Bronco Energy Ltd.

Bronco Energy Ltd.

March 11, 2010 16:30 ET

Bronco Announces Strategic Review Process, 2009 Reserves and Operational Update

CALGARY, ALBERTA--(Marketwire - March 11, 2010) -


Bronco Energy Ltd. ("Bronco" or the "Company") (TSX:BCF) announces that the Board of Directors has appointed a committee of its independent directors to identify, examine and consider strategic alternatives for Bronco. The Committee is chaired by Mr. Jim Dinning and has retained the services of RBC Rundle, a division of RBC Capital Markets, to assist with this process.

"Although we continue to believe in the potential of the Wabasca acreage held by Bronco, it is not in the shareholders' interest for the Company, in its current form, to attempt to capture this potential." stated Peter Pelensky, President and CEO. "The development will be better accomplished by a company with more resources, a more efficient cost structure and a lower cost of capital."

The Company is generating positive cash flow; however the internally generated cash will be insufficient to fund a meaningful capital program. The poorer than anticipated transition of the wells on the East Block of the Wabasca property from water to heavy oil and the determination that the fluid properties are not suitable for secondary recovery means that the Company should not expect the investments made to-date to grow its cash flow.

The Company currently has in excess of $4.5 million of cash and is under no obligation to conduct an accelerated process or to enter into a transaction that is not in the best interest of shareholders. Although previous investments have failed to deliver as expected, limiting the Company's options, Bronco still has valuable assets which include a promising in situ opportunity in the Grand Rapids formation, multiple drilling opportunities in Wabiskaw formation in both of the East and West Blocks, a relatively new heavy oil processing facility and almost $200 million of tax pools.

Production Update

Production in the fourth quarter of 2009 was 1,180 BOE per day, up 8% from the third quarter. The increase is due to higher natural gas production as the heavy oil production was essentially flat when compared to the previous quarter. The gas to oil recovery factor being delivered by the reservoir has grown fairly consistently since production start-up.

West Wabasca Block

The Company had planned to drill five stratigraphic test wells on the West Wabasca Block during the winter of 2009/10 drilling season. The timing of this plan was subsequently revised to drill two wells this winter and the remaining wells in the winter of 2010/11. This change was made in order to preserve capital and maintain a relatively strong balance sheet.

According to the terms of the lease covering the West Block, Bronco is obligated to drill two wells prior to April 17, 2010 and an additional two wells prior to April 17, 2011 to prevent the lease from terminating. As such, the deferral of the wells until next year's winter drilling season did not jeopardize the lease.

However, the Company was unable to initiate its drilling program until mid-February due to a longer than anticipated regulatory approval process. The first well was drilled and the rig was in the process of moving to the second well location when unseasonably warm weather settled into the area. This warm weather caused the ground to thaw enough to preclude the rig from moving into the drilling location and it is unlikely that the second well will be drilled until the next winter season.

Indian Oil and Gas Canada ("IOGC") has the ability to extend the time period allowed to satisfy the drilling requirements when unforeseen circumstances prevent a Company from executing its program. Bronco has contacted IOGC and they have indicated that they will grant an extension so as long as the appropriate Band Council resolution is passed by our joint venture partner, the Bigstone Cree Nation, authorizing IOGC to issue the extension. The Band Council resolution has been passed and a written request has been issued to IOGC.

The results of the well that was drilled were below expectation. Although it encountered a thick channel in the Grand Rapids, there were only 14.5 meters of bitumen over 8.5 meters of water. In the Wabiskaw A formation, there were only 4.5 meters of heavy oil over 3 meters of water.


The following table provides summary information contained in the independent reserve report prepared by McDaniel & Associates as at December 31, 2009 (the "McDaniel Report"). The report was prepared in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Handbook and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI51-101").

Additional reserve information as required under NI51-101 will be included in the Company's Statement of Reserves Data and Other Oil and Gas Information section of the Company's Annual Information Form which will be filed on SEDAR prior to March 31, 2010.


Heavy Natural 2009 2008
Reserve Category (MBBL) (MMcf) (MBOE) (MBOE)
Proved Developed Producing 1,200 2,592 1,632 1,133
Proved Developed Non-Producing 2,231
Proved Undeveloped 1,061 2,340 1,451 2,040

Total Proved 2,261 4,932 3,083 5,404
Probable Additional 569 1,510 821 10,288
Total Proved + Probable 2,830 6,442 3,904 15,692


Before Income Taxes
0% 5% 10% 15% 20%
Reserve Category (M$) (M$) (M$) (M$) (M$)
Proved Developed Producing 24,617 22,970 21,459 20,101 18,894
Proved Undeveloped 24,556 19,077 14,858 11,602 9,069
Total Proved 49,173 42,047 36,317 31,703 27,963
Probable Additional 16,872 12,122 8,882 6,644 5,075
Total Proved + Probable 66,045 54,169 45,199 38,347 33,038


1. The estimated future net revenue information does not necessarily fair
market value. There is no assurance that the forecast price and cost
assumptions contained in the McDaniel Report will be attained and
variations could be material.
2. The pricing assumptions used by McDaniel & Associates are available on
their website at

The quantity of Proved Developed Producing Reserves ("PDP") is up 44% since the end of last year and the net present value assigned to these reserves has increased significantly. The net present value at 10% is currently $21.5 million versus the comparable number for December 31, 2008 of $4.4 million, a 390% increase. The increase in PDP reserves and the net present value results from the Company's ability to lower operating costs and enhance sales tank prices during 2009.

The large decrease in total proved plus probable reserves versus the prior reporting period is mainly due to the determination that the previously anticipated water and polymer flood secondary recovery programs would be ineffective. It has recently been determined that the viscosity (i.e. the measure of the resistance of a fluid to flow) of oil in the East Wabasca Block is too high for water and polymer flood programs to be effective.

This determination, when combined with well performance, has eliminated 92% of the probable reserves as they had been booked based upon the assumption that flood programs would eventually be initiated. The well performance that negatively impacted the reserves is the poorer than anticipated transition from water to oil that was experienced during the year.

The 2008 reserve report included 47.2 million BOE's of possible reserves having a net present value at 10% of $535.3 million. The possible reserves were completely based upon the polymer flood assumption and, as such, no possible reserves have been reflected in the 2009 report.

Asset Impairment

The Company has determined that the carrying value of its Property, Plant and Equipment has become impaired due to the reduction in the reserves. In accordance with Generally Accepted Accounting Principles, if an asset is impaired, the carrying value of the asset should be written down to fair value.

The Company's has estimated the fair value of the East Wabasca producing asset to be $36.8 million using net future cash flows and a discount rate of 16%. The corresponding carrying value of the asset is $149.1 million which indicates an impairment of $112.3 million and this impairment will be recognized as a charge to 2009 in the financial statements to be released prior to the end of March, 2010.

Bank Facility

The Company currently has an undrawn credit facility of $3 million. The impairment charge causes the Company to fail one of the financial covenants contained in the credit facility related to maintaining a Minimum Tangible Net Worth.

In accordance with the terms of the credit facility, the bank has the right to give notice to the Company to remedy the failure within 20 days. If such notice is given, a failure to cure would create an event of default and allow the bank to withdraw the facility. However, given the facility is undrawn and the Company's current cash position, such an action would not have a material adverse impact on the Company.

Convertible Debenture Interest Payment

The next scheduled interest payment to the holders of the Convertible Debentures is due on April 30, 2010. The Company has the option to pay the interest obligation of the Debentures in shares and, at this time, intends to do so in order to preserve its cash. A cash cushion may be needed if a downturn in prices occurs, operational issues are encountered or the strategic process is delayed and the Company has to fund the drilling program to retain the promising West Block sections.

This press release is not an offer to sell securities in the United States. Securities may not be offered or sold in the United States in the absence of registration or an exemption from registration.

Parties interested in further information regarding the strategic review process are advised to contact Mr. Mark McMurray at RBC Rundle, phone number (403)298-9727.

Forward-Looking Statements

Certain statements contained in this news release concerning our well performance, productive capacity of our wells, anticipated or expected production rates; the performance characteristics of our reserves; the extent of the adjustment to our reserves and the related effect on the carrying value of our Property, Plant and Equipment; our capital program; the availability of our credit facility; our plan to pay interest on the Convertible Debentures by issuing shares; the prospects for future financing or strategic alternatives for Bronco; and the value of our assets to a third party constitute forward-looking statements. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment that, based on certain estimates and assumptions, the reserves described can be profitably produced in the future. Although we believe that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

In making the forward-looking statements, we have made assumptions regarding, among other things: the future performance and production of our wells; the value of our assets; our financial resources and condition and ability to maintain our credit facility; our ability to obtain financing on acceptable terms as required; and our ability to negotiate and consummate an acceptable strategic transaction.

Some of the risks and other factors could cause results to differ materially from those expressed in the forward-looking statements include, but are not limited to: geological, technical, drilling and processing problems and other difficulties in producing reserves; unanticipated operating events or performance; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; geological, technical, drilling, processing and transportation problems; and the other factors described in our public filings including our Annual Information Form dated March 30, 2009 and our management discussion and analysis of financial conditions for the year ended December 31, 2008, available at Readers are cautioned that this list of risk factors should not be construed as exhaustive. Further, there is the risk that Bronco will not successfully negotiate a suitable strategic transaction or have the capital resources to sustain itself until such a transaction can be negotiated and consummated.

The forward-looking statements contained in this document are expressly qualified by this cautionary statement. We undertake no duty to update any of the forward-looking statements to conform such statement to actual results or to changes in our expectations except as otherwise required by applicable securities legislation.

Contact Information

  • Bronco Energy Ltd.
    Peter J. Pelensky
    President and CEO
    (403) 699-8383
    (403) 693-0038 (FAX)
    Bronco Energy Ltd.
    Paul E. Belliveau
    VP Finance and CFO
    (403) 699-8383
    (403) 693-0038 (FAX)