. The decrease in our realized wellhead price reflects lower WTI reference oil prices in Q2 2012 compared with Q2 2011 (US$93.44/bbl vs US$102.50/bbl), as well as wider heavy oil differentials (Cdn$22.85/bbl vs Cdn$17.63/bbl). Operating costs were $16.71 per boe in Q2 2012 compared with $17.36 per boe in Q2 2011. However, Q2 2012 operating costs decreased quite significantly compared to the first quarter this year ($19.63 per boe), primarily as a result of lower workover and well servicing costs at Mooney and Onion Lake. Transportation costs increased in the second 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. Cash flow from operations (before working capital adjustments) increased 4% in Q2 to $19.6 million compared to $18.8 million in Q2 2011 primarily as a result of the increase in sales volumes.Financial and Operating HighlightsThree months ended June 30Six months ended June 302012201120122011Daily production / sales volumesOil (bbl/d) (2)9,4156,3989,4836,527Natural gas (mcf/d)3348822841,514Combined (boe/d) (1)9,4716,5459,5306,779Product pricing ($)Crude oil - per bbl59.1071.0063.7063.63Natural gas - per mcf1.943.992.063.88Combined - per boe58.8270.5963.4462.53RevenueOil and gas revenue - gross49,09942,044106,87576,719Royalties ($/boe)12.7220.0214.1717.07Transportation costs ($/boe)2.820.462.470.60Operating costs ($/boe)16.7117.3618.1817.49Net income for the period2182,9963,7923,458Per share, basic and diluted0.000.010.010.01Cash flow from operating activities, before working capital adjustments19,55018,83443,349 30,494Capital expenditures32,45357,04075,92295,161Working Capital, end of period9,60484,8709,60484,870Long term debt----Shares outstanding, end of period285,318,179284,239,554285,318,179284,239,554(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 pilotOutlookDue to continued wet weather conditions in northern Alberta we have elected to defer some of our additional drilling and infrastructure projects at Mooney until the winter. As a result, we have lowered our anticipated capital spending for 2012 from $145 - $155 million to $115 - $120 million. This has also impacted our exit production guidance for the year. Our average production for the year is expected to be 9,500 to 10,000 boe per day and our year-end exit rate is expected to be 10,000 to 11,000 boe per day. The deferral of additional drilling at Mooney is temporary and will not impact our longer term plans at Mooney or the other core areas. Our plans at Blackrod for the balance of 2012 remain unchanged. We have commenced the detailed engineering phase for the commercial project and will drill a second well pair on the pilot early next year. The delay in capital spending means that BlackPearl should continue to have a positive working capital position, as well as fully undrawn lines of credit at year-end 2012. The 2012 second 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 also makes reference to contingent resources. Contingent resources are defined in the COGE Handbook as 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 are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. In the case of the contingent resources assigned to the Blackrod project the contingencies include the requirement for more evaluation drilling on phases 2 and 3 of the project, the absence of a commercial development application for phase 2 and 3 and the uncertainty of the timing of development and production from these phases. There is no certainty that it will be commercially viable to produce any of the contingent resources.Forward-Looking StatementsThis 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", "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 receipt of regulatory approval for the Blackrod commercial development application as well as the Onion Lake thermal development application, reserves and contingent resource estimates at Blackrod as well as potential production levels from the area, production potential of the John Lake area, methods, ability, sources and timing to finance capital expenditure programs, timing of the expansion of the Mooney ASP flood 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's Certified Advisor on First North is Pareto Öhman AB.Company Registration Number: 409596-1The report for the three months ending September 30, 2012 will be published on or before November 14, 2012.FOR FURTHER INFORMATION PLEASE CONTACT: John FestivalBlackPearl Resources Inc.President and Chief Executive Officer(403) 215-8313ORDon CookBlackPearl Resources Inc.Chief Financial Officer(403) 215-8313(403) 265-8324 (FAX)www.blackpearlresources.ca