Peerless Energy Inc.
TSX : PRY.A
TSX : PRY.B

Peerless Energy Inc.

November 08, 2007 19:32 ET

Peerless Energy Inc. Announces Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2007) - Peerless Energy Inc. (TSX:PRY.A)(TSX:PRY.B)("Peerless" or the "Company") is pleased to report its operating results and the filing of its unaudited interim consolidated financial statements and related management discussion and analysis ("MD&A") for the quarter ending September 30, 2007. Select operational and financial results are outlined below and should be read in conjunction with the Company's unaudited interim consolidated financial statements and related MD&A which can be found at www.peerlessenergyinc.com or www.sedar.com.

HIGHLIGHTS

- Recorded its 10th consecutive quarter of record average production, averaging 3,271 boe/d, representing an increase of 126% over the quarter ended September 30, 2006;

- Achieved cashflow from operations of $8.85 million and cashflow from operations per share of $0.17 representing an increase of 13% over the quarter ended September 30, 2006;

- Invested approximately $12.5 million in drilling 11 (7.6 net) wells for a net success rate of 100%, including 9 (6.5 net) oil wells and 2 (1.1 net) gas wells;

- Maintained its top quartile operating netback, realizing $33.43 per boe;

- Lowered operating and transportation costs collectively per unit by over 8% compared to the quarter ended September 30, 2006;

- Continued to focus its capital program targeting high netback light oil development in the Bakken play at Viewfield, Saskatchewan; and

- Continued to maintain an unlevered balance sheet with a current debt to cashflow ratio of approximately 1X.



FINANCIAL AND OPERATING SUMMARY

Three months ended Nine months ended
September 30, % September 30, %
2007 2006 Change 2007 2006 Change
----------------------------------------------------------------------------
Financial
($000's,
except
share data)
Petroleum
and
natural gas
revenue 15,706 7,723 103 44,407 17,556 153
Cash flow
from
operations(1) 8,850 4,580 93 24,709 10,140 144
Per share -
basic 0.17 0.15 13 0.47 0.37 27
Per share -
diluted 0.17 0.15 13 0.47 0.37 27
Net
earnings
(loss) (2) (1,177) 1,611 (173) (160) 4,565 (104)
Per share -
basic (0.02) 0.05 (140) 0.00 0.17 (100)
Per share -
diluted (0.02) 0.05 (140) 0.00 0.17 (100)
Net debt
and
working
capital
(deficiency) (42,380) (35,828) 18 (42,380) (35,828) 18
Capital
expenditures 12,489 87,135 (86) 40,783 107,581 (62)
Shares
outstanding
Class A 49,705,909 43,725,467 14 49,705,909 43,725,467 14
Class B 855,000 855,000 - 855,000 855,000 -
Options 2,928,334 2,492,667 17 2,928,334 2,492,667 17
Weighted
average
shares
outstanding
Class A 49,641,996 27,756,132 79 49,574,319 24,605,667 101
Class B 855,000 855,000 - 855,000 855,000 -
Conversion
of Class B
shares(3) 1,728,480 1,850,697 (7) 1,728,480 1,850,697 (7)
----------------------------------------------------------------------------
Weighted
average
basic
shares
out-
standing 52,225,476 30,461,829 71 52,157,799 27,311,364 91
Stock
option
dilution
(treasury
method) 953,314 - - 971,302 - -
----------------------------------------------------------------------------
Weighted
average
diluted
shares
out-
standing 53,178,790 30,461,829 75 53,129,101 27,311,364 95
Operating
(units
as noted)
Production
Crude oil
(bbl/d) 1,334 720 85 1,307 493 165
Natural gas
(mcf/d) 9,697 3,742 159 8,726 3,361 160
Natural gas
liquids
(bbl/d) 321 101 218 268 94 185
----------------------------------------------------------------------------
Barrels of
oil
equivalent
(6:1)(boe/d) 3,271 1,445 126 3,029 1,147 164

Average prices
Crude oil
($/bbl) 76.61 75.63 1 68.32 72.16 (5)
Natural gas
($/mcf) 5.45 5.90 (8) 6.84 6.59 4
Natural gas
liquids
($/bbl) 48.70 73.31 (34) 51.27 69.92 (27)
----------------------------------------------------------------------------
Barrels of
oil
equivalent
(6:1)($/boe) 52.19 58.11 (10) 53.70 56.06 (4)
Netbacks
($ per boe)
Petroleum
and natural
gas revenue 52.19 58.11 (10) 53.70 56.06 (4)
Realized gain
on financial
instruments - 0.25 (100) 0.34 0.11 209
Royalties (9.37) (9.56) (2) (9.88) (8.58) 15
Operating
expenses (8.21) (8.25) - (8.66) (8.55) 1
Transportation
expenses (1.18) (1.98) (40) (1.39) (2.24) (38)
----------------------------------------------------------------------------
Operating
netback 33.43 38.57 (13) 34.11 36.80 (7)
Other income 0.18 0.33 (45) 0.25 0.53 (53)
General and
administrative (2.22) (3.46) (36) (2.63) (3.39) (22)
Interest
expense (1.98) (1.90) 4 (1.86) (1.97) (6)
----------------------------------------------------------------------------
Corporate
netback 29.41 33.54 (12) 29.87 31.97 (7)
Wells drilled
Gross 11 7 57 31 24 29
Net 7.6 6.1 25 23.0 17.1 35
Net success
rate (percent) 100 90 11 98 89 10

(1) Management uses cash flow from operations (before changes in non-cash
working capital and asset retirement expenditures) to analyze operating
performance and leverage. Cash flow from operations 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 for other entities.

(2) The three and nine month periods ended September 30, 2007 include
non-cash future income tax expense of $1.7 million and$1.8 million,
respectively. The three and nine month periods ended September 30,
2006 include non-cash future income tax recoveries of $1.4 million and
$3.9 million, respectively.

(3) To calculate weighted average basic shares outstanding, the Class B
shares were converted at the Class A share price for the final 30 days
of the period ended September 30, 2007 of $3.31 (period ended September
30, 2006 - $3.16) and added to the Class A shares.


OPERATIONS OVERVIEW

Peerless' capital program executed in the third quarter of 2007 continued to focus on the Company's high netback light oil properties in southeast Saskatchewan, primarily on the prolific Bakken resource play. The Company also continued to successfully exploit the Midale Marly reservoir at its Colgate and Weyburn properties. In addition, Peerless drilled natural gas wells at Progress, Alberta and Boundary, northeast British Columbia.

During the quarter, Peerless drilled 11 (7.6 net) wells, resulting in 9 (6.5 net) oil wells and 2 (1.1 net) natural gas wells for a success rate of 100%. The drilling activity consisted of 6 (4 net) Bakken horizontal wells, 3 (2.5 net) Midale Marly horizontal wells in southeast Saskatchewan, 1 (1 net) Gething gas well at Progress, Alberta and 1 (0.1 net) Kiskatinaw gas well at Boundary, British Columbia.

Peerless' average production was negatively impacted during the third quarter by plant downtime for its Gold Creek well and compression work at Silver, B.C.

Core Area Review

Southeast Saskatchewan

During the third quarter, Peerless continued to successfully drill horizontal wells in the Bakken resource play, drilling 6 (4 net) oil wells. Four of the Bakken horizontal wells were drilled at the Company's prolific Viewfield property, one at Viewfield North and one at Freestone. All wells were fracture stimulated and were placed on production at the end of the quarter. During the third quarter Peerless began employing a new fracture stimulating technique which has resulted in a significant increase in productivity of a typical Bakken well, with a marginal increase in the capital cost for drilling and completion. Using the new technique Peerless is experiencing first month average production rates of approximately 170 bbl/d of oil with associated gas, compared to an average of 90 bbl/d using the prior completion method.

Starting from zero production and reserves in southeast Saskatchewan, the Company has assembled 24.3 (22.5 net) sections of land in the Bakken resource play, and via the drill bit, has built an operated light oil production base of over 1,500 bbls/d within what has been identified through industry drilling activity as the "sweet spot" of the Bakken prospective fairway. The Company currently has a risked development drilling inventory of more than 135 net drilling locations targeting Bakken light oil. This provides the Company with a 4 - 5 year inventory of drilling locations. Peerless owns and operates all the production facilities and infrastructure which allows for rapid and cost effective tie-in, including gas conservation. In addition Peerless has initiated a plan to capture significant liquids production associated with its Viewfield natural gas production. It is anticipated this work will be completed near the end of the fourth quarter. This operation will provide the Company with 150 - 200 boe/d of incremental production.

Peerless is currently executing its fourth quarter drilling program which will see the Company drill 10 (9 net) Bakken wells. To date, 7 (6.0 net) of these wells have either been drilled or are currently drilling. In addition, Peerless has fracture stimulated one (1 net) of its existing pitchfork tri-lateral Bakken horizontal wells, resulting in a nearly four-fold increase in oil production. Prior to the stimulation, the well was producing at a stabilized rate of 34 bbl/d. Since the frac, it has produced at a rate of 125 bbl/d. Given this initial success, Peerless is budgeting additional fracture stimulations on its remaining 18 (16.6 net) pitchfork tri-laterals. In addition, Peerless is fracture stimulating 2 (1 net) existing single leg horizontals. Both wells should be on production by mid November 2007.

During the third quarter, Peerless also successfully drilled, completed and placed on production 3 (2.5 net) Midale Marly horizontal wells. One (0.5 net) of these wells was a follow-up to an earlier success at the Company's Colgate property and the other 2 (2 net) were at Weyburn.

Peace River Arch

In the third quarter, Peerless drilled 1 (1 net) well on its Progress property in Alberta, which has been completed as a Gething gas well and is standing pending final completion and tie-in. In addition, the Company continued its successful business strategy of farming out portions of its suite of high impact exploration prospects, participating at a 10% capital interest in a high impact Kiskatinaw exploration well at Boundary, British Columbia. Peerless will have an after-earned interest of 40% in this well. The well was completed as a natural gas well and is standing pending final completion and tie-in.

OUTLOOK

Despite an overall weakness in the Canadian domestic junior energy market caused by low natural gas prices and the Alberta royalty review process, Peerless' Saskatchewan focused light oil capital program has allowed the Company to successfully execute its business plan and remain relatively unaffected by the general industry down turn. Although the price for natural gas may experience weakness in the short term, longer term fundamentals point to a strengthening in the price of the commodity. We continue to see relatively low interest rates, high demand for energy and reasonable access to capital markets, which provide for a positive outlook for Peerless going forward.

During this period of relative price weakness, Peerless has dedicated over 95% of its capital budget to drilling and growing its high netback, light oil drilling inventory, while maintaining an unlevered balance sheet. Additionally, the introduction of new completion techniques in its Bakken resource play has allowed the Company's technical team to significantly increase the value of the Company's large drilling inventory.

Peerless aims to be a top quartile performer among the junior oil and gas sector in growth of reserves, production and cash flow per share. In 2007 and beyond, with a focused corporate strategy, Peerless will build upon its strong asset base developed in 2005 and 2006. Our high quality oil and gas assets and considerable undeveloped land holdings offer significant opportunities to increase production through infill drilling, production optimization and exploration drilling.

Peerless is planning to invest in further developing and improving production from its current assets by drilling and completing wells in all four of its core areas. As an opportunity-driven company, Peerless continually seeks out other opportunities and assets that fit within the Company's business model. By effectively managing its strategies, Peerless has assembled a high quality asset base while protecting its balance sheet.

Looking forward, Peerless' expanded capital expenditure budget of $64 million for exploration and development activities for 2007 will be funded by a combination of primarily cash flow and its credit facility. The 2007 capital budget provides for approximately $62 million to be spent on drilling and completion operations, and $2 million on land and seismic. In total, the Company expects to drill a minimum of 34 (30 net) wells in its four project areas targeting high quality, long life sweet natural gas and light oil.

As referred to above, to view Peerless' unaudited interim consolidated financial statements and accompanying MD&A, please visit www.peerlessenergyinc.com or www.sedar.com.

ADVISORY

This press release may contain forward-looking statements including management's assessment of future plans and operations, expectations of future production, cash flow and earnings. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (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, and health, safety and environmental risks), acquisitions, commodity price and exchange rate fluctuation and uncertainties resulting from competition from other producers and ability to access sufficient capital from internal and external sources. Additional information on these and other factors that could affect Peerless' operations and/or financial results are included in Peerless' reports on file with Canadian securities regulatory authorities.

BOE PRESENTATION

Petroleum and natural gas reserves and volumes are converted to an equivalent measurement basis referred to as a "barrel of oil equivalent" ("boe") on the basis of 6 thousand cubic feet of natural gas equal to 1 barrel of oil. This conversion is based on an energy equivalency conversion method applicable at the burner tip and does not represent a value equivalency at the wellhead. Readers are cautioned that boe figures may be misleading, particularly if used in isolation.

The TSX does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Peerless Energy Inc.
    Wade Becker
    President and Chief Executive Officer
    (403) 263-1590
    (403) 263-1591 (FAX)
    or
    Peerless Energy Inc.
    Dan Toews
    Vice President, Finance and Chief Financial Officer
    (403) 263-1590
    (403) 263-1591 (FAX)
    Website: www.peerlessenergyinc.com