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Press Release

PetroBakken Announces Second Quarter Funds Flow From Operations of $121 Million and 15 Drilling Rigs Currently Operating

CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) - PetroBakken Energy Ltd. (the "Company" or "PetroBakken") (TSX:PBN) is pleased to announce our second quarter financial and operating results.
FINANCIAL & OPERATING HIGHLIGHTS
(In this press release, quarterly comparisons are second quarter 2012 compared to second quarter 2011, and the first half of 2012 compared to the first half of 2011 unless otherwise noted.)
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-- Second quarter production averaged 38,715 barrels of oil equivalent per
day ("boepd") (83% light oil and liquids), a 10% increase over the
second quarter of 2011 though lower than first quarter of 2012 due to
reduced field activity on account of seasonal weather and the divestment
of non-core properties.
-- Our operating netback for the second quarter was $45.08/boe, influenced
primarily by lower commodity prices and increased differentials to WTI.
-- Funds flow from operations was $121 million ($0.65 per basic share), a
21% decrease over the second quarter of 2011 primarily due to our lower
operating netback.
-- Capital expenditures before dispositions totalled $109.8 million in the
second quarter, resulting in 9 net wells drilled in the quarter and 56
net wells drilled in the first half of 2012, with approximately 75% of
our wells to be drilled in the second half of the year.
-- We reported a net loss of $21.5 million ($0.11 per basic share) for the
second quarter, which includes a $61 million non-cash impairment on our
natural gas assets in northeast British Columbia due to economic
parameters and our decision not to pursue development of these assets at
this time.
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Summary of Results
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Three months ended Six months ended
June 30, June 30,
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2012 2011 2012 2011
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Oil and natural gas revenue 240,205 274,952 570,566 556,249
Funds flow from operations (1) 121,390 153,353 306,717 326,377
Per share - basic ($) 0.65 0.82 1.64 1.74
Adjusted net income(1) 25,709 84,162 128,318 109,267
Per share - basic ($) 0.14 0.45 0.68 0.58
Net capital expenditures(1) 98,443 91,705 (311,643) 397,902
Net debt (1) 1,355,437 1,175,511 1,355,437 1,175,511
Dividends per share ($) 0.24 0.24 0.48 0.48
Cash dividends per share ($) 0.09 0.24 0.23 0.48
Common shares, end of period
(000) (2) 187,897 187,230 187,897 187,230
Operating netback ($/boe) (1)
(3) (4) 45.08 56.63 49.32 54.37
Average daily production (3)
(boe) 38,715 35,300 42,719 38,414
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(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
Activity moderated in the second quarter due to seasonal weather conditions and the onset of spring break-up. However, our quarterly average production of 38,715 boepd was an increase of 10 percent over the second quarter of 2011, even after the non-core divestures of approximately 4,100 boepd that occurred in late 2011 and the first half of 2012. Our production growth can be attributed to our successful drilling program in late 2011 and early 2012.
Average Daily Production
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Three months ended Six months ended
June 30, 2012 June 30, 2012
Oil & NGL Gas Total Oil & NGL Gas Total
Business Unit (bbl/d) (Mcf/d) (boe/d) (bbl/d) (Mcf/d) (boe/d)
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Bakken 13,940 5,275 14,819 16,777 5,999 17,777
Conventional (SE SK) 4,921 1,278 5,134 5,417 1,423 5,654
Cardium (central AB) 12,430 20,894 15,912 13,033 19,246 16,241
Alberta/BC 945 11,427 2,850 1,059 11,929 3,047
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32,236 38,874 38,715 36,286 38,597 42,719
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Production expenses on a per boe basis were 12% lower in the second quarter of 2012 as compared to the same period last year as we had higher production with relatively constant fixed costs. Compared to the first quarter of 2012, our absolute production expenses decreased 12% but were up 6% on a per boe basis due to spring break-up conditions and lower production. Production costs per boe are expected to decrease through the remaining half of the year as we restore shut-in production, bring new wells on production and complete infrastructure projects, which will reduce oil trucking activities.
Q2 2012 Drilling Activity
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Drilled Completed On Production Inventory(1)
Business Unit Gross Net Gross Net Gross Net Gross Net
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Bakken 10 6 9 6 5 4 12 8
Conventional (SE SK) 1 1 2 1 2 1 5 1
Cardium (central AB) 4 2 13 10 17 11 6 6
Alberta/BC - - - - - - - -
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Total 15 9 24 17 24 16 23 15
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(1) Inventory refers to the number of wells pending completion and/or tie-in.
Our capital program in the second quarter included drilling 9 net wells and bringing 16 net wells on production. For the first half of 2012 we have drilled 56 net wells and brought 52 net wells on production. Expansion and completion of gas gathering and central oil handling facilities in the Bakken and Cardium continued in the quarter, which will support improved production expenses and reduced downtime for those operations. We sold non-core properties in the quarter, primarily in Alberta, for $13 million representing 150 boepd of production.
Bakken Business Unit Update
In southeast Saskatchewan, the Bakken business unit averaged 14,819 boepd of production during the second quarter. A significant portion of the decrease from the first quarter was the result of the 2,900 boepd non-core Bakken disposition which occurred near the end of the first quarter. In addition, spring break-up resulted in moderated field activity and shut-in production due to limited access to wells. Activity levels resumed towards the end of the quarter, with 6 net wells drilled and 4 net wells brought on production. Currently, we have 7 drilling rigs operating in this business unit and have drilled 12 net wells since quarter-end, with 11 net wells waiting to be completed or brought on production.
Cardium Business Unit Update
We continue to develop our assets in the Cardium, with production averaging 15,912 boepd in the second quarter, representing a 71 percent increase over the second quarter of 2011. Production decreased slightly from the first quarter of 2012 due to downtime related to spring break-up and facility turnarounds. We brought 11 wells on production during the second quarter and, since then, we have drilled another 10 net wells and brought 2 net wells on production, leaving a current inventory of 13 net wells waiting to be completed or brought on production. We currently have 7 drilling rigs operating in the Cardium.
Other Activity
The remainder of our production came from our southeast Saskatchewan Conventional and Alberta/BC business units.
Our southeast Saskatchewan Conventional business unit continued to provide a low decline, light oil-rich production base. Production averaged 5,134 boepd in the second quarter of 2012, and we drilled 1 net well in the area with 1 additional well waiting to be brought on production. One drilling rig is currently operating in this area and new wells drilled, combined with further additions to infrastructure, are expected to grow production through the balance of the year.
In our Alberta/BC business unit, we have 2,850 boepd of production and have assembled over 190 net sections of land that are prospective for new oil resource plays in one or more of the Nordegg, Montney, Duvernay and Swan Hills zones. Activity was minimal during the second quarter but we plan to drill four wells in the second half of the year to further evaluate these opportunities.
In northeast British Columbia, our approach in recent years has been to maintain our lands that are prospective for natural gas. However, given our inventory of oil-weighted prospects that compete for capital and the current price outlook for natural gas in North America, we have elected not to allocate capital to this area and consequently will let 45 net sections of lands that were prospective for natural gas in the Horn River area of northeast British Columbia expire and revert to the Crown, resulting in a $61 million non-cash impairment charge.
FINANCIAL RESULTS
Our production of 38,715 boepd and operating netback of $45.08/boe resulted in funds flow from operations of $121 million ($0.65 per basic share) for the second quarter, a decrease over the same period in 2011 due primarily to lower realized oil prices. Our adjusted net income for the second quarter was approximately $26 million ($0.14 per basic share), down from $84 million in the second quarter of 2011, largely due to a 20% lower operating netback and a non-cash foreign exchange loss of $22 million as a result of the weakening Canadian dollar versus the US dollar. Capital expenditures were in line with the second quarter of 2011, and similar to last year, approximately two-thirds of our capital program is planned for the second half of 2012.
Commodity prices, specifically oil, in the first half of 2012 experienced volatility in both the world and North American markets, with Brent and WTI prices experiencing declines from January to June of 14% and 18%, respectively. In addition to the decline in oil price, WCSB oil producers have experienced wider than historical price differentials to WTI, resulting in lower realized prices. Differentials ranged from a historical norm of 5% to over 20%, with our average for the first half of the year being approximately 14%. The net impact was an 18% reduction in realized oil and liquids prices in the second quarter compared to a year ago, while WTI (in Canadian dollar terms) decreased only 5% during the same period.
Our monthly dividend of $0.08 per share has remained constant since the Company's inception, resulting in total dividends of $45 million for the second quarter. The dividend represented 37% of funds flow from operations for the quarter; however participation in our Dividend Reinvestment Plan is at 63%, resulting in cash dividends of approximately $17 million in the quarter, or 14% of quarterly funds flow from operations.
As at June 30, 2012, PetroBakken had $0.3 billion of debt drawn on our $1.4 billion credit facility. We currently have $1.1 billion of available credit and a debt capital structure with diversified sources of credit and a layered maturity profile that compliments the long term nature of our light oil-focused assets.
We remain active with our Normal Course Issuer Bid, purchasing approximately 2.5 million shares in the second quarter for a total investment of $30.8 million ($12.34/share). Year-to-date we have purchased approximately 3.45 million shares for a total of $46.6 million ($13.52/share).
MANAGEMENT ADDITIONS
We are pleased to announce that Mr. George Gervais has been appointed Vice President, Exploitation effective August 13, 2012. Mr. Gervais is a professional engineer with significant industry experience, who was most recently the VP Business Development at a Canadian intermediate oil and gas company. We are looking forward to the skills and experience George brings to our team.
OUTLOOK
Activity levels have resumed in the second half of the year as we focus on the efficient execution of our 2012 drilling program. Production for July 2012 of 38,250 boepd, based on field estimates, did not materially increase from June as activity was ramping up through the month. However, we currently have 27 net wells waiting to be completed or brought on production and 14 drilling rigs operating within our core Bakken and Cardium areas. With approximately 75% of our wells yet to be drilled in our $875 million 2012 capital program, our production growth will gain momentum in the second half of 2012 as we bring new and existing wells on production. As previously announced, we expect 2012 exit production rates of 52,000 boepd to 56,000 boepd.
SECOND QUARTER FINANCIAL & OPERATING TABLES
The following table provides a summary of PetroBakken's financial and operating results for the three and six months ended June 30, 2012 and 2011. The interim consolidated financial statements with Management's Discussion and Analysis ("MD&A") are available on the Company's website at www.petrobakken.com and will be available on the SEDAR website at www.sedar.com.
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Three months ended
June 30,
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2012 2011 % change
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Financial ($000s, except where noted)
Oil and natural gas revenue 240,205 274,952 (13)
Funds flow from operations (1) 121,390 153,353 (21)
Per share - basic ($) 0.65 0.82 (21)
- diluted ($)(2) 0.62 0.76 (18)
Adjusted net income(1) 25,709 84,162 (69)
Per share - basic ($) 0.14 0.45 (69)
- diluted ($) 0.14 0.45 (69)
Capital expenditures 109,756 113,010 (3)
Net capital expenditures(1) 98,443 91,705 7
Total assets 5,952,929 6,093,444 (2)
Net debt (1) 1,355,437 1,175,511 15
Total debt(1) 1,661,167 1,898,736 (13)
Dividends 45,164 44,947 -
Per share ($) 0.24 0.24 -
Cash dividends 16,554 44,947 (63)
Per share ($) 0.09 0.24 (63)
Payout ratio (%)(1) 37 29 28
Cash payout ratio (%)(1) 14 29 (52)
Common shares, end of period (000)
Basic 187,897 187,230 -
Diluted(2) 209,931 215,958 (3)
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Operations
Oil, NGL and natural gas revenue (3) 67.89 85.02 (20)
Royalties 9.44 13.15 (28)
Production expenses 13.37 15.24 (12)
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Operating netback ($/boe) (1) (4) 45.08 56.63 (20)
Average daily production (4)
Oil and NGL (bbls) 32,236 29,676 9
Natural gas (Mcf) 38,874 33,746 15
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Total (boe) 38,715 35,300 10
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Six months ended
June 30,
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2012 2011 % change
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Financial ($000s, except where noted)
Oil and natural gas revenue 570,566 556,249 3
Funds flow from operations (1) 306,717 326,377 (6)
Per share - basic ($) 1.64 1.74 (6)
- diluted ($)(2) 1.57 1.62 (3)
Adjusted net income(1) 128,318 109,267 17
Per share - basic ($) 0.68 0.58 17
- diluted ($) 0.67 0.58 16
Capital expenditures 316,177 420,491 (25)
Net capital expenditures(1) (311,643) 397,902 -
Total assets 5,952,929 6,093,444 (2)
Net debt (1) 1,355,437 1,175,511 15
Total debt(1) 1,661,167 1,898,736 (13)
Dividends 90,720 89,812 1
Per share ($) 0.48 0.48 -
Cash dividends 42,277 89,812 (53)
Per share ($) 0.23 0.48 (52)
Payout ratio (%)(1) 30 28 7
Cash payout ratio (%)(1) 14 28 (50)
Common shares, end of period (000)
Basic 187,897 187,230 -
Diluted(2) 209,931 215,958 (3)
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Operations
Oil, NGL and natural gas revenue (3) 73.07 79.34 (8)
Royalties 10.80 12.45 (13)
Production expenses 12.95 12.52 3
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Operating netback ($/boe) (1) (4) 49.32 54.37 (9)
Average daily production (4)
Oil and NGL (bbls) 36,286 32,890 10
Natural gas (Mcf) 38,597 33,143 16
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Total (boe) 42,719 38,414 11
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(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) Net of transportation expenses.
(4) Six Mcf (thousand cubic feet) of natural gas is equivalent to one barrel of oil equivalent ("boe").
INVESTOR CONFERENCE CALL
Management of PetroBakken will be holding a conference call for investors, financial analysts, media and any interested persons on Thursday August 9, 2012 at 9:00 a.m. (MDT) (11:00 a.m. EDT) to discuss PetroBakken's second quarter financial and operating results.
The investor conference call details are as follows:
Live call dial-in number: 1-800-901-4804
Replay dial-in numbers: 1-416-626-4100 / 1-800-558-5253
Reservation number: 21601400
Live audio webcast link: http://events.digitalmedia.telus.com/petrobakken/080912/index.php
PetroBakken 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, adding back any losses or deducting any gains on settlement of convertible debentures, 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 plus the full value outstanding on the senior unsecured notes converted to Canadian dollars at the exchange rate on the period end date. 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, our drilling prospect inventory, projected costs, the timing of certain projects 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 and the geological nature of the formations targeted. 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 and general economic conditions. 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 www.sedar.com. 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.
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