Pan Orient Energy Corp.
TSX VENTURE : POE

Pan Orient Energy Corp.

November 26, 2009 08:00 ET

Pan Orient Energy Corp.: 2009 Third Quarter Financial & Operating Results and Operations Update

CALGARY, ALBERTA--(Marketwire - Nov. 26, 2009) - Pan Orient Energy Corp. ("Pan Orient") (TSX VENTURE:POE) is pleased to provide highlights of its 2009 third quarter consolidated financial and operating results. Please note that all amounts are in Canadian dollars unless otherwise stated.

The Corporation today filed its unaudited consolidated financial statements as at and for the three and nine months ended September 30, 2009 and related management's discussion and analysis with Canadian securities regulatory authorities. Copies of these documents may be obtained online at www.sedar.com or the Corporation's website, www.panorient.ca.

2009 THIRD QUARTER HIGHLIGHTS

- Pan Orient has directed Thailand capital programs in 2009 to the drilling of exploration and appraisal wells to add new reserves and associated new development drilling opportunities setting the stage for growth in 2010. The main focus for the third quarter has been appraisal drilling to further define the discoveries at Bo Rang and L44-W made earlier in the year. During the first nine months of 2009 Pan Orient has reinvested $35.6 million in Thailand including drilling, significantly increased water handling capability and future drilling location land purchase and construction. Capital expenditures in Thailand have been fully funded by production in Thailand which has generated $43.8 million in funds flow from operations during this period.

- The 18 wells drilled in the first nine months of 2009 have resulted in twelve producing oil wells, one well at NSE-J2 currently awaiting perforating and testing, and five wells that were not capable of production. This represents a drilling success rate of 71%. Drilling success during the first nine months of 2009 has included significant appraisal wells at NSE-E2 and NSE-H1, new volcanic field / pool oil discoveries at NSE-F1, L44-W, NSE-H3, Bo Rang "A" and Bo Rang "B", and the discovery of a new producing sandstone reservoir at NSE-J1.

Capital expenditures of $12.4 million in the third quarter included three new wells at L44W (L44-W2, L44-W3 and L44-W4) and continued well operations at Bo Rang with sidetracks at L44-V and Bo Rang-1RD. During the third quarter of 2009 independent third party resource estimates were made by Gaffney Cline and Associates (GCA) for the 2009 discoveries at the Bo Rang "A" and "B" structures, L44-W and NSE-F1 in L44. The results of this evaluation as at August 31, 2009 were an additional 16.9 MMbl (net) of 2C contingent resource volumes for the Bo Rang "A" and "B" and L44-W structures, and 6.1 MMbl (net) of best case prospective resource volumes for the NSE F1. The contingent resource estimates are contingent upon Government of Thailand approval of the Company's production license application for those areas. The annual independent assessment of reserve volumes at year-end will determine reserves for all properties incorporating drilling results between August 31 and December 31, 2010.

- Thailand production volumes for the third quarter of 3,648 BOPD were consistent with the previously announced guidance of 3,300 to 3,700 BOPD, but were lower than the 4,840 BOPD produced in the second quarter of 2009. Production declined during the third quarter of 2009 as production additions from new wells did not replace the production declines. This reflects the emphasis in 2009 on exploration and appraisal drilling to better define recent discoveries. Current production is approximately 3,835 bopd with an additional 300 bopd, (4,135 bopd total production capacity) currently shut-in until the granting of a new production license over Bo Rang, L44-W and NSE-F1, anticipated in late December 2009. Three additional Bo Rang "B" horizontal development wells and two L53 concession exploration wells are anticipated to be drilled and tested prior to year end.

- On a year to date basis, average production for the first three quarters of 2009 was 4,875 BOPD compared with 4,263 BOPD for the fist three quarters of 2008.

- The operating results for Pan Orient in the third quarter of 2009 compared to the previous quarter reflect higher crude oil prices, lower production volumes, and foreign exchange gain recognized upon realization of the entire non-permanent portion of Pan Orient's investment in Thailand.

-- Funds flow from operations for the quarter was $11.2 million compared with $16.6 million for the second quarter of 2009 and $17.4 million for third quarter of 2008. Funds flow from operations per share (diluted) was $0.23 for the third quarter of 2009 and $0.90 year to date. The decrease in funds flow from operations compared with the second quarter of 2009 is primarily the result of the lower revenue from a 25% decrease in production levels and higher income taxes in Thailand, partially offset by a 13% increase in the realized price for crude oil.

-- There was net income of $10.6 million, or $0.23 per share, for the three months ended September 30, 2009 compared with a net loss of $5.3 million, or a loss of $0.12 per share, for the second quarter of 2009. In the third quarter of 2009, the Company recorded a realized foreign exchange gain of $3.8 million and an unrealized foreign exchange gain of $1.3 million compared with a realized foreign exchange gain of $0.7 million and an unrealized foreign exchange loss of $11.8 million in the second quarter of 2009.

On a year to date basis, Pan Orient reports net income of $8.1 million, or $0.18 per share to September 30, 2009 compared with net income of $20.9 million, or $0.46 per share, for the comparable period in 2008.

-- Foreign exchange is a significant factor in determining 2009 net income and will likely continue to be so in future periods because of the accounting treatment required under GAAP with regards to foreign exchange on our interests in Thailand.

A realized foreign exchange gain of $3.9 million was recorded in the third quarter of 2009 on the recovery of Pan Orient's intercompany loan portion of its investment in Thailand. The intercompany loans were primarily denominated in U.S. dollars and Thai baht, spanning a period of almost four years at varying exchange rates and resulted in an accumulated translation gain recorded on the balance sheet. This accumulated foreign currency gain related to the intercompany loans was reclassified to net earnings in the periods of settlement of the underlying loans resulting in a consequential increase to net income for the third quarter. This realized exchange gain is reported as an investing activity and is not part of operating activities or part of funds flow from operations.

Unrealized gains or losses, which are substantially all related to the translation of the Company's Thailand assets and liabilities commencing April 1, 2009 are a function of the change in the exchange rate between the Canadian dollar and Thai baht as well as the changes in the net asset balance. An unrealized foreign exchange gain of $1.3 million was recorded in the third quarter as the decline in the net assets offset the increase in the Canadian dollar. An unrealized foreign exchange loss of $11.8 million was recorded in the second quarter of 2009 because both net assets and the Canadian dollar increased during the period. The year-to-date loss of $10.5 million reflects the strength of the Canadian dollar and an increase in net assets through 2009.

- For the third quarter of 2009, operations in Thailand generated $11.2 million in funds flow from operations, with transportation expenses of $2.35 per barrel, operating expenses of $5.95 per barrel, and funds flow from operations per barrel of $33.42. The WTI reference price for crude oil increased 15% during the quarter to US$67.89 per barrel from US$59.20 per barrel in the second quarter of 2009, but declined from US$117.62 in the third quarter of 2008. Operating expenses increased to $2.0 million or $5.95 per barrel in the third quarter from $1.9 million or $4.24 per barrel in the second quarter of 2009 as a result of lower production levels and additional expenses for maintenance and water hauling. For the third quarter of 2009, Thailand crude oil revenue was allocated 15% to expenses for other royalties, transportation, operating, and general & administrative, 36% to the government of Thailand in the form of royalties, Special Remuneratory Benefit and Income Tax, and 49% to Pan Orient (before interest income and realized foreign exchange gain).

The Special Remuneratory Benefit as a percentage of crude oil sales was lower in the third quarter due to the level of capital investment in L44, which is a direct write-off in the calculation of SRB. For the calculation of Thailand income tax, exploratory expenses for producing concessions (including expenditures for drilling and representing 70% of capital expenditures) are fully deductible, other capital expenditures in the field (representing 24% of capital expenditures) are deducted as tax depletion based on the amount of production compared to the reserve base, and additions to the inventory of capital items (representing $1.9 million or 6% of capital expenditures) are not deductible until used in field operations. Income taxes for the third quarter increased due to a revised estimate for tax depletion. The actual amount of tax depletion for the year will be determined using the year-end reserve reports.

On a year to date basis, Thailand operations have generated $43.8 million in funds flow from operations after tax, or $32.87 per barrel. For the first three quarters of 2009, Thailand crude oil revenue was allocated 15% to expenses for other royalties, transportation, operating, and general & administrative, 28% to the government of Thailand in the form of royalties, Special Remuneratory Benefit and Income Tax, and 57% to Pan Orient (before interest income and realized foreign exchange gain).

- Capital expenditures in Indonesia were $3.5 million for the third quarter and $8.5 million for the nine months ended September 30, 2009. These expenditures were related to seismic programs being conducted in both the Citarum Production Sharing Contract area and Batu Gajah Production Sharing Contract area.

- Pan Orient continues to maintain its financial strength and flexibility. At September 30, 2009 Pan Orient had $39.8 million of working capital and deposits, and no long-term debt. For the nine months ended September 30, 2009 Pan Orient had internally generated funds flow from operations of $43.0 million, funding 97% of the $44.5 million of capital expenditures in Thailand, Indonesia and Canada. In addition, at September 30, 2009 Pan Orient had $8.8 million of equipment inventory to be utilized for future Thailand and Indonesia operations that is included in petroleum and natural gas assets on the balance sheet.

2009 DRILLING ACTIVITY YEAR TO DATE

Significant results of drilling activity at L44 (Pan Orient 60% and Operator) include:

-- NSE-D2 - appraisal well on production with 2009 Q3 production of 66 BOPD (gross)

-- NSE-F1 - new pool discovery establishing commercial production 1 kilometer from the nearest NSE field producer. Well on production with 2009 Q3 production 43 BOPD (gross)

-- NSE-H1 - appraisal well on production with 2009 Q3 production of 402 BOPD (gross)

-- NSE-H2 - appraisal well on production with 2009 Q3 production of 111 BOPD (gross)

-- L44-W - exploration well with significant new oil field discovery straddling concessions L44 and L33. Well temporarily shut-in at the end of the 90 day production test allowance awaiting granting of production license for the L44W and Bo Rang areas. Production of 480 BOPD (gross) in July before it was shut-in.

-- NSE-E2 - appraisal well on production with 2009 Q3 production of 758 BOPD (gross)

-- NSE-H3 - new pool discovery in previously untested volcanic reservoir and production in 2009 Q3 production of 70 BOPD (gross)

-- NSE-I1 - exploration well into previously untested volcanic reservoir unsuccessful after initial oil production but started producing 100% water

-- NSE-J1 - discovery of a new producing sandstone reservoir and production in 2009 Q3 of 57 BOPD (gross)

-- Bo Rang-1 RDST1 - exploration well and the first horizontal well drilled into the Bo Rang "A" reservoir on production with 2009 Q3 average production of 115 BOPD

-- NSE-J2 - development well with initial oil production but started producing 100% water. The well will be perforated and tested in the upper sandstone zone corresponding to oil production at NSE-J1.

-- Bo Rang-2ST1 - exploration well and the Bo Rang "B" (upper volcanic) field discovery well which confirmed testing of oil at commercial rates. Well on production in later in 2009 Q3 and October 2009 production of 30 BOPD (gross)

-- L44W-4ST1 - appraisal well and the first horizontal well drilled into the L44-W structure. The well started a 90 day test allowance period in November with production of 650 BOPD and approximately 0.5 MMcfg/d of natural gas (with natural gas production decreasing).

-- L44W-3ST1 - horizontal appraisal well drilled to test the down dip extent of the L44-W oil accumulation. The well flowed only formation water and was unsuccessful, however a sidetrack is planned in early 2010 to evaluate two shallow volcanic zones.

-- L44V-D2ST2 - appraisal well and the second horizontal well drilled into the Bo Rang "A" field. The well started a 90 day test allowance period in November with production of 548 BOPD.

Pan Orient has the following wells which started drilling after September 30, 2009 at L44 (Pan Orient 60% and Operator) and are in various stages of drilling and testing:

-- Si Thep-2 - exploration well drilled nine kilometers south of the NSE South field. Testing indicated the main volcanic objective at 1,038 meters to be tight however drilling encountered the shallow sands producing in Si Thep-1 and a nine meter thick sand at 870 meters which is currently testing.

-- Bo Rang-3D1 - first horizontal well into the Bo Rang "B" reservoir at a depth of 446 meters which has started a 90 day test allowance period in November with production at 700 BOPD, and confirmed Bo Rang "B" field as highly commercial.

-- Bo Rang-4D1 - currently drilling

Pan Orient is currently drilling the L53-A exploration well at L53 (Pan Orient 100%) and it is expected to drill to final target depth by the end of November.

THAILAND OPERATIONS UPDATE

Concession L44

The Bo Rang "B" horizontal development well BR-4D1 is currently approaching total depth. This is the second horizontal to be drilled into this field with two more horizontal wells planned to be drilled and tested prior to year end. Testing is still underway way at Si Thep-2 with results to be reported when completed in approximately 10 days.

Thailand production volumes for the third quarter of 3,648 BOPD were consistent with the previously announced guidance of 3,300 to 3,700 BOPD. Current production is approximately 3,835 BOPD with an additional 300 BOPD, (4,135 BOPD total production capacity) currently shut-in until the granting of a new production license over Bo Rang, L44-W and NSE-F1, anticipated in late December 2009. Three additional Bo Rang "B" horizontal development wells are anticipated to be drilled and tested prior to year end. The Company anticipates an exit production rate for 2009 of between 5,000 to 6,000 BOPD as stated at the end of the second quarter.

Production is anticipated to ramp up in early 2010 upon the approval of approximately 18 multi well surface drilling pad locations at Bo Rang "B", L44-W and NSE-F1 in late November and the granting of a new production license by year end.

Concession L53

L53-A, The first of two exploration wells to be drilled in concession L53 prior to year end 2009 is currently drilling ahead at a depth of 1,270m total depth and is anticipated to finish drilling in the next 10 days. Immediately upon completion of L53-A, drilling will commence on the L53-D prospect.

INDONESIA OPERATIONS UPDATE

Seismic programs are currently underway in both Batu Gajah (POE: 90% WI) and Citarum (POE-69% WI) production sharing contracts. Completion of both programs is anticipated in Q2/10 and a multiwell exploration drilling program to commence in both contracts in the second half of 2010.

To view a map of Thailand 2009 Drilling, please visit the following link: http://media3.marketwire.com/docs/1126poe.pdf



--------------------------------------------------
Operations Summary
(thousands of Canadian Three Months Ended Period Ended
dollars except where September 30, September 30,
indicated) 2009 2008 2009 2008 Change
----------------------------------------------------------------------------
FINANCIAL
----------------------------------------------------------------------------
Oil revenue, before
royalties and
transportation expense 22,824 43,241 75,956 111,225 -32%
(Note 1)
Funds flow from operations 11,189 17,366 43,005 38,924 10%
Per share - basic $ 0.24 0.38 $ 0.94 $ 0.86 9%
Per share - diluted $ 0.23 0.35 $ 0.90 $ 0.80 12%
Funds flow from operations
by region (Note) 1)
Canada (68) (1,275) (654) (2,659)
Thailand 11,218 18,821 43,750 41,763 5%
Indonesia 39 (180) (91) (180)
----------------------------------------
Total 11,189 17,366 43,005 38,924 10%
----------------------------------------
----------------------------------------
Net Income 10,617 9,058 8,149 20,939 -61%
Per share - basic $ 0.23 $ 0.20 $ 0.18 $ 0.46 -61%
Per share - diluted $ 0.22 $ 0.19 $ 0.17 $ 0.43 -60%
Working capital 34,689 37,663 34,689 37,663 -8%
Working capital plus
deposits 39,830 40,022 39,830 40,022 0%
Long-term debt - - - -

Capital expenditures
(Note 2) 16,033 13,627 44,535 23,893 86%
Shares outstanding
(thousands) 46,163 45,650 46,163 45,650 1%
----------------------------------------------------------------------------
Funds flow from operations
per barrel
----------------------------------------------------------------------------
Canada operations $ (0.21) $ (3.23) $ (0.50) $ (2.27)
Thailand operations 33.42 47.67 32.87 35.75 -8%
Indonesia operations -
G&A expense 0.13 (0.45) (0.06) (0.13)
----------------------------------------
$ 33.34 $ 43.99 $ 32.31 $ 33.35 15%
----------------------------------------------------------------------------
Capital Expenditures
(Note 2)
----------------------------------------------------------------------------
Thailand 12,403 10,700 35,645 20,859 71%
Indonesia 3,528 2,116 8,539 2,116 304%
Canada 102 811 351 918 -62%
----------------------------------------
Total 16,033 13,627 44,535 23,893 86%
----------------------------------------------------------------------------
Working Capital and
Deposits
----------------------------------------------------------------------------
Working Capital & Deposits
- beginning of period 41,969 36,323 46,386 40,763 14%

Funds flow from
operations (Note 1) 11,189 17,366 43,005 38,924 10%
Capital expenditures
(Note 2) (16,033) (13,627) (44,535) (23,893) 86%
Indonesia acquisition - (8) - (15,414)
Realized gain on Thailand
investment 3,897 - 3,897 -
Unrealized effect of FX
on non-cash working
capital 2,187 88 (4,519) (785)
Unrealized effect of FX
on cash balance (3,354) 633 (4,929) 750
Net (expenditures)
proceeds on share
transactions (25) (753) 525 (323)
----------------------------------------
Working Capital & Deposits
- end of period 39,830 40,022 39,830 40,022 0%
----------------------------------------------------------------------------
Canada Operations
----------------------------------------------------------------------------
Interest income 7 86 30 415 -93%
General and administrative
expense 5 (1,038) (1,090) (2,143) -49%
Realized foreign exchange
gain (loss) (77) 296 445 (312) -220%
Foreign new ventures
expenditures (3) (619) (39) (619) -94%
----------------------------------------
Funds flow from operations (68) (1,275) (654) (2,659)
Funds flow from operations
per barrel
Interest income $ 0.02 $ 0.22 $ 0.02 $ 0.36 -94%
General and
administrative expense 0.01 (2.63) (0.82) (1.83) -55%
Realized foreign exchange
gain (loss) (0.23) 0.75 0.33 (0.27)
Foreign new ventures
expenditures (0.01) (1.57) (0.03) (0.53) -94%
----------------------------------------
$ (0.21) $ (3.23) $ (0.50) $ (2.27)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Thailand Operations
----------------------------------------------------------------------------
Total production 335,584 394,769 1,330,887 1,168,137 14%
Average daily oil
production (bbls/d) 3,648 4,291 4,875 4,263 14%
Average oil sales price,
before transportation
(CDN$/bbl) $ 68.01 $ 109.53 $ 57.07 $ 95.22 -40%
Reference Price (volume
weighted) and differential
Crude oil (WTI $US/bbl) $ 67.89 $ 117.62 $ 54.51 $ 112.71 -52%
Exchange Rate $US/$Cdn 1.111 1.041 1.184 1.018 16%
Crude oil (WTI $Cdn/bbl) $ 75.43 $ 122.43 $ 64.54 $ 114.78 -44%
Sales price / WTI
reference price 90% 89% 88% 83% 5%
Funds flow from operations
Crude oil sales 22,824 43,241 75,956 111,225 -32%
Government royalty (1,414) (2,711) (5,385) (7,131) -25%
Other royalty (34) (97) (77) (280) -73%
Transportation expense (787) (1,032) (3,105) (2,994) 4%
Operating expense (1,996) (907) (5,277) (2,696) 96%
----------------------------------------
Field Netback 18,593 38,494 62,112 98,124 -37%
General and
administrative expense (621) (559) (2,658) (1,718) 55%
Interest Income 5 123 394 152 159%
Special Remuneratory
Benefit (SRB) (592) (8,196) (4,883) (29,132) -83%
Current income tax (6,167) (11,041) (11,215) (25,663) -56%
----------------------------------------
Funds flow from
operations 11,218 18,821 43,750 41,763 5%
----------------------------------------
----------------------------------------
Funds flow from operations
per barrel (CDN$/bbl)
Crude oil sales $ 68.01 $ 109.53 $ 57.07 $ 95.22 -40%
Government royalty (4.21) (6.77) (4.05) (6.19) -35%
Other royalty (0.10) (0.34) (0.06) (0.16) -63%
Transportation expense (2.35) (2.61) (2.33) (2.56) -9%
Operating expense (5.95) (2.30) (3.96) (2.31) 72%
----------------------------------------
Field Netback 55.40 97.51 46.67 84.00 -44%
General and
administrative expense (1.85) (1.42) (2.00) (1.47) 36%
Interest Income 0.01 0.31 0.30 0.13 131%
Special Remuneratory
Benefit (SRB) (1.76) (20.76) (3.67) (24.94) -85%
Current income tax (18.38) (27.97) (8.43) (21.97) -62%
----------------------------------------
Thailand - Funds flow
from operations $ 33.42 $ 47.67 $ 32.87 $ 35.75 -8%
----------------------------------------
----------------------------------------
Government royalty as
percentage of sales 6% 6% 7% 6% 1%
SRB as percentage of crude
oil sales 3% 19% 6% 26% -20%
Income tax as percentage
of crude oil sales 27% 26% 15% 23% -8%
As percentage of crude oil
sales
Expenses - transportation,
operating, G&A and other 15% 6% 15% 7% 8%
Government royalty, SRB
and income tax 36% 51% 28% 56% -27%
Funds flow from
operations, before
interest income
and realized foreign
exchange gain 49% 43% 57% 37% 20%

Wells drilled

Gross 3 6 18 15 20%
Net 1.8 3.6 10.8 9.0 20%
----------------------------------------------------------------------------
(1) Funds flow from operations ("funds flow" before changes in non-cash
working capital and reclamation costs) is used by management to analyze
operating performance and leverage. Funds flow as presented does not
have any standardized meaning prescribed by Canadian GAAP and therefore
it may not be comparable with the calculation of similar measures of
other entities.
Funds flow is not intended to represent operating cash flow or operating
profits for the period nor should it be viewed as an alternative to cash
flow from operating activities, net earnings or other measures of
financial performance calculated in accordance with Canadian GAAP.
All references to funds flow throughout this report are based on funds
flow from operations before changes in non-cash working capital and
reclamation costs.
(2) Cost of capital expenditures, excluding any asset retirement obligation
and excluding the impact of changes in foreign exchange rates.


Pan Orient is a Calgary, Alberta based oil and gas exploration and production company with operations currently located onshore Thailand, Indonesia and in Western Canada.

This news release contains forward-looking information. Forward-looking information is generally identifiable by the terminology used, such as "expect", "believe", "estimate", "should", "anticipate" and "potential" or other similar wording. Forward-looking information in this news release includes, but is not limited to, references to: well drilling programs and drilling plans, estimates of reserves and potentially recoverable resources, and information on future production and project start-ups. By their very nature, the forward-looking statements contained in this news release require Pan Orient and its management to make assumptions that may not materialize or that may not be accurate. The forward-looking information contained in this news release is subject to known and unknown risks and uncertainties and other factors, which could cause actual results, expectations, achievements or performance to differ materially, including without limitation: imprecision of reserve estimates and estimates of recoverable quantities of oil, changes in project schedules, operating and reservoir performance, the effects of weather and climate change, the results of exploration and development drilling and related activities, demand for oil and gas, commercial negotiations, other technical and economic factors or revisions and other factors, many of which are beyond the control of Pan Orient. Although Pan Orient believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurances that the expectations of any forward-looking statements will prove to be correct.

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 release.

Contact Information

  • Pan Orient Energy Corp.
    Jeff Chisholm
    President and CEO
    (403) 294-1770
    or
    Pan Orient Energy Corp.
    Bill Ostlund
    Vice President Finance and CFO
    (403) 294-1770
    www.panorient.ca