BlackPearl Resources Inc.

BlackPearl Resources Inc.

February 13, 2013 17:00 ET

BlackPearl Announces 2012 Year-End Reserves and Resource Estimates and Provides Operations Update

CALGARY, ALBERTA--(Marketwire - Feb. 13, 2013) - BlackPearl Resources Inc. ("BlackPearl" or the "Company") (TSX:PXX)(OMX:PXXS) is pleased to announce the results of its 2012 year-end oil and gas reserves evaluation, contingent resource evaluation and to provide an operations update on the Company's current activities.

Highlights include:

  • 496% increase in total proved and probable reserves to 213 million barrels of oil equivalent;

  • The increase is primarily attributable to the initial recognition of reserves for the first phase of commercial development at Blackrod SAGD project;

  • Our largest property is the Blackrod SAGD project with 2P reserves of 182 million barrels and best estimate contingent resources of 476 million barrels of oil, with potential production of 80,000 barrels of oil per day;

  • Our Onion Lake SAGD project has best estimate contingent resources of 67 million barrels of oil, with potential production of 12,000 barrels of oil per day;

  • A total of 582 million barrels of contingent resources (best estimate) on our 3 core properties;

  • Over 99% of reserves are heavy oil;

  • Q4 2012 production of 9,067 boe/day, a 4% increase compared to Q4 2011; full year average production of 9,366 boe/day in 2012, a 23% increase from 2011.

Oil and Gas Reserves

The following tables summarize certain information contained in the independent reserves report prepared by Sproule Unconventional Limited ("Sproule") as of December 31, 2012. The report was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Additional reserve information as required under NI 51-101 will be included in the Company's Annual Information Form which will be filed on SEDAR by March 31.

On a net present value basis (10% discount, before tax), approximately 61% of the value of the proved plus probable reserves were attributable to the first phase of the Blackrod project, 17% was attributable to the Onion Lake area and 18% was attributable to the Mooney area.

Summary of Oil and Gas Reserves

(Company interest, before royalties)
Oil&NGL Reserves Natural Gas Reserves 2012
BOE (1)
BOE (1)
(Mbbls) (MMcf) (Mboe) (Mboe)
Proved developed producing 7,101 223 7,138 6,642
Proved developed non-producing 2,289 11 2,291 1,181
Proved undeveloped 6,456 0 6,456 7,456
Total proved 15,846 234 15,885 15,279
Probable 197,438 2 197,439 20,531
Total proved plus probable 213,284 236 213,324 35,811


  1. BOE's may be misleading, particularly if used in isolation. In accordance with NI 51-101, a BOE conversion ratio of 6 Mcf: 1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Net Present Value of Reserves

Net Present Values of Before Tax Future Net Revenue
Discounted at
0% 5% 8% 10% 12%
Developed producing 175,025 163,722 157,760 154,078 150,608
Developed non-producing 62,287 51,291 45,936 42,783 39,920
Undeveloped 86,247 65,459 55,459 49,616 44,341
Total proved 323,558 280,472 259,155 246,478 234,868
Probable 4,247,695 1,885,997 1,211,397 911,737 688,921
Total proved plus probable 4,571,253 2,166,469 1,470,552 1,158,214 923,789
Columns may not add due to rounding

Reconciliation of Changes in Reserves

The following table summarizes the changes in the Company's share of oil and natural gas reserves (before royalties) from December 31, 2011 to December 31, 2012.

Oil & NGLs Natural gas BOE
Proved Probable Total Proved Probable Total Total
(Mbbls) (Mbbls) (Mbbls) (MMcf) (MMcf) (MMcf) (Mboe)
Balance, Dec 31, 2011 15,163 20,313 35,476 695 1,311 2,007 35,811
Production -3,422 0 -3,422 -137 0 -137 -3,445
Extensions 3,111 180,068 183,179 10 -79 -69 183,167
Discoveries 0 0 0 0 0 0 0
Technical revisions -1,443 -1,549 -2,992 -149 -571 -720 -3,112
Improved recovery 2,277 -1,650 627 14 -603 -589 529
Acquisitions 199 228 427 0 0 0 427
Dispositions 0 0 0 0 0 0 0
Economic factors -40 29 -11 -200 -56 -255 -54
Balance, Dec 31, 2012 15,846 197,438 213,284 234 2 236 213,324

The pricing assumptions used in the Sproule evaluation are summarized below.

Pricing Assumptions


40° API

Edmonton Par Price
40° API
Canadian Select
20.5° API


Inflation rate

Exchange rate
(US$/bbl) (CDN$/bbl) (CDN$/bbl) (CDN$/MMBtu) (%/yr) (US$/Cdn$)
2013 89.63 84.55 69.33 3.31 1.5 1.001
2014 89.93 89.84 74.57 3.72 1.5 1.001
2015 88.29 88.21 73.21 3.91 1.5 1.001
2016 95.52 95.43 80.17 4.70 1.5 1.001
2017 96.96 96.87 81.37 5.32 1.5 1.001
2018 98.41 98.32 82.59 5.40 1.5 1.001
2019 99.89 99.79 83.83 5.49 1.5 1.001
2020 101.38 101.29 85.08 5.58 1.5 1.001
2021 102.91 102.81 86.36 5.67 1.5 1.001
2022 104.45 104.35 87.66 5.76 1.5 1.001
2023 106.02 105.92 88.97 5.85 1.5 1.001
Escalation rate of 1.5% thereafter


  1. The pricing assumptions were provided by Sproule Unconventional Limited.
  2. None of the Company's future production is subject to a fixed or contractually committed price.


  1. "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
  2. "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
  3. "Developed" reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (e.g. when compared to the cost of drilling a well) to put the reserves on production.
  4. "Developed Producing" reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.
  5. "Developed Non-Producing" reserves are those reserves that either have not been on production, or have previously been on production, but are shut in, and the date of resumption of production is unknown.
  6. "Undeveloped" reserves are those reserves expected to be recovered from know accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned.
  7. The Net Present Value (NPV) is based on Sproule Forecast Pricing and costs. The estimated NPV does not necessarily represent the fair market value of our reserves. There is no assurance that forecast prices and costs assumed in the Sproule evaluations will be attained, and variances could be material.

Contingent Resources

The following table summarizes certain information contained in the contingent resource evaluations prepared by Sproule as of December 31, 2012. The reports were independently prepared in accordance with definitions, standards and procedures contained in the COGE Handbook.

It should not be assumed that the estimates of recovery, production, and net revenue presented in the tables below represent the fair market value of the Company's contingent resources. There is no assurance that the forecast prices and cost assumptions will be realized and variances could be material. The recovery and production estimates of the Company's contingent resources provided herein are only estimates and there is no guarantee that the estimated contingent resources will be recovered or produced. Actual contingent resources may be greater than or less than the estimates provided here. There are certain contingencies which currently prevent the classification of these contingent resources as reserves. Information on these contingencies are provided in the footnotes to the tables below. There is no certainty that it will be commercially viable for the Company to produce any portion of the contingent resources on any of its properties.

Summary of Best Estimate (P50) Contingent Resource - By Property (1)(3)


Heavy Oil/
Net Present Values of Before Tax Future Net Revenue
as of December 31, 2012
Contingent Resources - Best Estimate
Discounted at
0% 5% 8% 10% 12%
(MMboe) ($million)
Blackrod 476 9,037 3,500 2,018 1,393 951
Onion Lake 70 2,892 1,514 1,058 840 671
Mooney 37 743 332 220 169 131
Total 583 12,672 5,346 3,296 2,402 1,753


  1. These volumes are arithmetic sums of multiple estimates of contingent resources, which statistical principles indicate may be misleading as to volumes that may actually be recovered. Readers should give attention to the estimates of individual classes of resources and appreciate the differing probabilities of recovery associated with each class as explained.
  2. Contingent Resources are defined in the COGE Handbook as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as Contingent Resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage.
  3. There are three categories in evaluating contingent resources: Low Estimate, Best Estimate and High Estimate. Best estimate (P50) is a classification of estimated resources described in the COGE Handbook as being considered to be the best estimate of the quantity that will be actually recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the best estimate.
  4. The estimates of contingent resources (best estimate) and future net revenue for individual properties may not reflect the same confidence levels as estimates of contingent resources (best estimate) and future net revenues for all properties, due to the effects of aggregation.
  5. "Gross" means the Company's working interest share in the contingent resources of bitumen and heavy oil before deducting royalties. The Company has a 100% working interest at Blackrod and Mooney, and a 79.795 to 100% working interest at Onion Lake.
  6. The amounts included in these tables do not include the volume and value of BlackPearl's proved and probable reserves previously assigned by Sproule to these properties.
  7. The contingencies in the Sproule Report associated with the Company's Blackrod contingent resources are due to the following: (a)the requirement for more evaluation drilling to define the reservoir characteristics of the resource;(b)the absence of submission of a commercial SAGD development application (Phase 2); and (c)the uncertainty of timing of production and development.
  8. The contingencies in the Sproule Report associated with the Company's Onion Lake contingent resources are due to the following: (a)the requirement for more evaluation drilling to define the reservoir characteristics of the resource; (b)the uncertainty of company commitment for commercial SAGD development; and (c)the uncertainty of timing of production and development.
  9. The contingencies in the Sproule Report associated with the Company's Mooney contingent resources are due to the following: (a) the requirement for more evaluation wells to further define reservoir and fluid characteristics; (b)further establishment of increased production response from the Alkali Surfactant Polymer (ASP) flood in Phase One, which began July 2011; and (c) the uncertainty of timing of production and development of the entire field.

Operations Update

BlackPearl's Q4 2012 oil and gas sales volumes were 9,067 boe per day, a 4% increase over Q4 2011 sales volumes and a 3% decrease compared to Q3 2012 sales volumes.

Production by Area (boe/d)
2011 Year ended December 31
Q4 Q3 Q2 Q1 Q4 2012 2011
Onion Lake 4,857 5,889 6,396 6,732 6,805 5,947 6,272
ASP flood area 1,924 843 757 504 260 992 316
Non-flood areas 1,405 1,652 1,531 1,522 842 1,545 472
John Lake 649 624 457 559 413 573 343
Other 11 14 32 23 236 37 160
Blackrod 211 318 298 241 178 272 57
9,067 9,340 9,471 9,581 8,734 9,366 7,620

At Mooney, we are continuing to see positive response from the ASP flood, with fourth quarter production from the Phase 1 flood area averaging 1,924 boe per day, a 128% increase from the third quarter. As a result of continued development of the non-flood area in phases 2 and 3, total production from the Mooney area was 3,329 boe per day during the fourth quarter. We expect to expand the ASP flood to the phase 2 lands in late 2013 or early 2014.

The decrease in fourth quarter production compared to the third quarter is attributable to the natural production decline from a number of our longest producing wells in the Onion Lake area. In general, these wells have been excellent producers with recoveries in excess of 10% of oil in place, which is higher than we would typically expect from cold flow heavy oil wells. The Onion Lake field is a maturing area with over 300 wells drilled into portions of the field over the last seven years and some of these wells are nearing the end of their productive life. It is our intention to continue to drill conventional wells at Onion Lake to further delineate and develop the field in new areas until we transition to thermal development. Specifically, we have had recent success delineating and extending the field to the south. During the first quarter of 2013 we drilled eleven wells in the Onion Lake area.

At Blackrod, after reaching commercial production rates earlier in 2012 we continue to experiment with different operating procedures to improve our understanding of well operating performance. Information gained from the current SAGD pilot well pair operations will be incorporated in the operation of the second well pair, which will be drilled in the first quarter. We have also begun the detailed engineering design work on the first phase of the commercial development of the property.

As a result of wide heavy oil price differentials, our wellhead price in Q1 2013 will be significantly lower than Q4 2012, which will result in revenues that are lower than our budget. Accordingly, we have elected to defer some of our Q1 capital spending to later in the year. We expect our Q1 spending to range between $30 and $35 million. We had originally planned to spend between $45 and $50 million. The major components of our Q1 2013 capital spending will be the drilling of 11 wells at Onion Lake, drilling the second well pair at Blackrod as well as continuing with detailed engineering design work on the first phase of commercial development, and pipeline and road infrastructure at Mooney. We have elected to defer additional drilling of phase 2 and 3 lands at Mooney until heavy oil prices improve. We will continue to monitor our crude oil price realizations and may adjust our capital spending as required to manage our debt levels should the wide heavy oil price differentials persist.

John Festival, President of BlackPearl, commenting on the recent activities indicated that, "Our 2012 reserve and resource evaluations are in-line with our expectations. Our goal is to develop the properties and shift barrels from resource to reserves. We were able to achieve that in 2012 with 180 million barrels associated with the first phase of commercial development at Blackrod being converted from resource into the reserves category. At Mooney, the reserve evaluation engineers are waiting for longer production history from the ASP flood before additional volumes could be transferred from resource to reserves. We saw a modest decline in reserves at Onion Lake primarily attributable to the recent decline in production of some of our mature wells; however, our thermal resource volumes have increased from last year. Values in the 2012 reserve and resource reports have been impacted by changes in the price forecast including wider heavy oil differentials, increased forecast operating costs and increased cost estimates used for future facility capital at Blackrod.

"In our last four years at the helm of BlackPearl, we have commercialized two of our four heavy oil and oil sands projects on our three core project areas. The two projects that have reached commercial status are the Mooney ASP flood and Onion Lake primary production. The two projects that are left to develop are much more significant and more expensive to develop - Onion Lake SAGD and Blackrod SAGD. Mooney and Onion Lake primary production have provided the near term growth and cash flow needed to tackle the two SAGD projects. Production from the first phase of the ASP flood at Mooney has just started to ramp up over the past 18 months. There is up to four additional phases with flood potential. While the recent production declines at Onion Lake have occurred sooner than forecasted, the average well achieves above average economic returns compared to many oil plays in western Canada. The recent declines from some of the older Onion Lake wells have come from wells that have achieved over 10% recovery, which is top decile performance for heavy oil wells. We fell short of our year-end production guidance of 10,000 boe per day as a result of these production declines. We will continue to drill additional primary heavy oil wells at Onion Lake in 2013, to mitigate some of the production declines from existing wells, when heavy oil price differentials recover to more normal levels.

"We anticipate that heavy oil differentials will tighten later in 2013 as several refineries come back on-line and certain pipeline systems are debottlenecked.

"In order to commercialize our two SAGD projects, we will need external financing and we continue to progress towards a funding solution, expected within the next couple of quarters. We continue to review all of our alternatives in order to minimize dilution and financial leverage, while retaining the ability to move our projects forward."


The Company is planning to release its 2012 year-end financial and operating results on February 26, 2013.

Forward-Looking Statements

Certain of the statements made and information contained herein is forward-looking statements and forward looking information (collectively referred to as "forward-looking statements") within the meaning of Canadian securities laws. All statements other than statements of historic fact are forward-looking statements. Forward-looking statements are typically identified by such words as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "potential", "targeting", "intend", "could", "might", "should", "believe" or similar words suggesting future events or future performance. In addition, statements relating to "reserves" or "resources", "contingent resource" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resource described exist in the quantities predicted or estimated and can be profitably produced in the future. In particular, this document contains forward-looking statements pertaining to, the volumes and estimated value of BlackPearl's proved and probable reserves, the volumes and estimated value of BlackPearl's contingent resource of bitumen and heavy oil, forecasted future production levels and timing of reaching these production levels, capital spending plans for the first quarter of 2013, timing of financing decisions to develop our properties and forecast future heavy oil differentials.

Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward-looking statements will not occur. There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will be realized. Actual results will differ, and the differences may be material and adverse to the Company and its shareholders.

With respect to forward-looking statements contained in this press release, management has made assumptions regarding future production levels; future oil and natural gas prices; future operating costs; timing and amount of capital expenditures; the ability to obtain financing on acceptable terms; availability of skilled labour and drilling and related equipment; general economic and financial market conditions; continuation of existing tax and regulatory regimes; and the ability to market oil and natural gas successfully to current and new customers. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and risks that the goals or figures contained in forward-looking statements will not be achieved. These factors include, but are not limited to, risks associated with fluctuations in market prices for crude oil, natural gas and diluent, general economic, market and business conditions, substantial capital requirements, uncertainties inherent in estimating quantities of reserves and resources, extent of, and cost of compliance with, government laws and regulations and the effect of changes in such laws and regulations from time to time, the need to obtain regulatory approvals on projects before development commences, environmental risks and hazards and the cost of compliance with environmental regulations, aboriginal claims, inherent risks and hazards with operations such as fire, explosion, blowouts, mechanical or pipe failure, cratering, oil spills, vandalism and other dangerous conditions, potential cost overruns, variations in foreign exchange rates, diluent supply shortages, competition for capital, equipment, new leases, pipeline capacity and skilled personnel, uncertainties inherent in the SAGD bitumen recovery process, credit risks associated with counterparties, the failure of the Company or the holder of licences, leases and permits to meet requirements of such licences, leases and permits, reliance on third parties for pipelines and other infrastructure, changes in royalty regimes, failure to accurately estimate abandonment and reclamation costs, inaccurate estimates and assumptions by management, effectiveness of internal controls, the potential lack of available drilling equipment and other restrictions, failure to obtain or keep key personnel, title deficiencies with the Company's assets, geo-political risks, risks that the Company does not have adequate insurance coverage, risk of litigation and risks arising from future acquisition activities.

Further information regarding these risk factors may be found under "Risk Factors" in the Annual Information Form. Readers are cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate at the time of preparation, may prove to be incorrect. Accordingly, readers are cautioned that the actual results achieved will vary from the information provided herein and the variations could be material. Readers are also cautioned that the foregoing list of factors is not exhaustive. Consequently, there is no representation by the Corporation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained in this report are made as of the date hereof, and the Corporation does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

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