Americas Petrogas Inc.
TSX VENTURE : BOE

Americas Petrogas Inc.

November 30, 2011 08:30 ET

Americas Petrogas Increases Interest to 90% for Another Shale Block in Neuquen Basin and Announces Third Quarter Results

Increase of Working Interest to 90% in Loma Ranqueles Shale Block

CALGARY, ALBERTA--(Marketwire - Nov. 30, 2011) - Americas Petrogas (TSX VENTURE:BOE) (the "Company") is pleased to announce that its subsidiary, Americas Petrogas Argentina S.A. ("Americas Petrogas Argentina"), has entered into an agreement to acquire an additional 40% working interest in the Loma Ranqueles block (33,400 gross acres or 52 sections or 135 square kilometers), located in the western region of the Neuquen Basin, Argentina, which is known for its shale oil and shale gas potential. This acquisition, when added to Americas Petrogas Argentina's existing 50% working interest, brings its total working interest in the Loma Ranqueles block up to 90%. Americas Petrogas Argentina is and will continue to be the operator of this block.

Loma Ranqueles is located in the western region of the Neuquen Basin along the northern plunge of the Chihuidos High. The Loma Ranqueles block is in close proximity to the Los Toldos I and II blocks where Americas Petrogas Argentina currently holds a 45% working interest and which blocks were part of a recent farmout to ExxonMobil. In 2010, Americas Petrogas Argentina acquired 3D seismic over the entire Loma Ranqueles block which contains one of the largest undrilled structures in the Neuquen Basin. In addition there is a major natural gas transmission pipeline in close proximity to the block which would likely expedite possible future development and reduce development costs.

Americas Petrogas Argentina has made this acquisition from a private Argentine company. US$10.3 million was paid on or before closing with further payments of US$9.5 million to be paid by March 1, 2012 and US$9.45 million by June 1, 2012. The acquisition is subject to government and other approvals which are expected by the end of the year or early 2012.

Mr. Barclay Hambrook, President and CEO of the Company said, "We believe the Loma Ranqueles block is highly prospective for shale oil and shale gas from the thick Vaca Muerta formation, in which other companies have reported large discoveries. Additionally, this block offers several prospective conventional oil and gas targets."

For further information regarding Loma Ranqueles, please see the Company's website at www.americaspetrogas.com.

Third Quarter Results

Joint Venture with ExxonMobil for up to US$76.3 million exploration/exploitation of Vaca Muerta Shales; Production and sale of Oil; Working Capital at September 30 of $69.5 million for 2011-2012 drilling, acquisitions and other capital expenditures

The Company produced and sold oil from exploratory wells on the Medanito Sur block. As well, during the quarter, the Company continued to invest in its oil and gas properties in Argentina and its potash, phosphates and other minerals project in the Sechura Desert, Bayovar, Peru.

Third Quarter Highlights and Recent Developments

  • As of September 30, 2011, the Company has $73.6 million of consolidated cash, cash equivalents and short-term investments that may be used for acquisitions, exploration drilling and development activities.
  • The Company sold 38,203 barrels of oil during the quarter, generating $2.28 million of gross revenues and $1.77 million of net revenues. Production costs incurred to earn oil revenues for the three months ended September 30, 2011 were $673,519 ($17.63 per barrel) compared to $938,517 ($30.44 per barrel) for the same period of 2010, representing a decrease of 42% on a per-barrel basis.
  • In July 2011, a deep exploration well was drilled and cased on the Huacalera block to total depth of 4,100 metres (13,450 feet). The primary target Vaca Muerta Shale Formation (531 metres or 1,742 feet approximate gross thickness) has initial indications of overpressure. Gas shows were encountered in the Mulichinco Formation (140 metres or 459 feet approximate gross thickness), the Quintuco formation (414 metres or 1,358 feet approximate gross thickness) through the Vaca Muerta Formation and into the Tordillo Formation. A full suite of logs, including image logs, has been run and production casing has been successfully set all the way to total depth. The comprehensive suite of logs and mud log information is being integrated and interpreted. The vertical cores, sidewall cores and rock cuttings have been sent to three different laboratories for analysis to measure the petrophysical and geochemical characteristics of the samples, both shales and sands. The results will provide fracing and testing options for tight sands and shale gas or oil reservoirs.
  • In August 2011, Americas Petrogas Argentina entered into a farmout agreement with ExxonMobil Exploration Argentina S.R.L., a subsidiary of Exxon Mobil Corporation ("ExxonMobil") for the exploration and potential exploitation of Americas Petrogas Argentina's Los Toldos blocks. ExxonMobil has committed to fund US$53.9 million (including taxes) during the exploration phase with a further US$22.4 million (including taxes) if the parties proceed to the exploitation phase, for a total potential investment of US$76.3 million. ExxonMobil will earn a 45% interest in the Los Toldos blocks with Americas Petrogas Argentina retaining a 45% interest and the government entity, Gas y Petróleo del Neuquen, maintaining a 10% interest. This agreement is subject to government approval which is expected by the end of 2011 or early 2012.
  • In October 2011, Americas Petrogas Argentina completed a three well exploration drilling program on the Rinconada Norte block (96 sq.km. or 37 sections) located in La Pampa Province in the eastern margin of the Neuquén Basin of Argentina. The first of these wells (RN.x-1004) was a significant discovery with a total combined test rate of oil and gas of 1,023 barrels of oil equivalent per day and gravity of 29.6 degrees API (light oil) from the Precuyo formation. The other two wells also discovered light crude oil but with a higher water content. All three wells are capable of production but only RN.x-1004 is currently in production. Americas has a 65% working interest in this block with the remaining 35% interest held by Gran Tierra Energy based in Calgary, Alberta.
  • During the third quarter of 2011, Potash Peru completed a LIDAR aerial survey of its potash concession to provide the necessary 3D imaging data for optimization of evaporation ponds. Potash Peru is also preparing to begin the drilling of nine confirmatory exploration wells that will collectively encompass pumping/flow tests, monitoring, as well as porosity and permeability testing of the potential potash resource. A suitable mobile drilling rig has been identified and is expected to begin drilling before the end of the year subject to receipt of applicable drilling permits, which were applied for in September. The data to be obtained from this drilling will complement the previous drilling and other data obtained last year during the previous dry period in Peru.
  • As described above, subsequent to quarter end, Americas Petrogas Argentina acquired an additional 40% interest in the Loma Ranqueles block, increasing its total working interest in this block to 90%.

Financial Results

Copies of the Company's IFRS (International Financial Reporting Standards) 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
September 30
Nine months ended
September 30
2011 2010 2011 2010
Net revenue (1) $ 1,768,118 $ 1,306,859 $ 5,593,875 $ 3,211,007
Net income (loss) attributable to owners of the Company $ 2,052,831(2) $ (2,337,181) $ (7,977,212)(2)(3) $ (6,268,058)
Income (loss) per share, basic & diluted $ 0.01 $ (0.02) $ (0.04) $ (0.05)
Capital additions $ 10,626,778 $ 5,343,142 $ 20,144,095 $ 15,087,925
September 30, 2011 December 31, 2010
Cash and cash equivalents $ 23,225,014 $ 42,039,429
Short-term investments(4) $ 50,348,831 $ 496,862
Total current assets $ 75,569,365 $ 44,469,164
Total assets $ 142,015,191 $ 94,043,791
Total current liabilities $ 6,088,255 $ 9,676,281
Long-term debt $ - $ 3,835,663
Non-controlling interest $ 4,076,455 $ 2,820,377
Total equity $ 135,643,393 $ 80,394,009
Note:
(1) Net revenue is gross revenue, excluding interest income, net of royalties.
(2) Includes a foreign exchange gain in the amount of $5,055,524.
(3) Includes a non-cash and non-recurring loss of $4,289,534 required by mandatory conversion to IFRS from Canadian GAAP.
(4) Short-term investments are bank-sponsored investments 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.

Revenue

The Company continued to produce and sell oil in the third quarter of 2011 after beginning production in early 2010. For the three months ended September 30, 2011, the Company reported gross oil sales revenues of $2,281,262 and net oil sales revenues, after deducting royalties, of $1,768,118 compared to net oil sales revenues of $1,306,859 for the third quarter of 2010. The Company's revenues have been lower than expected because its application for an exploitation concession on the Medanito Sur block remains pending with the government. 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. However, production and revenues are expected to increase somewhat in the near future as two new wells come on stream, one from Medanito Sur and one from Rinconada Norte.

Net Income

The Company reported net income attributable to owners of the Company of $2,052,831 or $0.01 per share for the three months ended September 30, 2011 compared to a net loss of $2,337,181 or $0.02 per share for the same period of 2010, and further compared to a net loss of $3,399,034 or $0.02 per share for the three months ended June 30, 2011. The sizable net income for the third quarter of 2011 compared to a net loss in the same period of 2010 is attributable to: (1) increased revenue from oil sales and (2) a large foreign exchange gain resulting from a significant strengthening of the U.S. dollar compared to the Canadian dollar while the Company is holding a large amount of U.S. dollar cash and short-term investments.

Cash flow

From a cash flow perspective, during the nine months ended September 30, 2011, the Company used $2.1 million in operating activities, compared to $3.5 million in 2010. The improvement in 2011 can be primarily attributed to increased gross profit from oil sales (excluding non-cash depletion and depreciation). With respect to investing activities, the Company spent $12.8 million on capital expenditures in the nine months ended September 30, 2011, compared to $13.9 million in the same period of 2010.

Balance sheet

As of September 30, 2011, the Company has a cash position (including cash, cash equivalents and short-term investments) of $73.6 million and a working capital position of $69.5 million. The Company's reported exploration and evaluation assets have increased in 2011, primarily as a result of (1) the acquisition of an additional 19.5% interest in Huacalera block, (2) the acquisition of additional working interests in Los Toldos, Totoral, Yerba Buena and Bajada Colorada, and (3) continuing activities on the Bayovar concession with respect to potash, phosphates and other minerals. The Company's reported property, plant and equipment has increased, net of depletion, primarily as a result of the Company reclassifying its Rinconada Norte property from exploration and evaluation assets to property, plant and equipment.

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 and tight sands) oil and gas interests in numerous blocks in the Neuquen Basin of Argentina. Americas Petrogas has joint venture partners, including ExxonMobil, Apache and Gran Tierra Energy, on various blocks in Argentina. For more information about Americas Petrogas, please visit www.americaspetrogas.com.

About GrowMax Agri Corp.

GrowMax Agri Corp., a subsidiary of Americas Petrogas Inc., is developing a surface potash (KCl or Muriate of Potash) brine reservoir and evaporite deposit at Bayovar in the Sechura Desert of Northwest Peru. Additional mineral potential includes Phosphates, Bromine and others. For more information about GrowMax Agri Corp., please visit www.growmaxagricorp.com.

This Press Release contains forward-looking information including, but not limited to, the exploration potential of the Loma Ranqueles block, the Chihuidos High and the Neuquen Basin, the prospect of timely receipt of government and other necessary approvals, the possibility to expedite development and reduce development costs on Loma Ranqueles, future revenues and production, exploration and development activities in respect of the projects in Argentina and Peru, the results on the Huacalera block, potential funding by ExxonMobil for the Los Toldos farmout agreement, government approvals, and future exploration and development plans and opportunities 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, 2010, 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.

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