Americas Petrogas Inc.
TSX VENTURE : BOE

Americas Petrogas Inc.

August 29, 2012 19:15 ET

Americas Petrogas Announces Second Quarter 2012 Results

Operating Netback(1) increases $4.7 million or 422%; Increase in net revenue by over 360%; $85.0 million of cash and investments

CALGARY, ALBERTA--(Marketwire - Aug. 29, 2012) - Americas Petrogas Inc. ("Americas Petrogas" or the "Company") (TSX VENTURE:BOE) announces the Company continued to execute on its investment plan on its oil and gas properties in Argentina and its potash, phosphates, and other minerals project in the Sechura Desert, Bayovar, Peru.

Second Quarter Highlights and Recent Developments
  • Recently, the Company has been producing an approximate average of gross 2700 bopd (or 429 cubic metres per day). A new daily production record of gross 2830 bopd (or 450 cubic metres per day) was achieved on July 19, 2012 at Medanito Sur and Rinconada Norte.
  • Operating netback of $5,855,237 ($45.68 per barrel) during the three months ended June 30, 2012 compared to $1,122,485 ($26.02 per barrel) during the same period of 2011. This improvement of $4,732,752 represents an increase of 422%. See note (1).
  • This quarter's net revenue increased by $6,646,155 compared to the second quarter of 2011, which is an increase of over 360%.
  • $85.0 million of consolidated cash, cash equivalents and short-term investments as of June 30, 2012.
  • Received a 25-year exploitation license, granted by the provincial government, for the Medanito Sur block in March 2012.
  • The expansion of the Company's own production facilities to handle up to 6300 bopd of oil from Medanito Sur is well underway and is expected to be complete by the fourth quarter of 2012.
  • Eight conventional wells, including five exploration wells, were drilled in the second quarter, all of them successful oil discoveries.
  • In June 2012, drilling commenced on the La Hoya.x-1 (LHo.x-1) well, the first Vaca Muerta Shale vertical exploration well drilled on the Company's 90%-owned Totoral block. In July 2012, the LHo.x-1 well was cased and cemented. A full suite of logs and both conventional cores as well as sidewall cores were acquired. Production casing was successfully set to a total depth ("TD") of approximately 6,463 feet. The Company has been conducting detailed analysis of the cores and cuttings at international service company laboratories in Argentina in order to identify fracing and testing options for shale oil or shale gas reservoirs, as well as other identified targets. Equipment is being gathered and logistics are being implemented with fracing and testing planned for the third quarter.
  • With joint venture partner, ExxonMobil, commenced the drilling of the ALL.x-1 unconventional, shale exploration well on the Los Toldos I block in July 2012. This is the second well within the farmout agreement between Americas Petrogas Argentina S.A. and ExxonMobil Exploration Argentina S.R.L. Intermediate casing has been set on this vertical well to 1591 metres and drilling is ongoing. The ALL.x-1 well is planned for drilling to TD of approximately 3300 metres (or 10,825 feet) with the principal target being the Vaca Muerta shale and other potential conventional reservoirs including Quintuco, Tordillo and Mulichinco.
  • The first well within the farmout agreement, LTE.x-1, was drilled earlier this year on the Los Toldos II block and the cores and logs continue to be analyzed at international service labs to design the fracing and testing plan for that well. Equipment is now onsite to prepare for fracing and testing of this well.
  • Testing of the Huacalera well (Hua.x-1) by Apache, as operator, is ongoing.
  • Completed pumping tests on the potash brine project in Peru; compilation and analysis of the data is underway. The Company expects a National Instrument 43-101 compliant resource assessment to be available in the fourth quarter of 2012.
  • As a follow-up to the 15-borehole drilling program in 2011, the Company recently commenced a new drilling program involving 20 exploration boreholes on its southeastern block at Bayovar to identify the presence and the extent of evaporites, phosphates, gypsum, and other brines.
Outlook
  • We are continuing with our plans to drill unconventional wells, which primarily target the Vaca Muerta shale, on our 90%-owned Totoral, Yerba Buena and Bajada Colorada blocks as well as our Los Toldos blocks with our joint venture partner, ExxonMobil, and on other blocks.
  • We are working towards completion of our own production facilities to handle 6300 bopd from Medanito Sur in order to free up some of the limitations of our third-party processors.
  • We are continuing the exploration, appraisal and development drilling in the conventional oil prospects in the Medanito Sur and Rinconada Norte blocks, where excellent results have been experienced in the initial period of this program. Production, reserves and cash flow are expected to grow as a consequence of this active drilling program.
  • The Company is positioned to increase production, enhance reserves, and deliver solid growth from its large conventional and unconventional drilling program during 2012 and into 2013.

"In executing our 2012 conventional drilling program, we continue to generate positive cash flow from our Eastern blocks." said Barclay Hambrook, President and Chief Executive Officer. "Because of the limited capacity of third party processing facilities and the very positive results on our drilling program, some of our wells are currently shut-in. However, we are fast-tracking the building of our own processing facilities, which should be completed by the fourth quarter. Additionally, we are moving forward with the drilling of unconventional wells, primarily targeting the thick Vaca Muerta shale."

Financial and Operating Results

Copies of the Company's condensed interim consolidated financial statements and the related Management's Discussion and Analysis ("MD&A") for the quarter have been filed under the Company's profile at www.sedar.com and are also available on the Company's website at www.americaspetrogas.com. All amounts are in Canadian dollars unless otherwise stated.

Three months ended June 30 Six months ended June 30
2012 2011 2012 2011
Total Per barrel Total Per barrel Total Per barrel Total Per barrel
Barrels of oil sold 128,182 43,143 282,621 90,262
Gross oil sales revenue $ 9,729,829 $ 75.91 $ 2,386,360 $ 55.31 $ 21,357,636 $ 75.57 $ 4,959,864 $ 54.95
Royalties (1,245,698 ) (9.72 ) (548,384 ) (12.71 ) (3,789,881 ) (13.41 ) (1,134,107 ) (12.56 )
Production costs (2,628,894 ) (20.51 ) (715,491 ) (16.58 ) (4,630,360 ) (16.38 ) (1,455,476 ) (16.13 )
Operating netback(1) $ 5,855,237 $ 45.68 $ 1,122,485 $ 26.02 $ 12,937,395 $ 45.78 $ 2,370,281 $ 26.26
Funds flow from operations(2) $ 652,563 $ (694,883 ) $ 5,441,844 $ (932,766 )
Per share - basic and diluted $ 0.00 $ 0.00 $ 0.03 $ (0.01 )
Weighted average number of common shares outstanding(3)
Basic 206,662,447 184,585,066 200,594,860 173,752,290
Diluted 215,034,615 184,585,066 210,564,885 173,752,290
June 30, 2012 December 31, 2011
Cash and cash equivalents $ 42,353,666 $ 27,762,717
Short-term investments(4) $ 42,660,302 $ 28,768,630
Current assets $ 91,928,143 $ 60,771,658
Current liabilities $ 15,955,729 $ 28,829,896
Working capital(5) $ 75,972,414 $ 31,941,762
Long-term debt $ - $ -
Notes:
(1) "Operating netback" is a non-IFRS measure and is calculated as revenues from oil sales less royalties and production costs. Operating netback is used as an indicator of operating performance, profitability and liquidity. Operating netback does not have a standardized meaning prescribed by IFRS. It is unlikely for non-IFRS measures to be comparable to similar measures presented by other companies. See reconciliation above.
(2) "Funds flow from operations" is an additional IFRS measure because it is presented in the consolidated statement of cash flows. Funds flow from operations and funds flow from operations per share are used to analyze operating performance and liquidity. Funds flow from operations is calculated as net cash generated from (used by) operating activities (as determined in accordance with IFRS) before changes in non-cash balance sheet operating items. Funds flow from operations per share is calculated by dividing funds flow from operations by the weighted average number of shares outstanding. Funds flow from operations should not be considered an alternative to, or more meaningful than net cash generated from (used by) operating activities as determined in accordance with IFRS. Funds flow from operations per share should not be considered an alternative to, or more meaningful than earnings (loss) per share as determined in accordance with IFRS.
(3) Diluted weighted average number of common shares outstanding is computed by adjusting basic weighted average number of common shares outstanding for dilutive instruments. The number of shares included with respect to options, warrants and similar instruments is computed using the treasury stock method, which assumes any proceeds received by the Company upon exercise of the in-the-money instruments would be used to repurchase common shares at the average market price for the period. For the three and six months ended June 30, 2012, 8,372,168 common shares and 9,970,025 common shares, respectively, were deemed to be issued for no consideration in respect of options.
(4) Short-term investments are bank-sponsored investments and other high credit rating instruments which are current in nature, with an initial maturity greater than three months when purchased and which are not redeemable at face value on demand.
(5) Working capital is a non-IFRS measure and is calculated as current assets less current liabilities. Working capital is used to assess liquidity and general financial strength. Working capital does not have a standardized meaning prescribed by IFRS. It is unlikely for non-IFRS measures to be comparable to similar measures presented by other companies. Working capital should not be considered an alternative to, or more meaningful than current assets or current liabilities as determined in accordance with IFRS.

Revenue

Oil production continued on the Company's conventional blocks. For the three months ended June 30, 2012, the Company's net oil sales revenue, after deducting royalties, increased 362% compared to the same period of 2011. For the three months ended June 30, 2012, the Company reported gross oil sales revenue of $9,729,829 and net oil sales revenue, after deducting royalties, of $8,484,131 compared to net oil sales revenues, after deducting royalties, of $1,837,976 for the second quarter of 2011. The increase in oil sales in 2012 is a result of increased oil production and higher average sales prices.

Net Loss

The Company reported net loss attributable to owners of the Company of $4,731,206 or $0.02 per share for the three months ended June 30, 2012 compared to a net loss of $3,399,034 or $0.02 per share for the same period of 2011. The increase in net loss for the three months ended June 30, 2012, compared to the same period of 2011, can be attributed to: (i) increased general and administrative expenses and (ii) a loss recorded on the settlement of a promissory note.

Cash Flow

With respect to funds flow from operations (an additional IFRS measure), the Company generated an inflow of $652,563 during the three months ended June 30, 2012 compared to an outflow of $694,883 during the same period of 2011. Funds flow from operations reflects cash flow from operating activities (as determined in accordance with IFRS) before changes in non-cash balance sheet operating items. Alternatively, it reflects net income (loss) on the statement of income (loss), adjusted for non-cash items of income (loss) including, but not limited to, depletion and depreciation, stock-based compensation and unrealized foreign exchange items.

During the six months ended June 30, 2012, the Company generated $1.5 million of cash from operating activities (which includes changes in non-cash balance sheet operating items), compared to the same period of 2011 when the Company used $1.6 million in operating activities (which includes changes in non-cash balance sheet operating items). The cash inflow in 2012 is attributable primarily to increased gross profit from oil sales (excluding non-cash depletion and depreciation). With respect to investing activities, the Company spent $38.9 million on capital expenditures in the six months ended June 30, 2012, compared to $5.0 million spent in the same period of 2011.

Financial Position

As of June 30, 2012, the Company has a cash position (including cash, cash equivalents and short-term investments) of $85.0 million. The increase in current assets during 2012, particularly cash and short-term investments, reflects the completion of two equity financings totaling 20,217,000 common shares in the first quarter of 2012. Accounts receivable has increased as a result of increased oil sales. The Company's reported exploration and evaluation assets have increased in 2012, as a result of continuing activities in Argentina and Peru. The Company's reported property, plant and equipment has increased, net of depletion, primarily as a result of continued drilling on Medanito Sur and Rinconada Norte. During the first half of 2012, the Company settled US$18.95 million of promissory notes.

For further information regarding the Company's financial results, financial position and related changes, please see the consolidated financial statements and the related MD&A.

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 conventional and unconventional shale oil and gas and tight sands oil and gas interests in numerous blocks in the Neuquén Basin of Argentina. Americas Petrogas has joint venture partners, including ExxonMobil and Apache, on various blocks in the shale oil and gas corridor in the Neuquén Basin, Argentina. Americas Petrogas also owns an 80% interest in GrowMax Agri Corp., a private company involved in the exploration and potential development of a potash, phosphates and other minerals project in Peru. For more information about Americas Petrogas Inc., please visit www.americaspetrogas.com

This Press Release contains forward-looking information including, but not limited to, the Company's goals and growth, estimates of reserves, building of production facilities in Argentina and timing thereof, analysis of the cores and cuttings in respect of the LHo.x-1 well on the Totoral block, fracing in respect of the the LHo.x-1 well, drilling of the ALL.x-1 well, analysis of the cores and logs in respect of the LTE.x-1 well on the Los Toldos II block, fracing in respect of the LTE.x-1 well, completion of a National Instrument 43-101 resource assessment and timing thereof, expectations regarding production, reserves and cash flow, and other exploration, development and production activities in respect of the projects in Argentina and Peru. Additional forward‐looking information is contained in the Company's MD&A for this quarter and the Company's Annual MD&A for December 31, 2011, and reference should be made to the additional disclosures of the assumptions, risks and uncertainties relating to such forward‐looking information in those MD&A documents.

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.

Any references in this Press Release to test rates, flow rates, initial test or production rates, and/or early production rates are useful in confirming the presence of hydrocarbons, however, such rates are not necessarily indicative of long-term performance or of ultimate recovery. Such rates may also include recovered "frac" fluids used in well completion stimulation. Readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company.

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