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Press release from Marketwire

Painted Pony Reports 2012 Year-End Reserves of 1.15 Tcfe and Montney Contingent Resources of 3.15 Tcfe

Wednesday, February 27, 2013

Painted Pony Reports 2012 Year-End Reserves of 1.15 Tcfe and Montney Contingent Resources of 3.15 Tcfe08:30 EST Wednesday, February 27, 2013CALGARY, ALBERTA--(Marketwire - Feb. 27, 2013) - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Company") (TSX VENTURE:PPY) is pleased to announce the Company's December 31, 2012 reserves report, contingent resources estimate and undeveloped land report.The highlights of these reports include:increased proved plus probable ("P+P") reserves to 1.15 Tcfe, equating to 191 mmboe, up 40% from 137 mmboe at December 31, 2011, and an associated NPV, discounted at 10%, of $1.07 billion; a best estimate of contingent resources for the Company's Montney asset of 3.15 trillion cubic feet of gas equivalent ("Tcfe") equating to 525 million boe ("mmboe"), with a net present value ("NPV"), discounted at 10%, of $1.45 billion; grew P+P reserves per weighted average share by 18%; replaced 2012 production by 23.5 times; realized a year end P+P reserve life index ("RLI") of 71.3 years and a proved RLI of 16.0 years; achieved a 2012 P+P recycle ratio of 1.9 times, including future development costs ("FDC"), excluding the Kobes (Townsend) acquisition, based on the fourth quarter 2012 internally estimated netback of $21.21/boe; and increased the value of the Company's undeveloped net acreage to $196 million.CONSOLIDATED COMPANY RESERVES At December 31, 2012, the Company's consolidated P+P reserves were 191.1 mmboe (1.15 Tcfe), up 40% from 136.9 mmboe (0.82 Tcfe) at December 31, 2011. Total proved reserves were 43.0 mmboe, as compared to 31.4 mmboe at December 31, 2011, an increase of 37%. The NPV associated with P+P reserves and proved reserves at December 31, 2012, discounted at 10%, was $1.07 billion and $345 million, respectively.Painted Pony's internal production estimates are: 6,590 boe/d (77% gas) for 2012 average production, and 7,290 boe/d (76% gas) for average fourth quarter 2012 production. The Company's 2012 P+P reserves additions replaced 2012 production by 23.5 times. The reserves data of the Company are based upon independent evaluations by GLJ Petroleum Consultants Ltd. ("GLJ") and Sproule Associates Limited ("Sproule") each with an effective date of December 31, 2012 as contained in the consolidated report of GLJ dated February 26, 2013 (the "Painted Pony Reserves Report"). The tables below summarize Painted Pony's crude oil, natural gas liquids ("NGLs") and natural gas reserves and the NPV of future net revenue attributable to such reserves, as evaluated in the Painted Pony Reserves Report, based on GLJ's January 1, 2013 forecast prices and costs assumptions. GLJ evaluated the Company's reserves on its British Columbia properties and Sproule evaluated the Company's reserves on its Saskatchewan properties. Sproule incorporated the GLJ forecast prices and costs assumptions in their evaluation. GLJ prepared the Painted Pony Reserves Report by consolidating the GLJ evaluation results with the Sproule evaluation results, all run on the GLJ forecast prices and costs assumptions.Summary of Company Reserves(1),(3),(5) Forecast Prices and CostsAs at December 31, 2012As at December 31, 2011Light and Medium Oil (mbbl)Natural Gas (mmcf)(4)Natural Gas Liquids (mbbl)Total (mboe)(2) Total (mboe)(2)ProvedDeveloped producing1,95160,4041,03613,0549,269Developed non-producing192475652,017Undeveloped838157,2562,81229,85920,098Total proved2,807217,9073,85342,97831,383Probable2,145794,74413,563148,165105,494Total proved plus probable4,9521,012,65117,416191,143136,877Notes:(1) Painted Pony's total working interest reserves are before royalties owned by others.(2) Oil equivalent amounts (boe) have been calculated using a conversion rate of six thousand cubic feet of natural gas per barrel of oil (6 mcf: 1 bbl).(3) One thousand barrels is equal to 1 mbbl, and one thousand boe is equal to 1 mboe. One million cubic feet of natural gas is equal to 1 mmcf.(4) Includes non-associated gas, associated gas and solution gas.(5) Numbers in this table are subject to rounding error.Summary of Net Present Values of Future Net Revenue (1),(2),(3),(4) Forecast Prices and Costs ($ millions) Before Income TaxesAs at December 31, 2012As at December 31, 20115%8%10%5%8%10%ProvedDeveloped producing219197185191171160Developed non-producing111342826Undeveloped263194160243185157Total proved483392345468385343Probable1,3279097201,279892719Total proved plus probable1,8101,3011,0661,7471,2771,062Notes:(1) Painted Pony's total working interest reserves are before royalties owned by others. The estimated future net revenues are stated before deducting income taxes and future estimated site restoration costs and are reduced for estimated future abandonment costs, the Saskatchewan Capital Tax and estimated capital for future development associated with the reserves.(2) It should not be assumed that the undiscounted and discounted NPV represent the fair market value of the reserves.(3) The price deck used for the evaluation as at December 31, 2012 was the GLJ price deck dated January 1, 2013.(4) Numbers in this table are subject to rounding error.The net change in FDC associated with the P+P reserves is $496 million and with the proved reserves is $100 million. Of the FDC expenditures included in the Painted Pony Reserves Report for P+P reserves, approximately 24% or $363 million are expected to be incurred in 2013 and 2014, with the remainder expected to be invested through 2019. The following table outlines the expected timing and amounts of FDC.Future Development Costs ($ millions)(1)ProvedProved plus ProbableAs at December 31, 2012201381.0112.5201496.3250.7201541.2228.4201670.6271.420179.2335.32018-242.52019-82.4Total298.31,523.2As at December 31, 2011197.91,027.3Note:(1) Numbers in this table are subject to rounding error. The Company's reserves provide a proved RLI of 16.0 years and a P+P RLI of 71.3 years, as compared to 16.4 and 71.7 years, respectively, at December 31, 2011, based on fourth quarter annualized sales. The growth in reserves volumes resulted from Painted Pony's successful 2012 drilling and acquisition program.Painted Pony's total capital expenditures (unaudited) in 2012 were $241 million, including $109.3 million for the Kobes (Townsend) acquisition and non-cash charges such as share-based payments and decommissioning costs of approximately $7 million.BRITISH COLUMBIA MONTNEY CONTINGENT RESOURCES EVALUATIONIn addition to evaluating the Company's reserves, GLJ was engaged to prepare an independent contingent resources evaluation of the Company's BC Montney properties, using forecast prices and costs, dated effective December 31, 2012. The most significant positive and negative factors with respect to the contingent resources estimates relate to the fact that the field is currently at an evaluation/delineation stage. The Montney formation is aerially extensive in this region, however well control is limited. Both resources-in-place and productivity may be higher or lower than current estimates. Additional drilling and testing are required to confirm volumetric estimates and reservoir productivity for the contingent resources to be reclassified as reserves. Summary of Company Montney Contingent Resources Net Present Values of Future Revenue(1),(2),(3),(4),(5) Forecast Prices and Costs Before Income Taxes ($millions)As at December 31, 20125%8%10%12%Low Estimate2,0011,120774540Best Estimate3,5972,0471,4491,045High Estimate5,4213,1032,2171,621Notes:(1) Painted Pony's total working interest contingent resources are before royalties owned by others. The estimated future net revenues are stated before deducting income taxes and future estimated site restoration costs, and are reduced for estimated future abandonment costs and estimated capital for future development associated with the contingent resources.(2) It should not be assumed that the undiscounted and discounted NPV represent the fair market value of the contingent resources.(3) The estimates of NPV for individual properties may not reflect the same confidence level as estimates of NPV for all properties, due to the effects of aggregation.(4) The price deck used for the evaluation as at December 31, 2012 was the GLJ price deck dated January 1, 2013.(5) Numbers in this table are subject to rounding error.Summary of Company Montney Contingent Resources (1),(2),(3),(4),(5),(6) Forecast Prices and Costs As at December 31, 2012Low EstimateBest EstimateHigh Estimate (Bcfe) (mmboe) (Bcfe)(mmboe) (Bcfe)(mmboe)Gas2,0083352,9804974,116686Liquids115191702823539Total2,1233543,1505254,352725Notes:(1) Painted Pony's total working interest of the contingent resources are before royalties owned by others. (2) Oil equivalent amounts (boe) have been calculated using a conversion rate of six thousand cubic feet of natural gas per barrel of oil (6 mcf: 1 bbl).(3) Natural gas equivalent amounts (mcfe) have been calculated using a conversion rate of 1 barrel of oil per six thousand cubic feet of natural gas (1 bbl: 6 mcf).(4) One million boe is equal to 1 mmboe. One billion cubic feet of gas equivalent is equal to 1 Bcfe.(5) The estimates of resources for individual properties may not reflect the same confidence level as estimates of resources for all properties, due to the effects of aggregation.(6) Numbers in this table are subject to rounding error.Contingent 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 ("contingent resources"). Contingencies which must be overcome to enable the reclassification of contingent resources as reserves can be categorized as economic, non-technical and technical. The Canadian Oil and Gas Evaluation Handbook identifies nontechnical contingencies as legal, economic, environmental, political and regulatory matters or a lack of markets. There are several non-technical contingencies that prevent the classification of the contingent resources estimated above as being classified as reserves. The primary contingency which prevents the classification of the Company's contingent resources as reserves is the current early stage of development. Additional drilling, completion and testing data is generally required before Painted Pony can commit to their development. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. Contingent resources are further classified in accordance with the level of certainty associated with the estimates and may be subclassified based on project maturity and/or characterized by their economic status. As additional drilling takes place, it is expected that the contingent resources will be booked into the reserves category. Estimates of contingent resources described herein, including the corresponding estimates of before tax present value estimates, are estimates only; the actual resources may be higher or lower than those calculated in the GLJ British Columbia Montney Contingent Resources Evaluation. There is no certainty that it will be commercially viable or technically feasible to produce any portion of the resources described in the evaluation.The most significant positive and negative factors with respect to the contingent resource estimates relate to the fact that the field is currently at an evaluation/delineation stage. Resource-in-place, productivity and capital costs may be higher or lower than current estimates. Additional drilling and testing are required to confirm volumetric estimates and reservoir productivity for the contingent resources to be reclassified as reserves.FDC associated with the best estimate contingent resources are $5 billion beginning in 2015 until 2037. For the first three years, from 2015 until 2017, inclusive, allocated FDC are $289 million.METHOD OF PREPARATIONIn this press release, "working interest" reserves are calculated as the Company's share of reserves, excluding royalty interest reserves and before the deduction of royalty burdens payable. The reserves report was prepared utilizing definitions as set out under NI 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101").UNDEVELOPED LAND At December 31, 2012, the Company's undeveloped lands in Saskatchewan, British Columbia and Alberta were valued at $196 million. The land valuation was prepared by Seaton-Jordan & Associates Ltd. in accordance with NI 51-101.Painted Pony is a Canadian oil and gas exploration company that trades on the TSX Venture Exchange under the symbol "PPY".Advisory Special Note Regarding Forward-Looking Information This news release contains certain forward-looking statements, which are based on numerous assumptions including but not limited to: (i) drilling success; (ii) production; (iii) future capital expenditures; and (iv) cash flows from operating activities. In addition, and without limiting the generality of the foregoing, the key assumptions underlying the forward-looking statements contained herein include the following: (i) commodity prices will be volatile, and natural gas prices will remain low, throughout 2013; (ii) capital, undeveloped lands and skilled personnel will continue to be available at the level Painted Pony has enjoyed to date; (iii) Painted Pony will be able to obtain equipment in a timely manner to carry out exploration, development and exploitation activities; (iv) production rates in 2013 are expected to show growth from the fourth quarter of 2012; (v) Painted Pony will have sufficient financial resources with which to conduct the capital program; and (vi) the current tax and regulatory regime will remain substantially unchanged The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect.Certain information regarding Painted Pony set forth in this document, including estimates of the Company's reserves and resources, estimates of future net revenue from the Company's reserves and resources, pricing, inflation and exchange rates and future development costs may constitute forward-looking statements under applicable securities laws and necessarily involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Painted Pony's control, including without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, environmental risks, inability to obtain drilling rigs or other services, capital expenditure costs, including drilling, completion and facility costs, unexpected decline rates in wells, wells not performing as expected, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, 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, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, and stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof. Readers are cautioned that the foregoing list of factors is not exhaustive. Painted Pony's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that the Company will derive therefrom. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Additional information on these and other factors that could affect Painted Pony's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or Painted Pony's website (www.paintedpony.ca). The forward-looking statements contained in this document are made as at the date of this news release and Painted Pony does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. Special Note Regarding Disclosure of Reserves or Resources Operating netback reflects revenues less royalties and transportation and operating costs divided by production for the period. Painted Pony's method of calculating operating netbacks may not be comparable to that used by other companies.Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Mcfes may be misleading, particularly if used in isolation. A mcfe conversion ratio of 1 bbl: 6 mcf 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 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 mcf: 1 bbl, utilizing a conversion ratio at 6 mcf: 1 bbl may be misleading as an indication of value. Estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties due to the effects of aggregation.FOR FURTHER INFORMATION PLEASE CONTACT: Neither 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. Contact Information: Painted Pony Petroleum Ltd.Patrick R. WardPresident & CEO(403) 475-0440(403) 238-1487 (FAX)Painted Pony Petroleum Ltd.Joan E. DunneVice President, Finance & CFO(403) 475-0440(403) 238-1487 (FAX)Painted Pony Petroleum Ltd.300, 602 - 12 Ave SWCalgary, AB T2R 1J3