Bronco Energy Ltd.

Bronco Energy Ltd.

November 11, 2009 17:23 ET

Bronco Announces Third Quarter Results and Operations Update

CALGARY, ALBERTA--(Marketwire - Nov. 11, 2009) -


Bronco Energy Ltd. ("Bronco" or the "Company") (TSX:BCF) announces the results for the three and nine months ended September 30, 2009.

(dollars, except boe data)
Three Months Ended Nine Months Ended
September 30, September 30,
Financial Information 2009 2008 2009 2008
Cash flow (loss) from
operations (1) 111,237 (900,554) (5,826,361) (4,098,832)
Per share basic 0.00 (0.02) (0.15) (0.12)
Net loss (4,694,743) (4,180,563) (17,834,840) (9,516,916)
Per share basic (0.12) (0.11) (0.47) (0.28)
Net bank debt outstanding,
end of period (2) 3,211,372 (6,388,425) 3,211,372 (6,388,425)
Net debt outstanding, end
of period (3) 17,151,047 (80,817) 17,151,047 (80,817)

Common shares outstanding 39,041,212 37,756,891 39,041,212 37, 756,891
Options outstanding 2,130,850 2,656,321 2,130,850 2, 656,321
Options exercisable 1,337,151 1,926,986 1,337,151 1, 926,986

Bitumen produced and sold
(bopd) 788 299 805 100
Natural gas (Mcfpd) 1,848 252 1,659 85
Combined (boepd) 1,096 341 1,081 115

Netback per BOE
Production revenue ($/boe)(1) 39.90 63.69 26.97 63.69
Royalties ($/boe) 3.28 5.50 2.72 5.50
Operating expenses ($/boe) 20.85 50.43 19.97 50.43
Operating netback ($/boe) 15.77 7.76 4.28 7.76
Wells drilled gross (net) - 14.0 (13.3) - 33.0(31.4)

(1) Management uses cash flow (loss) from operations (before changes in
non-cash working capital and incurred asset retirement expenditures) to
analyze operating performance. Cash flow (loss) from operations as
presented does not have a standardized meaning prescribed by GAAP and,
therefore, may not be comparable to similar measures used by other
entities. See Non-GAAP Measures in the MD&A filed on SEDAR.
(2) Net bank debt is calculated as amount owing to the bank under the
credit facility less cash and cash equivalents which are on deposit with
the bank. Net bank debt as presented does not have a standardized
meaning prescribed by GAAP and, therefore, may not be comparable to
similar measures used by other entities. See Non-GAAP Measures in the
MD&A filed on SEDAR.
(3) Net debt is calculated as long-term debt plus current liabilities less
current assets as they appear on the consolidated balance sheet. Net
debt as presented does not have a standardized meaning prescribed by
GAAP and, therefore, may not be comparable to similar measures used by
other entities. See Non-GAAP Measures in the MD&A filed on SEDAR.

President's Letter to Shareholder's

Dear Fellow Share Owners,

In the first half of 2009 Bronco was focused on re-setting corporate leadership, executing a financing to strengthen our balance sheet and implementing a new operating philosophy. These changes gave us the platform to better understand the strengths and weaknesses of the assets. In the third quarter, the Company's focus was on gaining a better understanding of our reservoirs and developing specific plans for the remaining acreage that make up our joint venture agreement with the Bigstone Cree Nation.

Sale of Drilling Rigs

The company has executed a definitive agreement for the sale of the assets owned by our wholly owned subsidiary, Bronco Drilling Services Ltd. for proceeds of $6.5 million. The assets; a telescopic double rig, a single rig, a preset rig and related equipment and spare parts, have been considered non core asset for quite some time. The transaction is scheduled to close on November 18, 2009.

Balance Sheet

The sale of the drilling assets will further strengthen our balance sheet. At September 30, 2009, our net bank debt (amount owing to the bank less cash and cash equivalents) was $3.2 million. The actual draw against our $12 million bank facility is $5.4 million. We have essentially completed our 2009 capital program and strong WTI prices combined with low differentials have generated positive cash flow at current production levels.

The proceeds from the sale of the rigs will eliminate our net bank debt and give us additional financial flexibility. As a result, the Company is well positioned to give our reservoir time to transition to bitumen and to execute the program necessary to protect our acreage position; discussed in further detail below.

Wabiskaw Field - East Block

Slower than expected transition from water to bitumen means our third quarter production was essentially flat with the second quarter. All 68 horizontal wells drilled and completed in the East Block are now on production as the remaining ten wells were tied in during the quarter.

The geophysical and geological evaluation of the Wabiskaw field in the East Block initiated in the second quarter has significantly progressed. Although accurately predicting water content of each well's reservoir area is far from an exact science, the findings to-date appear to explain why so many of the wells continue to produce bitumen at lower than anticipated levels.

The evaluation, when matched against the points in the formation where the Company's 68 wells have been drilled, has led us to believe that approximately:

- 50% have been drilled into optimal points in the formation

-- Good bitumen producing wells or should become good producing wells in near future.

- 30% have been drilled into suboptimal points in the formation

-- Water production prior to transition to bitumen production will be much greater than anticipated.

- 20% have been drilled into poor points in the formation

-- Water production prior to bitumen production may be for years instead of months.

As far as the first two categories are concerned, we, along with our engineering advisors, have seen nothing to lead us to believe that the wells will not eventually change-over from water to bitumen. It is our understanding that a prolonged period of water production followed by a transition to bitumen production has been encountered in fields that are in relative close proximity to ours.

We are optimistic that we have found a cost effective method to alter the well bore configuration to reduce the excessive water production in the wells that have been drilled into poor points in the formation. Essentially, we re-enter the well bore and plug a portion of the horizontal section to alter the area being drained. We plan on testing this procedure on one of our problem wells prior to the end of the year.

Bronco will continue to explore all options to increase production. At some point, we will be evaluating secondary recovery methods, likely a polymer flood; however, it would be premature to commit capital until the primary recovery issues are better understood. In this regard, the Company has retained a qualified consulting team experienced with adjacent fields and to make an objective evaluation of the reservoir and our development to-date.

Wabiskaw Field - West Block

We are excited about our opportunities in the West Block of the Wabiskaw field and our capital program in 2010 will be focused on evaluating these opportunities. Our work to date, which includes five test wells, indicates that the Wabiskaw formation in the West and East Blocks have similar characteristics so our East Block experience will be quite valuable as we prepare a development plan for the West.

A key lesson learned is that significant front-end geophysical and geological work must be completed prior to wells being drilled. This work will maximize the potential of the well to hit what we call a sweet spot in the reservoir (i.e. optimum point in the formation where maximum bitumen/minimum water production will be achieved). In order to ensure the proper attention is given to this important front-end effort, Bronco recently hired a seasoned Exploration Manager.

The West Block also contains another valuable asset for Bronco shareholders. Test wells indicate that the Grand Rapids formation in the West Block has excellent potential for an in situ oil sands project. This formation is located at an average depth of 225 meters and is unique in that it features clean sand with a homogeneous and continuous reservoir pay. These features increase the predictability and consistency of the reservoir and make it a good prospect for an in situ process. A critical variable is the continuous meters of oil pay and the test wells to-date show at least 20 meters of pay which is very positive.

The West Block acreage is part of a Lease with Indian Oil and Gas Canada that expires in April, 2011 unless Bronco drills additional test wells into the target formations. Bronco's 2010 capital program will ensure we retain the rights to those sections of the West Block that contain the best potential. In the first quarter of 2010, the Company is planning to drill 7 test wells at a total cost of approximately $3 million.


Bitumen production to-date has fallen short of our expectations; however I remain optimistic for the medium term. Bronco is a significant acreage owner in the Athabasca Oil Sands region, the largest oil play in the world outside of Saudi Arabia. It is an area attracting worldwide attention as indicated by the recent $1.9 billion acquisition by PetroChina. Bronco has an excellent relationship with our sole partner, the Bigstone Cree Nation, and we are the operator of the properties located in a concentrated area.

Peter Pelensky P Eng.

President and Chief Executive Officer

Bronco is a publicly listed junior oil and gas exploration and development company based in Calgary, Alberta. Bronco's shares trade on the TSX under the symbol "BCF".

Copies of the Financial Statements and Management's Discussion and Analysis for the quarter ended September 30, 2009 will be filed with Canadian securities regulators and will be available on SEDAR and can be accessed at or by visiting Bronco's website at

Disclosure provided in respect of barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of gas ("mcf") to one barrel of oil is used and is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The terms "boepd" "mcfpd" and "bopd" mean a boe, mcf or barrel of oil, respectively, per day.

Forward-Looking Information

All statements in this document, other than statements of historical fact, are forward-looking statements. Such forward-looking statements are made with respect to: oil and natural gas reserves; oil and natural gas production levels; well and facility performance; secondary recovery methods, prospects for our West Block, projections of market prices, oil netbacks, transportation, operating and general administrative costs and budgeted capital expenditures. We have made assumptions underlying the forward-looking statements which, if inaccurate, could cause actual results to differ materially from those expressed in the forward-looking statements. These assumptions include, among other things: the reserves described can be profitably produced and the future performance of our wells and our current and new facilities; our ability to market our oil successfully; capital expenditures being within budget; future oil and gas prices and price differentials between light, medium and heavy oil; our ability to maintain our credit facility and our ability to obtain financing on acceptable terms as required. Actual results may differ materially from those expressed in the forward-looking statements due to unexpected costs or delays relating to the second treater or other risks described in our annual information form and management's discussion and analysis available at Readers are cautioned that these lists of assumptions and risk factors should not be considered to be exhaustive.

Contact Information

  • Bronco Energy Ltd.
    Peter J. Pelensky, P. Eng
    President and CEO
    (403) 699-8383
    (403) 693-0038 (FAX)
    Bronco Energy Ltd.
    Paul E. Belliveau, CA
    VP Finance and CFO
    (403) 699-8383
    (403) 693-0038 (FAX)