Bronco Energy Ltd.
TSX : BCF

Bronco Energy Ltd.

March 31, 2009 17:38 ET

Bronco Announces Year End Results and Operations Update

CALGARY, ALBERTA--(Marketwire - March 31, 2009) - Bronco Energy Ltd. ("Bronco" or the "Company") (TSX:BCF) announces its 2008 results and operations update noting the following highlights:

- Substantial 2008 capital investment in our oil processing facility ("battery"), gathering facilities and pipelines plus sales pipelines (oil and gas), all of which set the stage for exploitation of the long life Wabiskaw reserves;

- 30 more Wabiskaw horizontal wells drilled in 2008, bringing our total well count to 68;

- Solid 2008 independent evaluation of our Proved plus Probable PV 10% reserve values of over $201 million;

- Bitumen production was stable in Q4 2008 and Q1 2009, while gas production increased from the Q4 2008 average of 893 mcfpd to over 2,000 mcfpd exiting March 2009. Increased gas production in the area is generally understood to be a key indicator of future transition to higher bitumen volumes; and

- Peter Pelensky is appointed President, CEO and Director of Bronco effective March 30.

Bronco has filed its Financial Statements for the year ended December 31, 2008, related Management Discussion and Analysis and Annual Information Form, which includes Bronco's reserve data and other oil and gas information for the year ended December 31, 2008. Electronic copies of the above documents may be obtained from SEDAR at www.sedar.com or from Bronco's website at www.broncoenergy.ca/financial-reports.php.

2008 Reserve Information

McDaniel & Associates Consultants Ltd. ("McDaniel") performed an independent engineering reserves assessment at December 31, 2008 that demonstrates the ongoing strong value of Bronco's share of reserves as outlined below:



Total Company Reserves and Net Present Value Before Income Tax
McDaniel Forecast Prices and Costs as of December 31, 2008
Total Reserves

Gross
Company
Share of
Remaining
Reserves Company Share of Net Present Value
Reserve Category (Mboe) Before Income Tax ($M)
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0% 5% 10% 15% 20%
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Proved Developed
Producing 1,133 4,742 4,570 4,379 4,185 3,996
Proved Developed
Non-Producing 2,231 39,567 35,686 32,335 29,438 26,926

Proved
Undeveloped 2,065 19,998 15,714 12,309 9,601 7,438
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Total Proved 5,429 64,307 55,970 49,023 43,224 38,360

Total Proved &
Probable 15,895 317,992 250,368 201,447 165,195 137,725

Total Proved,
Probable, &
Possible 63,086 2,154,352 1,182,363 736,794 496,362 352,521
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"The goal of our 2009 capital plan is to move some or all of the PV 10% Proved Developed Non-Producing reserve value of over $32 million to Proved Developed Producing by bringing all of our 68 wells on production", said Peter Pelensky, Bronco's President. "The infrastructure is substantially in place and modest capital expenditures of approximately $4.6 Million are required to continue optimizing production, bring our additional completed 10 wells on production and continue upgrading the battery as part of our efforts to lower operating costs."

McDaniel's reserve revisions were driven by low commodity prices and early stage production performance, which included significant start-up challenges. The recent facility corrections and more disciplined operations are expected to improve production performance over the long term.

These highlights are from the 2008 year end independent engineering reserves assessment from McDaniel and should be read in conjunction with Bronco's Annual Information Form for the year ended December 31, 2008, which contains additional detailed information. McDaniel's evaluation and the classification of the reserves were conducted as per the guidelines of the Canadian Oil and Gas Evaluation Handbook ("COGEH"). Complete definitions of these reserves classifications can be found within the COGEH. A portion of the reserves, representing approximately 1% of proved plus probable, was evaluated internally by Bronco. "Gross Company Share" is defined as a company's working interest share of remaining recoverable reserves before royalty deduction. Readers are cautioned that Possible reserves are those reserves that are less certain to be recovered than Probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of Proved plus Probable plus Possible reserves.

Operations

In 2008, Bronco invested heavily to unlock the potential of its Wabiskaw development project. The addition of 30 new Wabiskaw horizontal wells brings our current inventory to 68, of which 58 are currently capable of production. The remaining ten wells, all completed with production equipment, will be the object of Bronco's 2009 capital expenditure program. Bronco currently plans to begin production from these ten wells in Q3 2009.

The average Q4 2008 net production of 981 boepd (including 832 bopd of raw bitumen and gas of 893 mcfpd) was achieved despite significant periods of facility downtime, primarily because of fluid handling constraints (now substantially resolved). These volumes, along with the 2009 volumes indicated below, include only net raw bitumen and gas production, as the prior reporting of gross blended volumes has been discontinued under new management.

In Q1 2009, our average net production to date of 1,047 boepd (including 822 bopd of raw bitumen and gas of 1,353 mcfpd) is relatively unchanged from the Q4 2008 average net production volumes indicated above. With eight non-producing wells returning to production in March along with ongoing well optimization efforts, the Company expects to see near term growth in production. Since the Free Water Knock Out was returned to full operation in January 2009, a facility uptime rate of 100% has been achieved. While the previously announced 100 bopd single well first year production rate can be supported by nearby production data, management is currently running internal scenarios using a range of 60 to 100 bopd of raw bitumen plus associated solution gas production.

Bronco Drilling's Rig #1 has been working for a third party since January 3, 2009, and will have an expected total of 79 operating days in the first quarter of 2009 and an additional 30 to 40 operating days in the second quarter under the current contract.

2008 Financial Results

The following table provides selected consolidated financial information for the three months and year ended December 31, 2008 and 2007:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended
Selected Financial December 31, Year Ended December 31,
Information 2008 2007 2008 2007
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P&NG revenue $ 7,140,818 $ 1,408 $ 11,315,601 $ 30,727
Royalties (270,599) (131) (442,950) (2,088)
Operating expense
- p&ng (6,285,172) (3,207) (10,018,476) (9,951)
Transportation (3,209,940) - (3,235,909) -
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Operating netback
(loss) (2,624,893) (1,930) (2,381,734) 18,688
Drilling services
sales 304 130,431 1,211,828 1,340,273
Operating expense
- drilling (241,017) (244,098) (1,046,844) (1,196,347)
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Operating income
(loss) (2,865,606) (115,597) (2,216,750) 162,614
Interest revenue 265,173 362,953 527,066 1,695,234
General and
administrative
- cash charge (1,755,298) (1,382,119) (5,995,638) (4,557,600)
Cash financial
charges (147,181) (72,487) (916,426) (90,627)
Cash taxes - - - -
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Funds (loss) from
operations (4,502,914) (1,207,250) (8,601,748) (2,790,379)
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Net loss (23,043,341) (3,086,370) (32,560,257) (9,882,451)
Basic and diluted
loss per share (0.61) (0.10) (0.93) (0.34)
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Total assets 169,737,559 128,114,771 169,737,559 128,114,771
Working capital (16,895,349) 1,983,098 (16,895,349) 1,983,098
Long term debt 6,000,000 Nil 6,000,000 Nil
Asset retirement
obligation 4,026,976 2,288,322 4,026,976 2,288,322
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Capital expenditures 12,479,251 29,557,376 78,791,278 77,134,185
Wells drilled
- gross (net) 0.0 (0.0) 11.0 (10.5) 34.0 (32.3) 40.0 (38.0)
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Operating days
- drilling 4 80 252 229
Utilization rate
- drilling 1% 43% 35% 31%
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Common shares
outstanding 38,163,558 31,937,706 38,163,558 31,937,706
Weighted average
common shares
outstanding 37,758,920 31,823,362 35,077,077 29,058,083
Stock options
outstanding 2,584,654 3,134,255 2,584,654 3,134,255
Exercisable stock
options outstanding 1,962,819 1,675,591 1,962,819 1,675,591
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Operational
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Average Daily Net
Production
Bitumen produced and
sold (bopd) 832 - 291 -
Natural gas (Mcfpd) 893 3 289 13
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Combined (boepd) (1) 981 1 339 2
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Netbacks
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Natural gas ($/Mcf) $ 6.80 $ 5.88 $ 6.61 $ 6.72
Heavy Oil ($/bbl) 60.92 - 68.97 -
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Gross revenues
combined ($/boe) $ 58.65 $ 35.26 $ 65.97 $ 40.30
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Production revenue
($/boe) $ 21.71 $ 35.26 $ 40.71 $ 40.30
Royalties ($/boe) (3.00) (3.27) (3.58) (2.74)
Operating expenses
($/boe) (47.81) (80.34) (56.38) (13.05)
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Operating netback
($/boe) $ (29.10) $ (48.35) $ (19.25) $ 24.51
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(1) Combined boe/d are computed over the entire twelve month period.
Production was deemed "commercial" effective August 1, 2008.


Liquidity

The Company's current unaudited working capital deficit is an estimated $20.5 million, which includes $10 million drawn on its amended demand based Credit Facility ("Credit Facility"). In addition, a $2 million letter of credit, set to expire on June 30, 2009, remains outstanding under the current Credit Facility. No further advances have been granted by the lender. In the face of this financial hardship, we are continuing to pursue alternate sources of working capital.

Recent increases in the WTI forward curve along with improving heavy oil differentials, have had a positive impact on our realized commodity prices. Management remains optimistic that anticipated improvements in production volumes, heavy oil prices and newly introduced cost control and marketing initiatives will move our netbacks to positive levels.

"While our 2008 negative netback of $19.25 per boe and expected Q1 2009 negative netbacks are disappointing, our leadership changes and improved operations since early February gives us confidence that, with projected improvements in production rates and prices, Bronco should achieve positive netbacks exiting Q2 2009," said Board Chair Jim Dinning. "We know our confidence is well placed and we are pleased to welcome Peter Pelensky in his new role as President, CEO and Director of Bronco."

Disclosure provided in respect of barrels of oil equivalent per day ("boepd") may be misleading, particularly if used in isolation. A boepd conversion ratio of six thousand cubic feet of gas per day ("mcfpd") to one barrel of oil per day ("bopd") 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.

Forward-Looking Information

Certain statements contained in this document constitute forward-looking statements (the "forward-looking statements"). These statements relate to future events or our future performance. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "budget", "plan", "guidance", "continue", "estimate", "expect", "forecast", "may", "will", "project", "potential", "target", "intend", "could", "might", "should", "believe" and similar expressions. In particular, forward-looking statements herein include, but are not limited to, statements with respect to: timing of re-completion and tie-in of wells; well and facility performance, completion timing and method of funding thereof; productive capacity of wells, anticipated or expected production rates; completion and facilities costs; our ability to lower our cost structure; our growth expectations; timing of development of developed non-producing and undeveloped reserves; the performance characteristics of our oil and natural gas properties; oil and natural gas production levels; the size and quantity of the oil and natural gas reserves; projections of market prices and costs; supply and demand for oil and natural gas and commodity prices; expectations regarding the ability to raise capital and to continually add to reserves through acquisitions, exploration and development; treatment under governmental regulatory regimes and tax laws; our tax horizon; expected levels of royalty rates, operating costs, general administrative costs, costs of services and other costs and expenses; and realization of the anticipated benefits of acquisitions and dispositions. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment that, based on certain estimates and assumptions, the resources and reserves described can be profitably produced in the future. Although we believe that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. We cannot guarantee future results, level of activity, performance or achievements. Consequently, there is no representation that the actual results achieved will be the same, in whole or in part, as those set out in the forward-looking statements and information.

With respect to the forward-looking statements, we have made assumptions regarding, among other things: our ability to obtain financing on acceptable terms as required; future performance of our wells and facilities, including the battery; future performance of our drilling rigs and our ability to obtain additional equipment in a timely manner, if and as required; the impact of increasing competition for transportation capacity and supplies; future oil and natural gas production levels from our current and new wells; our ability to market our oil successfully; future capital expenditure levels; future prices and differentials between light, medium and heavy oil prices; and our ability to monetize our other non-core assets; our ability to maintain or increase our credit facility and our ability to obtain financing on acceptable terms as required.

Some of the risks and other factors could cause results to differ materially from those expressed in the forward-looking statements include, but are not limited to: general economic conditions in Canada, the United States and globally; industry conditions, including fluctuations in the prices of oil and natural gas; governmental regulation of the oil and gas industry, including environmental regulation; geological, technical, drilling and processing problems and other difficulties in producing reserves; unanticipated operating events or performance which can reduce production or cause production to be shut in or delayed; failure of our oil processing battery to operate at the expected capacity; failure to install pipeline facilities as and when expected; failure to obtain industry partner and other third party consents and approvals, when required; competition for and/or inability to retain drilling rigs and other services; the availability of capital; the availability of capital on acceptable terms; an adverse revision to the borrowing base under our credit facility; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in market prices for oil and natural gas; market demand for our non-core assets; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, skilled personnel and supplies; incorrect assessments of the value of acquisitions; geological, technical, drilling, processing and transportation problems; changes in tax laws and incentive programs relating to the oil and gas industry; failure to realize the anticipated benefits of acquisitions and dispositions; and the other factors described in our public filings (including our annual information form and management's discussion and analysis) available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this document are expressly qualified by this cautionary statement. We undertake no duty to update any of the forward-looking statements to conform such statement to actual results or to changes in our expectations except as otherwise required by applicable securities legislation.

Contact Information

  • Bronco Energy Ltd.
    Peter J. Pelensky, P. Eng
    President and CEO
    (403) 699-8383
    (403) 693-0038 (FAX)
    or
    Bronco Energy Ltd.
    David Johnson, CA
    VP Finance and CFO
    (403) 699-8383
    (403) 693-0038 (FAX)
    Website: www.broncoenergy.ca