Pace Oil & Gas Ltd.
TSX : PCE

Pace Oil & Gas Ltd.

November 08, 2010 18:49 ET

Pace Oil & Gas Ltd Increases Oil Production Over 30% to Drive Strong Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2010) - Pace Oil & Gas Ltd. (TSX:PCE) ("Pace" or the "Company") reports financial and operating results for the three and nine months ended September 30, 2010 ("Q3 2010") our first full quarter and outlook for 2011.

"We are pleased and excited about our results and our potential. The quality of our assets with the oil weighting of our production and opportunity base allows us to execute an exciting capital program through Q4 2010 and 2011." said Fred Woods President and Chief Executive Officer of Pace Oil & Gas Ltd. "We are resource rich and our broad and deep portfolio of oil projects combined with our ability to further optimize these opportunities by applying new technology makes us confident about the long term strength and potential of Pace."

HIGHLIGHTS:

  • Oil production increased to 4,400 bbls/d (average 35% of total production) up 31% from 3,347 bbls/d in Q2 2010.
  • Natural gas liquids production increased to 268 bbls/d (up 37%) from 195 bbls/d in Q2 2010.
  • Increased total production to 12,403 boe/d (up 21%) for Q3 2010 exceeding guidance.
  • Increased petroleum and natural gas sales to $45 million in Q3 2010 (up 21%) from $ 37 million in Q2 2010.
  • Reduced operating expenses to $15.21 per boe (12% decrease) from $17.24 per boe in Q2 2010.
  • Funds from operations totaled $13 million in Q3 2010 compared to $10 million in Q2 2010.
  • Disciplined capital program limited expenditures to $9 million. 
  • Cash flow exceeded capital spending and net debt decreased to $ 159 million.

Pace was formed on June 29, 2010 and is an exciting entrant to the intermediate sized group of oil and gas companies. These results represent our first full quarter of operations. We have already made many positive and impactful steps towards our objective of being a top tier intermediate oil and gas company. We have assembled the key elements for a successful company including a strong technical and operations group and a tremendous oil and gas resource opportunity base. We plan to direct our capital towards our oil opportunities as we add to, and build upon, our positive early results. We have an enviable oil opportunity base in our key areas of Dixonville, Rainbow, Red Earth and Southern Alberta.

OPERATIONAL HIGHLIGHTS:

At Dixonville, we are pleased with the performance of our operated light oil Montney waterflood where oil production has increased and gas production has decreased as modelled. Production currently exceeds 2,500 boe/d (more than 90% being oil) indicating a positive performance impact from phases 1 and 2 of the waterflood. Equally important with this positive response, we have received regulatory approval to proceed with phase 3 & 4 of the waterflood to further enhance pool recoveries.

At Rainbow and Haro we have numerous oil resource opportunities that we are developing including a Pekisko oil play in Haro where we have assembled over 85 sections of 100% lands and have established oil production along this trend. This area is remote access and we plan an aggressive capital program that includes drilling 6 to 10 horizontal wells plus roads and pipeline infrastructure to allow us to produce year round. Also at Haro, on our southern joint lands (20 sections PCE 50%) we have two successful horizontal new drills we plan to complete and place on test. It is early in the development of this play but with over 1.5 billion barrels of oil in place on Pace lands, primary production along this trend and the potential to apply recent technology we are cautiously optimistic of this play's potential.

Red Earth continues to be a major focus of Pace with its light (40° API), sweet oil from the Granite Wash, Keg River and the recent addition of the resource potential in the Slave Point. We have ownership and operatorship of production and facilities combined with a large land holding of over 100 gross sections, with an average working interest of over 69%. We have a number of identified opportunities to delineate our Keg River discovery of last winter that continues to produce over 175 bbls/d. This winter we plan to drill 4 or more Keg River wells plus follow up on a recent well (PCE 50%) drilled on the Slave Point resource play. Again these are early stages for the Slave Point, but a number of competitors are aggressively pursuing lands and have expended over $20,000/ha at a recent crown sale immediately adjacent to our acreage.

In Southern Alberta, Pace has an extensive inventory of light oil and sweet gas opportunities centered on the Enchant and Retlaw areas where we have an interest in over 160 sections of land (over 100,000 acres). In 2011, Pace will direct activities to develop new unconventional oil plays where we have enjoyed recent successes plus initiate waterfloods on some of our existing oil pools. This area has both multi-zone conventional oil and gas potential in the Mannville, Pekisko and Banff formations and the opportunity of new unconventional oil plays. This is an area where we are applying our leading edge horizontal drilling and multi-stage fracture stimulation techniques that we developed in our Deep Basin unconventional gas exploitation program. We have a large inventory of high quality 3D and 2D seismically identified oil opportunities and we plan to selectively expand and consolidate interests in this area as part of our capital program.

In our Deep Basin area we hold a large land and prospect inventory on one of the top natural gas plays in North America. In deference to our oil plays we have put in place a modest capital program this winter and will delay investments in this area until natural gas prices recover. Pace has built and assembled a tremendous inventory of drill ready gas opportunities that can be developed when the commodity price improves. The primary zones of interest in this area are the stacked unconventional resource plays in the Cadomin and the Nikanassin while the conventional Cretaceous reservoirs include the Falhers, Notikewan, Cadotte and Cardium. The Elmworth area remains a core gas area for Pace and we plan to drill one and complete two Cadomin Horizontal gas wells in Q4 2010 (net 0.95). These two wells are offsets to highly successful wells drilled by Pace in the last year. We also hold a large land position at Bilbo where we are currently drilling a horizontal well (0.5 net) with plans to drill another horizontal well over the winter. Industry continues to aggressively pursue this area with recent land sales offsetting Pace's acreage yielding prices of over $2,200/ha.

OUTLOOK:

Pace is an intermediate sized producer that has a tremendous portfolio of oil and gas resource opportunities to pursue. Pace was an "early mover" in identifying and applying new technologies. We have identified and evolved these techniques and technologies to unlock the potential and increase the production and the ultimate recovery of our large resources.

Our industry continues to be challenged by high service costs and low natural gas prices. In the current commodity price environment we are directing our efforts and capital program towards our oil opportunities. With our large oil prospect inventory, we are well positioned to expand and grow our oil production. Our third quarter results are the early signs of this trend.

Pace's production guidance for Q4 2010 was to average between 12,500 and 13,000 boe/d with an exit of 13,500 boe/d. We maintain these estimates and expect a capital program in Q4 of approximately $25 to $30 million.

For 2011 we are pleased to announce that the Board of Directors has approved a $90 million capital budget. Our capital program is designed to be flexible and we will generally manage the program to match our expected cash flow for the year but due to some winter only access locations, the program is weighted to Q1 2011. Our current plan is to allocate about one quarter of the budget to Northwest Alberta, one third to Dixonville and Red Earth, one third to Southern Alberta, with the remaining 10% - 15% to the Deep Basin.

With continued weakness in natural gas prices, approximately 85% - 90% of our budget will be focused towards our oil opportunities while limiting the investments in our gas program. We target that this will increase our oil weighting to approximately 50% of overall production by the end of 2011. We expect to achieve strong financial results with our 2011 capital program increasing production to average between 13,500 and 14,500 boe/d, and increasing our oil weighting which will generate strong growth in cash flow.

Pace has all of the elements of a top-tier intermediate producer. Pace has a solid oil production base in Dixonville and a significant oil resource play inventory in Northwest Alberta to combine with its light oil property in Red Earth and its prolific natural gas resource base in the sweet spot of the Deep Basin. The Company is excited about the opportunities it has identified and looks forward to applying its expertise to increase shareholder value. We have a solid production platform with world class development and exploitation opportunities.

Copies of the interim consolidated financial statements and Management's Discussion and Analysis in respect of the three and nine months ended September 30, 2010 will be filed on SEDAR and can be accessed at www.sedar.com or by visiting Pace's website at www.paceoil.ca.

Pace is a growth oriented intermediate sized oil and sweet, natural gas production company operating in Alberta and headquartered in Calgary with over 500 identified drilling locations. Common Shares of Pace are listed on the Toronto Stock Exchange under the symbol "PCE".

Forward Looking Statements – Certain statements contained within this press release, and in certain documents incorporated by reference into this press release including our interim consolidated financial statements for the three and nine months ended September 30, 2010 and the Management's Discussion and Analysis thereon, constitute forward looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward looking statements. Forward looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements.

In particular, this press release and the documents incorporated by reference within contain the following forward looking statements pertaining to, without limitation, the following: Pace's future production volumes and the timing of when additional production volumes will come on stream; Pace's realized price of commodities in relation to reference prices; future commodity prices; the Company's future royalty rates and the realization of royalty incentives; Pace's expectation of reducing operating costs on a per unit basis; the relationship of Pace's interest expense and the Bank of Canada interest rates; increases in general and administrative expenses and recoveries; future development and exploration activities and the timing thereof; the future tax liability of the Company; the estimated future contractual obligations of the Company; the future liquidity and financial capacity of the Company; and its ability to fund its working capital and forecasted capital expenditures. In addition, statements relating to "reserves" or "resources" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future.

With respect to the forward looking statements contained in this press release and the documents incorporated by reference, Pace has made assumptions regarding: future commodity prices; the impact of royalty regimes and certain royalty incentives, the timing and the amount of capital expenditures; production of new and existing wells and the timing of new wells coming on stream; future proved finding and development costs; future operating expenses including processing and gathering fees; the performance characteristics of oil and natural gas properties; the size of oil and natural gas reserves; the ability to raise capital and to continually add to reserves through exploration and development; the continued availability of capital, undeveloped land and skilled personnel; the ability to obtain equipment in a timely manner to carry out exploration and development activities; the ability to obtain financing on acceptable terms; the ability to add production and reserves through exploration and development activities; and the continuation of the current tax and regulation.

We believe the expectations reflected in those forward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward looking statements included in, or incorporated by reference into, this press release should not be unduly relied upon. These statements speak only as of the date of this press release or as of the date specified in the documents incorporated by reference into this press release, as the case may be. The actual results could differ materially from those anticipated in these forward looking statements as a result of the risk factors set forth including: volatility in market prices for oil and natural gas; counterparty credit risk; access to capital; changes or fluctuations in production levels; 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 and skilled personnel; stock market volatility and market valuation of Pace stock; geological, technical, drilling and processing problems; limitations on insurance; changes in environmental or legislation applicable to our operations, and our ability to comply with current and future environmental and other laws; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; and the other factors discussed under "Risk Factors" in our Joint Information Circular dated May 10, 2010 filed on SEDAR. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward looking statements contained in this press release and the documents incorporated by reference herein are expressly qualified by this cautionary statement. The forward looking statements contained in this document speak only as of the date of this document and Pace does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.

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