Bronco Energy Ltd.
TSX : BCF

Bronco Energy Ltd.

August 12, 2009 17:58 ET

Bronco Announces Second Quarter Results and Operations Update

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2009) -

THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN THE UNITED STATES OR THROUGH US NEWSWIRE SERVICES

Bronco Energy Ltd. ("Bronco" or the "Company") (TSX:BCF) announces the results for the three and six months ended June 30, 2009.



Highlights:

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Three Months Ended Six Months Ended
June 30, June 30,
Financial Information 2009 2008 2009 2008
Cash flow (loss)
from operations(1) (2,764,314) (2,577,411) (5,937,598) (3,198,278)
Per share basic (0.07) (0.08) (0.15) (0.10)
Net loss (6,967,521) (3,587,822) (13,140,097) (5,336,353)
Per share basic (0.18) (0.11) (0.34) (0.16)
Net bank debt
outstanding, end of
period (2) 723,761 (25,889,876) 723,761 (25,889,876)
Net debt
outstanding, end of
period (3) 14,764,908 (10,428,121) 14,764,908 (10,428,121)
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Common shares
outstanding 38,484,212 37,131,756 38,484,212 37,131,756
Options and warrants
outstanding 1,975,000 2,638,789 1,975,000 2,638,789
Options and warrants
exercisable 1,447,167 1,586,458 1,447,167 1,586,458
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Operational
Production
Bitumen produced
and sold (bopd) 829 - 814 -
Natural gas (Mcfpd) 1,868 - 1,563 -
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Combined (boepd) 1,140 - 1,074 -

Netback per BOE
Production revenue
($/boe) (1) 31.42 N/A 20.26 N/A
Royalties ($/boe) 2.46 N/A 2.42 N/A
Operating expenses
($/boe) 11.69 N/A 19.51 N/A
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Operating netback N/A N/A
($/boe) 17.27 (1.67)
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Wells drilled gross(net) - 7.0 (6.7) - 15.0(14.3)
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N/A - The Company did not have any production in the three and six months
ended June 30, 2008.

(1) Management uses cash flow from operations (before changes in non-cash
working and incurred asset retirement expenditures) to analyze operating
performance. Cash flow as presented does not have a standardized meaning
prescribed by GAAP and, therefore, may not be comparable to similar
measures used by other entities.
(2) Net bank debt is calculated as amount owing to the bank under the credit
facility less cash and cash equivalents which are on deposit with the
bank. Net bank debt as presented does not have a standardized meaning
prescribed by GAAP and, therefore, may not be comparable to similar
measures used by other entities.
(3) Net debt is calculated as long-term debt plus current liabilities less
current assets as they appear on the consolidated balance sheet. Net
debt as presented does not have a standardized meaning prescribed by
GAAP and, therefore, may not be comparable to similar measures used by
other entities.


President's Letter to Shareholders

Dear Fellow Share Owners,

The second quarter was a critical turning point for Bronco as the company made significant changes to its leadership, balance sheet, operating philosophy and culture. In February 2009, four new Directors were appointed to the Board. The second quarter saw this newly-constituted Board provided the leadership necessary to focus Bronco's efforts to be a significant member of the junior oil sector.

Production targets are critical and will continue to be the dominant objective of the Management Team. However they must be balanced with organizational and financial controls, project execution standards, effective communication to all stakeholders and an ability for the various groups within an organization to move forward together so that the sum of the parts is greater than the whole. Although we are still a work in progress, I am pleased at the results we have accomplished so far.

A critical component of Bronco's turnaround was a capital infusion. We started the quarter with a working capital deficiency of approximately $22 million and plenty of sleepless nights. Our prospects of quickly generating internal cash to continue to operate as a going concern were slim. Time was not on our side. We were able to find several large shareholders who believed in the Bronco story and had the capability to promptly execute a private placement. These shareholders invested $24 million which gave the Company the financial lifeline needed to get the Company's balance sheet back from the brink of bankruptcy to a position of strength. It allowed us to re-establish good relationships with suppliers and ease the concerns of our bankers. However, most importantly, we now have the time to turn our attention to the task of executing our business plans in a deliberate well controlled manner.

As with the Board, the Management Team also underwent significant changes in the first half of the year. The Team has been reduced in numbers and new personnel were brought in from outside the organization to fill key roles. In addition, the Company reduced staff levels in order to lower its cost structure to a more sustainable level. In order to implement these changes, the Company incurred charges totaling approximately $1.3 million, the majority of which related to buy-outs of employment contracts.

Operational Review

As I discussed in my letter of June 1, 2009, Bronco has 68 Wabiskaw horizontal wells, of which 62 are currently capable of production (water or bitumen). The remaining 6 wells are completed and equipped with production equipment and are in the process of being tied-in. Our capital program will continue to bring the remaining 6 wells on to production during Q3 2009.

Although production was higher this quarter than the first quarter, it fell short of our expectations. We are continuing our methodical evaluation of our asset to determine the optimal method of first stabilizing and then ramping up our production. An example of a key learning was developing a method to ensure a smooth transition within a well as it begins the change-over from water to bitumen production. Water is obviously much easier to pump than bitumen and the dynamics of this change were creating issues with the pump's performance. A relatively inexpensive fix to keep the pressure from changing so dramatically was to periodically inject load oil and, so far, the results have been promising.

Another reason production fell short of expectations was that we had assumed a faster conversion from water to bitumen. Each well has its own characteristics and water must drain from the reservoir before the heavier bitumen will flow. Timing is very difficult to predict but we have seen nothing to tell us the change-over won't occur.

Operating costs also attracted a significant amount of our attention during the quarter. I am pleased with the progress to-date as we have reduced the Company's operating costs by making certain infrastructure investments and process changes. Our current operating costs are in the $18.00 to $19.00 range. We will continue to pursue optimization changes.

A significant amount of geophysical and geological evaluation work has also been performed to ensure our wells have properly targeted the areas where maximum bitumen production will be achieved. This work has indicated that there may be up to 14 wells that may not have been drilled to the optimal target. As a result, these wells may water for a considerably longer period of time than necessary. However, this evaluation is on-going and no firm decisions have been reached.

Marketing Arrangement

This quarter, we changed the way we market our bitumen and improved netbacks considerably. Previously, we shipped by pipeline resulting in only one buyer for our bitumen. We were selling bitumen at a significant discount. Now the bitumen is trucked to various loading terminals where it's blended and sold as heavy oil. This increases the number of buyers and ensures we receive the posted Western Canada Select price for the blend we sell.

Although difficult to quantify given the dynamics of oil price, we believe that the Bronco realized price would have been approximately 15% higher had we been able to implement the new marketing process effective January 1, 2009.

Outlook

I am pleased with our results to-date. However it's still a work-in-progress. We're focused on getting our well count to 68 (it is currently at 62) and the wells that are contributing bitumen production to approximately 50% (currently at 34%) by the end of the year. We are developing a long life asset and although we'll move fast, we'll also do it right and cost effectively.

A key piece of infrastructure is a new treater that will process our bitumen more efficiently than the current treater which does not have the design capability to efficiently process our bitumen and is often a bottleneck. Plans for the installation of the new treater are well underway and we are planning for it to be commissioned sometime in the fourth quarter.

Thanks

I want to thank our share owners and the Bigstone membership for their support, and pledge our commitment to unlocking the tremendous potential of the Bronco/Bigstone Joint Venture lands.

I want to publicly express my appreciation to the Board of Directors. Not only did they provide strong direction; they rolled up their sleeves and actively participated in the re-positioning of Bronco. Their counsel and influence were critical to getting the financing across the finish line. They have devoted their time and energy significantly beyond what would normally be expected of a Board. As a share owner and CEO, I am fortunate they were there during a difficult period in Bronco's life.

Peter Pelensky P Eng., President and Chief Executive Officer

Bronco is a publicly listed junior oil and gas exploration and development company based in Calgary, Alberta. Bronco's shares trade on the TSX under the symbol "BCF".

Copies of the Financial Statements and Management's Discussion and Analysis for the quarter ended June 30, 2009 will be filed with Canadian securities regulators and will be available on SEDAR and can be accessed at www.sedar.com or by visiting Bronco's website at www.broncoenergy.ca.

Disclosure provided in respect of barrels of oil equivalent per day ("boepd") may be misleading, particularly if used in isolation. A boepd conversion ratio of six thousand cubic feet of gas per day ("mcfpd") to one barrel of oil per day ("bopd") is used and is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Forward-Looking Information

All statements in this document, other than statements of historical fact, are forward-looking statements. Such forward-looking statements are made with respect to: oil and natural gas reserves; oil and natural gas production levels; well and facility performance; projections of market prices, oil netbacks, transportation, operating and general administrative costs, budgeted capital expenditures, and the cost and effectiveness of the second treater. We have made assumptions underlying the forward-looking statements which, if inaccurate, could cause actual results to differ materially from those expressed in the forward-looking statements. These assumptions include, among other things: the reserves described can be profitably produced, the future performance of our wells and our current and new facilities, cost and timing of the second treater, the impact of increasing competition for transportation capacity and supplies; our ability to market our oil successfully; capital expenditures being within budget; future oil and gas prices and price differentials between light, medium and heavy oil; our ability to maintain our credit facility and our ability to obtain financing on acceptable terms as required. Actual results may differ materially from those expressed in the forward-looking statements due to unexpected costs or delays relating to the second treater or other risks described in our annual information form and management's discussion and analysis available at www.sedar.com. Readers are cautioned that these lists of assumptions and risk factors should not be considered to be exhaustive.

Contact Information

  • Bronco Energy Ltd.
    Peter J. Pelensky, P. Eng
    President and CEO
    (403) 699-8383
    (403) 693-0038 (FAX)
    or
    Bronco Energy Ltd.
    Paul E. Belliveau, CA
    VP Finance and CFO
    (403) 699-8383
    (403) 693-0038 (FAX)
    Website: www.broncoenergy.ca