Americas Petrogas Inc.
TSX VENTURE : BOE

Americas Petrogas Inc.

May 02, 2011 23:19 ET

Americas Petrogas Announces 2010 Results and Reserves

Company Reports First Year of Production and Revenues, 110% Increase in Value of Total Proved plus Probable Reserves, Cash and Cash Equivalents of $42 Million (plus subsequent Bought Deal of $50 Million)

CALGARY, ALBERTA--(Marketwire - May 2, 2011) - Americas Petrogas Inc. ("Americas" or the "Company") (TSX VENTURE:BOE) announces that earlier today, it filed its 2010 audited consolidated financial statements and Management's Discussion and Analysis (MD&A) relating to its 2010 year-end results. The Company also filed the disclosure and reports relating to reserves data and other oil and gas information required pursuant to National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities. These filings can be accessed electronically on the System for Electronic Document Analysis and Retrieval (SEDAR) website: www.sedar.com. All amounts are in Canadian dollars unless otherwise stated.

Highlights
  • The Company brought onstream its first production at its own facilities and sold 99,530 barrels of oil during 2010, generating $5.38 million of gross revenues and $4.07 million of net revenues.
  • The Company completed its minimum contractual commitments on the Medanito Sur block and applied for an exploitation concession. The granting of the exploitation concession would allow the Company to move to a development stage on the block, which is currently producing from three exploration wells.
  • The Company, in conjunction with its co-venturers, drilled five wells on the Vaca Mahuida block. All five wells encountered hydrocarbons in one or more geological formations. Of those five wells, three tested from 1.0 million cubic feet to 2.2 million cubic feet per day of dry natural gas. The remaining two wells showed hydrocarbons but not at economic levels. Late in the second quarter of 2010, the co-venturers on the Vaca Mahuida project applied to the Rio Negro provincial government for an exploitation concession on the entire 253,000-acre block.
  • The Company drilled three exploration wells on the Los Toldos II block. All three wells had oil and gas shows in several zones but were ultimately determined to be uneconomic. Looking ahead, the Company continues to be interested in this block and the other three Los Toldos blocks for their potential deeper conventional oil and gas and unconventional shale gas, shale oil, and tight sands gas.
  • In Peru, the Company commenced new activities or completed previous preliminary work performed in past years, including the completion of a cost analysis, confirmatory development appraisal and exploration drilling, re-processing of geophysical data, natural-recharge studies, environmental analyses, laboratory testing of samples and pilot plant operation. In February 2011, the Company began a phosphate drilling program.
  • The Company was successful in raising $53.5 million of financing in 2010.
  • The Company increased the value of its total before-tax Proved plus Probable Reserves by over 110%.
  • Subsequent to year-end, in March 2011, the Company completed a bought-deal private placement raising aggregate gross proceeds of $50 million from the issuance of 20,162,000 common shares at $2.48 per share.

"In 2010, Americas Petrogas successfully initiated production at its Company-owned facilities at Medanito Sur in the Neuquen Basin, Argentina and increased the value of its Total Proven and Probable Net Reserves by over 110%," said Barclay Hambrook, President and CEO of Americas Petrogas Inc. "As of the current date, the Company has approximately $85 million cash for capital and other expenditures during the coming months. This will provide for an expanded drilling program of conventional wells, mostly development wells, and larger facilities on our eastern blocks. This capital will also allow us to drill up to 7 shale exploration wells on our large land portfolio consisting of 1.6 million acres (gross) spread over 9 large blocks in the Western shale corridor of the Neuquen Basin. The spudding of our first shale exploration well, with our partner and operator Apache Corporation, began earlier in April (news release April 13, 2011) with the primary target being the thick Vaca Muerta shale formation. Management's opinion is that Argentina's Neuquen Basin offers the potential to become the next major shale gas, shale oil play outside of North America and our experienced team in Argentina is ready for this next phase of the Company's continuing organic growth," concluded Hambrook.

He went on to say: "In Peru, the Company has been actively progressing on its potash brine project, with the completion of a cost analysis, confirmatory appraisal and exploration drilling, environmental analyses, laboratory testing of samples and operation of a small pilot plant. Advantages of our project arise from the increasing price of potash fertilizer, combined with relatively low capital investment, low operating costs, growing regional and international markets and our strategic partnership with IFFCO."

Results

20102009
For the year ended December 31
Net Revenue (1)$4,153,241$34,686
Net Income (Loss)$(9,982,538)$4,001,673
Earnings (Loss) per share, basic and diluted$(0.081)$0.043
Cash flow used in operations$(3,951,035)$(3,199,832)
Capital expenditures on property and equipment$(20,663,970)$(4,674,139)
As of December 31
Cash and cash equivalents$42,536,291$14,483,513
Working capital$36,782,873$12,976,741
Total assets$99,726,071$52,856,802
Long-term debt$3,675,324Zero
Non-controlling interest$2,820,377$1,588,132
Total shareholders' equity$85,406,241$49,614,126
Net Reserves (BOE) (2) (3)
Total Proved (1P)1,260,000631,000
Total Proved plus Probable (2P)11,866,0009,538,000
Total Proved plus Probable plus Possible (3P)60,949,00052,685,000
Notes:
(1)Net Revenue is gross revenue, including interest income, net of royalties and turnover taxes. For 2009, net revenue consisted of interest income only.
(2)BOE = barrels of oil equivalent. Conversion of natural gas to BOE on the basis of 1 BOE to 6 thousand cubic feet (Mscf) of natural gas. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 1 BOE for 6 Mscf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
(3)The information contained herein for 2010 has been derived from a reserve report dated March 4, 2011 (effective as of December 31, 2010) prepared by Chapman Petroleum Engineering Ltd. ("Chapman"). The information contained herein for 2009 has been derived from a reserve report dated April 26, 2010 (effective as of December 31, 2009) prepared by Chapman. Reserves classification referenced herein shall have the meanings ascribed thereto in the Canadian Oil and Gas Evaluation ("COGE") Handbook.

Operational Highlights

Medanito Sur

In the period from June 2008 to July 2010, the Company drilled and completed five exploration wells on the Medanito Sur block. All five exploration wells drilled on the block discovered light (30 degrees API) sweet crude oil. As a result of drilling the fifth well, the Company completed its minimum contractual commitments on the Medanito Sur block.

In the latter half of 2010, the Company completed a sixth well which was originally licensed as a water disposal well. However, when the well was drilled, hydrocarbon shows and log responses led the Company to further study and reconsider the well's status. Consequently, late in 2010 the Company recompleted the well to convert it from a water disposal well into a producing well. The well discovered light (31 degrees API) sweet crude oil and natural gas.

Oil production on the Medanito Sur block began in early 2010 and the Company is currently producing oil from three wells using our own facilities. Two non-producing wells have been shut-in due to low yields and high water content while another well is waiting to be tied in. Seismic interpretation along with the recent production history on the Medanito Sur block has led to the identification of 25 development drilling locations.

In 2010, the Company applied for an exploitation concession on the entire Medanito Sur block. The granting of the exploitation concession would allow the Company to move to a more economically-favorable and longer-term development stage on the block, which is currently producing from exploration wells. The application is pending.

Los Toldos II

Beginning in August 2010, the Company drilled three consecutive medium-depth exploration wells on the Los Toldos II block. These exploration wells satisfied the minimum work commitment for the first phase of exploration on the block. All three wells had oil and gas shows in several zones but were ultimately determined to be uneconomic. Looking ahead, the Company continues to be interested in this block and the other three Los Toldos blocks for their potential for deeper conventional oil and gas and unconventional shale gas, shale oil and tight sands gas.

Gobernador Ayala IV

The Company completed a 3D seismic data acquisition program on Gobernador Ayala IV in August 2010. In March 2011, the Company drilled and cased its first well on the block. Testing of the well is pending.

Loma Ranqueles

In the third quarter of 2010, the Company completed a 3D seismic data acquisition program on Loma Ranqueles. Analysis and interpretation of the seismic data acquired are ongoing.

Vaca Mahuida

In January 2010, the Company entered into a farm-in agreement with a subsidiary of Petrolifera Petroleum Limited ("Petrolifera"), a company that was subsequently acquired by Gran Tierra Energy Inc., to acquire a 25% working interest in Petrolifera's 253,000 acre (approximately 1,025 square kilometers) Vaca Mahuida block in the province of Rio Negro, Argentina. The Vaca Mahuida block is located south of the Medanito Sur block. The Company along with its co-venturers drilled five wells on the Vaca Mahuida block during the first half of 2010. All five wells encountered hydrocarbons in one or more geological formations. Of those five wells, three tested 1.0 million cubic feet to 2.2 million cubic feet per day of dry natural gas. The remaining two wells showed hydrocarbons but not at economic levels. Late in the second quarter of 2010, the owners of the Vaca Mahuida block applied to the Rio Negro provincial government for an exploitation concession on the entire block. The application is pending.

Rinconada Norte

In June 2010, the Company entered into a farm-in agreement to acquire a 65% working interest in the Rinconada Norte block (approximately 23,700 acres or 96 square kilometers), which is located immediately south of the Company's Medanito Sur block. Under the terms of the farm-in agreement, the Company is required to drill three exploratory wells by November 30, 2011.

Huacalera

In November 2010, the Company entered into an agreement with Apache Energia Argentina S.R.L., a subsidiary of Apache Corporation of Houston ("Apache"), to conduct exploration on Huacalera block (249,943 acres or 1,011 square kilometers), located in the western region of Argentina's Neuquen Basin, a region of the basin that contains conventional gas and oil and offers potential for unconventional gas and oil from shale formations and tight reservoirs. This agreement was approved by the province of Neuquen in Argentina in January 2011. The Company, through its Argentine subsidiary, holds a 19.5% working interest in the Huacalera block, is carried at no cost by Apache through drilling of a deep exploration well and, depending on the successful testing of the well from various formations, Apache has also agreed, at its own cost, to perform a 3D seismic program over a 100 square kilometer area of the block. Drilling of the deep well on the Huacalera block began in April 2011. This vertical well is expected to provide a significant quantity and quality of information necessary to determine the key characteristics of the Vaca Muerta shale and other potential reservoirs. During the drilling process, a comprehensive formation evaluation program will be conducted to fully characterize the reservoir potential at this location. The well is programmed for total depth of 4,200 meters (approximately 13,800 feet) and is expected to reach total depth by June 2011.

Bayovar Project in the Sechura Desert of Peru

In 2010, Potash Peru commenced new activities or completed previous preliminary work performed in past years, including the completion of a cost analysis, confirmatory development appraisal and exploration drilling, re-processing of geophysical data, natural-recharge studies, environmental analyses, laboratory testing of samples and pilot plant operation. Operation of three small pilot plants re-confirmed the presence of carnallite, which is a mineral that can be processed into potash.

Recently, Potash Peru began a phosphate drilling program.

Financing

Americas was successful in raising $47.95 million of equity financing in 2010 at prices ranging from $0.81 to $1.05. As well, the Company raised $5.55 million from the issuance of an unsecured convertible promissory note convertible into common shares from time to time at $1.00 per common share and obtained a loan in the amount of US$3.45 million.

On December 22, 2010, $1,127,800 of the promissory note was converted to 1,127,800 common shares. Subsequent to year end, on March 30, 2011, the remaining balance of the convertible promissory note, $4,422,200, was converted to common shares. As a result of the conversion, 4,422,200 of the Company's common shares have been issued and the principal amount of the convertible promissory has been fully satisfied.

Also subsequent to year-end, on March 16, 2011, the Company completed a bought-deal private placement raising aggregate gross proceeds of $50,001,760 from the issuance of 20,162,000 common shares at $2.48 per share. This additional funding, when combined with existing cash on hand of approximately $42.5 million at December 31, 2010, is expected to permit the Company to continue to meet its exploration commitments and to accelerate its capital expenditures plan.

Financial Review of 2010

After beginning production early in 2010, the Company continued to produce and sell oil throughout the remainder of the year. For the year ended December 31, 2010, the Company reported gross oil sales revenues of $5,377,257 and net oil sales revenues, after deducting royalties and turnover taxes, of $4,067,034 compared to no oil sales revenues in 2009. The Company has limited its drilling activities on Medanito Sur while waiting for approval of the exploitation concession and, accordingly, production growth has been limited.

The Company reported a net loss of $9,982,538 or $0.081 per share for the year ended December 31, 2010 compared to a net income of $4,001,673 or $0.043 per share for the same period in 2009. The net income in 2009 is attributable to a reported gain of $8,404,917 that resulted from the issuance by GrowMax of common shares to an external investor in mid-December 2009. In February 2010, GrowMax issued additional common shares to the same external party which resulted in the Company reporting a gain of $362,605 in 2010. Other differences between the Company's 2010 net loss and 2009 net income can be primarily attributed to: (a) production start-up costs at Medanito Sur and an increase in depletion, depreciation and accretion associated with the beginning of production; and (b) increased general and administrative expenses and stock-based compensation.

From a cash flow perspective, during the year ended December 31, 2010, the Company used $4.0 million in operating activities, compared to $3.2 million in 2009. The increase in 2010 was primarily due to production start-up costs and increased general and administrative expenses. With respect to investing activities, the Company spent approximately $20.7 million on property, plant and equipment in 2010, considerably more than in 2009 when it spent $4.7 million. The spending in 2010 related primarily to the Company's exploration and development costs at Medanito Sur, exploration costs on Vaca Mahuida, Los Toldos II, Gobernador Ayala, and Loma Ranqueles and continuing activities on the Bayovar concession in Peru. Another major cash flow item relating to investing activities was the outflow associated with other long-term assets; this relates primarily to value-added tax payments that are expected to be recovered later on in the Company's life.

The Company's balance sheet at December 31, 2010, compared to December 31, 2009, shows higher cash balances, increased total assets and a better working capital position due mainly to several financings during 2010. The Company has taken on a modest amount of debt and increased its shareholders' equity as a result of those financings.

Fourth Quarter

Three Months Ended December 31
20102009
Net Revenue (1)$982,507$962
Net Income (Loss)$(4,901,262)$6,789,837
Earnings (Loss) per share, basic and diluted$(0.035)$0.067
Cash flow used in operations$(2,203,601)$(890,806)
Capital expenditures on property and equipment$(6,792,982)$(1,199,811)
Note:
(1)Net Revenue is gross revenue, including interest income, net of royalties and turnover taxes. For 2009, net revenue consisted of interest income only.

The Company continued to produce and sell oil in the fourth quarter ended December 31, 2010. The Company delivered approximately 22,666 barrels (from an average of three wells) at a domestic price averaging approximately US$55.40. The net income in the fourth quarter of 2009 is attributable to the previously-mentioned gain that resulted from the issuance by GrowMax of common shares to an external investor in mid-December 2009.

For further information, including a more detailed financial review and discussion of operational highlights, please see the Company's consolidated financial statements for the year ended December 31, 2010 and the related MD&A for 2010 filed under the Company's profile at www.sedar.com.

About Americas Petrogas Inc.

Americas Petrogas Inc. is a Canadian company whose shares trade on the TSX Venture Exchange under the symbol "BOE". Americas Petrogas has oil and gas interests in 16 blocks involving exploration, development and production. Americas Petrogas has proven conventional oil and gas reserves, as well as evolving unconventional resource plays including shale gas, shale oil, and tight sand oil and gas in Argentina's prolific Neuquen basin. For more information about Americas Petrogas, please visit www.americaspetrogas.com

This Press Release contains forward-looking information including, but not limited to, future exploration and development plans and opportunities in Argentina and Peru, estimates of reserves, production activities in respect of the Medanito Sur block, the drilling of an exploratory well on the Huacalera block and evolving unconventional resource plays. Additional forward‐looking information is contained in the Company's Annual Management's Discussion and Analysis for December 31, 2010, and reference should be made to the additional disclosures of the assumptions and risks and uncertainties relating to such forward‐looking information in that Management's Discussion and Analysis document.

Forward‐looking information is based on management's expectations regarding the Company's future growth, results of operations, production, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, plans for and results of drilling activity (including the timing, location, depth and the number of wells), environmental matters, business prospects and opportunities and expectations with respect to general economic conditions. Such forward‐looking information reflects management's current beliefs and assumptions and is based on information, including reserves information, currently available to management. Forward‐looking information involves significant known and unknown risks and uncertainties. A number of factors could cause actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward‐looking information, including but not limited to, risks associated with the oil and gas industry (e.g. operational risks in development, exploration and production, delays or changes to plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of geological interpretations; the uncertainty of estimates and projections in relation to production, costs and expenses and health, safety and environment risks), the risk of commodity price and foreign exchange rate fluctuations, the uncertainty associated with negotiating with foreign governments and third parties located in foreign jurisdictions and the risk associated with international activity.

Although the forward‐looking information contained herein is based upon assumptions which management believes to be reasonable, the Company cannot assure investors that actual results will be consistent with this forward-looking information. This forward‐looking information is made as of the date hereof and the Company assumes no obligation to update or revise this information to reflect new events or circumstances, except as required by law. Because of the risks, uncertainties and assumptions inherent in forward‐looking information, prospective investors in the Company's securities should not place undue reliance on this forward‐looking information.

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