Pace Oil & Gas Ltd.
TSX : PCE

Pace Oil & Gas Ltd.

March 08, 2011 03:47 ET

Pace Oil & Gas Ltd. Reports Year End 2010 Financial and Operating Results-Driven by Strong and Growing Oil Production

CALGARY, ALBERTA--(Marketwire - March 8, 2011) - Pace Oil & Gas Ltd. (Pace) (TSX:PCE) is pleased to announce its Q4 2010 and year-end Financial and Operating highlights to its shareholders.

"2010 was a transformational year for Pace. We have grown significantly and strategically. We substantially increased our oil weighting and opportunity base and are targeting to increase oil production to 50% of our total production by the end of 2011," said Fred Woods, President and Chief Executive Officer of Pace Oil & Gas Ltd. "We have an enviable asset base with numerous opportunities to exploit. Our high percentage of proved producing reserves and our low future development costs speak to the high-quality, low-risk character of these assets."

Pace was created on June 29, 2010 when Midnight Oil Exploration Ltd. purchased Provident Energy Trust's upstream oil and gas assets. Operating primarily in Alberta, Pace has grown its production and reserves as well as increased its oil weighting through its organic program and strategic acquisitions. Pace has a proven ability to develop and apply leading edge technologies to unlock production and reserves from its vast resource base. Pace continues to focus its efforts and capital resources on its numerous oil projects and has deferred its large scale gas projects until natural gas prices recover.

CORPORATE HIGHLIGHTS:

The following disclosure provides a comparison of Q4 2010 to Q3 2010 to reflect a more meaningful analysis than year over year as the Arrangement to form Pace occurred on June 29, 2010.

Production Increases

  • Q4 2010 production up 6% from Q3 2010 to average 13,089 boe per day

  • Q4 2010 oil and liquids production up 15% to 5,391 bbls/d (average 41% of total production) from 4,688 bbls/d (average 38% of total production) in Q3 2010

  • Natural gas production remained relatively flat at 46.2 mmcf/d versus 46.4 in Q3

Funds from Operations Increases

  • Q4 2010 petroleum and natural gas sales up 15% to $51 million from $45 million in Q3 2010

  • Q4 2010 funds from operations up 39% to $18 million compared to $13 million in Q3 2010

  • 2010 funds from operations up 9% to $52 million compared to $48 million in 2009

Operating Netback Increases

  • Q4 2010 Operating netbacks per boe up 29% to $19.55 from $15.20 per boe in Q3

  • Q4 2010 operating expenses reduced 9% to $13.81 per boe from $15.21 per boe in Q3 2010. Operating expenses have declined 20% from Q2 2010

Balance Sheet and Financial Flexibility Improves

  • Net debt at December 31, 2010 was $154 million. Total bank debt was $149 million against available lines of credit of $220 million

  • For 2011 we have two oil hedging contracts in place, 1,000 bbls/d swap at $93.95 Cdn for calendar year and 500 bbls/d collar at $95.00 to $107.20 Cdn for April to December, 2011

Successful Capital Program

  • Q4 2010 Capital expenditures of $19 million and $59 million for the year primarily targeting oil projects

  • Q4 2010 Acquisition capital was $51 million adding strategic oil weighted assets in Dixonville and Enchant

  • 2010 Acquisition capital of $172 million including the amalgamation/acquisition of Midnight Oil Exploration Ltd.

Reserves and Finding Costs

  • Total Proved Reserves at December 31, 2010 are 41.8 mmboe (49% oil and liquids) and Total Proved plus Probable Reserves are 67.0 mmboe (49% oil and liquids). Reserve additions were primarily oil with our activities at Dixonville, Retlaw and Enchant

  • 2010 Total Proved finding and development ("F&D") costs including changes in future development costs ("FDC") were $12.00 per boe and Total Proved finding, development and acquisitions ("FD&A") costs including changes in FDC were $17.81 per boe

  • 2010 Total Proved Plus Probable F&D costs including changes in FDC were $17.20 per boe and Total Proved Plus Probable FD&A costs including changes in FDC were $15.39 per boe

Operating Highlights

  • Successful response from Phases 1 and 2 of the Dixonville waterflood has provided strong oil growth

    • Completed implementation of Phase 3 of the Dixonville waterflood

    • Received approval for Phase 4 to be conducted later in 2011

  • Commenced our Pekisko horizontal oil program at Haro

FOURTH QUARTER FINANCIAL AND OPERATING RESULTS   
Financial                                        
(000s, except per share amounts)     Q4 2010       Q4 2009       Q3 2010       2010       2009  
Funds from operations   $ 18,103     $ 13,300     $ 12,980     $ 52,358     $ 47,829  
  Per share- Basic     0.44       0.41       0.32       1.43       1.47  
  Per share- Diluted     0.44       0.41       0.32       1.43       1.47  
Net loss   $ (2,115 )   $ (11,977 )   $ (8,177 )   $ (397,213 )   $ (58,642 )
  Per share- Basic     (0.05 )     (0.37 )     (0.20 )     (10.85 )     (1.80 )
  Per share- Diluted     (0.05 )     (0.37 )     (0.20 )     (10.85 )     (1.80 )
Capital expenditures   $ 19,133     $ 11,552     $ 9,070     $ 59,280     $ 71,050  
Net acquisitions     50,524       23       -       172,017       435  
Net debt     153,647       8,284       158,692       153,647       8,284  
Operations                                        
Average daily production                                        
  Natural gas (mcf/d)     46,184       40,518       46,408       42,691       42,805  
  Oil & NGLs (bbls/d)     5,391       3,655       4,668       4,289       4,116  
  Combined (boe/d)     13,089       10,408       12,403       11,405       11,251  
  % Oil & NGLs     41 %     35 %     38 %     38 %     37 %
($/boe)                                        
  Sales price   $ 42.51     $ 41.08     $ 39.14     $ 41.55     $ 35.48  
  Royalties     (7.38 )     (6.27 )     (7.02 )     (6.81 )     (3.44 )
  Operating expenses     (13.81 )     (15.84 )     (15.21 )     (16.21 )     (15.23 )
  Transportation expenses     (1.77 )     (1.37 )     (1.71 )     (1.83 )     (1.46 )
Operating Netback   $ 19.55     $ 17.60     $ 15.20     $ 16.70     $ 15.35  

OPERATING HIGHLIGHTS:

Pace has a focused and large production base in its four key operating areas of Dixonville, Northwest, Red Earth and Southern Alberta and is working on exploitation and development in each of these core areas. In addition, we are selectively expanding and committing capital in our new Pekisko oil resource play in Haro, in Northwest Alberta.

Dixonville

Pace's 100% working interest Montney oil (30 degree API) waterflood at Dixonville continues to perform above early model expectations. In Q4 2010, Pace acquired additional lands in the area including a keyhole section enabling us to design a more effective waterflood. With this acquisition, Pace's injector and producer pattern can be more effectively designed to improve maximum sweep efficiency and ultimately maximize oil recovery. Pace completed Phase 3 of the waterflood in January 2011 wherein certain oil producers were converted to water injectors in the central part of the pool to increase the overall recovery. Waterflood response from this Phase is expected in 6 to 9 months. Phase 4 of the waterflood will commence in 2011 where the northeast portion of the field will be under flood. Pace believes successful waterflood results will allow continued growth of our total proved and total proved plus probable reserves. The Company is continually analyzing and monitoring this pool to ensure maximum recovery.

Northwest Alberta

Pace's Northwest Alberta properties primarily include its long-life, low decline Bluesky gas property at Rainbow and its Haro Pekisko oil development. Pace's Haro play in the Pekisko formation commenced field operations in Q4 2010. This area has seasonal access restrictions therefore careful planning was required for maximum operating efficiencies to ensure the Company completed its operations before break-up. In Q4 2010, Pace prepared access roads and cleared surface leases for its five (net 5.0) horizontal Pekisko wells drilled in the first 2 months of 2011. In addition, the Company constructed pipelines and upgraded facilities to dispose water and reduce trucking charges. Pace is optimistic about the potential based on its results thus far and will be able to lay out its further development strategy for next winter after reviewing the production performance from this winter's program.

Red Earth

Pace's Red Earth property produces light sweet oil from the Keg River and Granite Wash and in addition significant potential exists from the Slave Point formation. During the winter, Pace will have drilled a total of six (4.3 net) wells in this area including one (0.5 net) Slave Point horizontal well. One (net 0.5) Slave Point vertical well drilled in Q4 2010 is currently being tied in. Pace has drilled four (3.3 net) Keg River/Granite Wash wells that will be tied in and onstream before the end of the quarter. The horizontal Slave Point has commenced drilling and should be completed and on production before spring break-up. Red Earth continues to be an area of focus for Pace with some rationalization of facilities and operations and net production growing to over 625 boe/d for December 2010 compared to 450 boe/d for January 2010.

Southern Alberta

Pace's Southern Alberta assets are concentrated in the following key operating areas: Retlaw, Enchant and Long Coulee. Prior to year end Pace was successful in adding a strategic oil property in the Enchant and Retlaw areas that allows us to pursue a number of identified waterflood projects. Pace continues to use its unique 3D processing and interpretation techniques to identify and unlock the horizontal drilling potential of the Glauconite Lithic Channels. Pace has a competitive advantage in this area through its existing facilities and operations plus its significant 3D seismic database and large undeveloped land base on which to explore for these channels, using horizontal drilling and multi-staged fracture stimulations.

Deep Basin

Pace's gas operations in the Deep Basin have been curtailed dramatically due to the depressed natural gas prices with capital being directed to its oil opportunities. During Q4 2010 Pace drilled two (0.9 net) horizontal wells and placed one of these wells on stream. Pace will also be tying in production in Chinook Ridge from a well that was completed in Q4 2010 (0.50 net). Whereas Pace's activities in the Deep Basin are being restricted, Pace is able to quickly resume aggressive development should natural gas prices improve.

2011 OUTLOOK

Looking forward, the key elements of Pace's success will be the strength of our technical teams and the breadth and depth of our large scale exploitation and development projects from our very attractive oil and gas resource play portfolio. Over the past year and going forward, Pace has built and expanded its strong technical teams in areas of operations, exploitation, reservoir engineering, production optimization and geological and geophysical to capture and deliver long term value to our shareholders. We have a large, multi-year inventory of repeatable, low risk exploitation and development projects with significant potential reserve additions on assets we own and control. This inventory includes significant near term prospects and medium to long term opportunities across our high quality asset base.

We have accumulated a large opportunity base and have built in the flexibility to target either oil or gas growth opportunities to maximize returns in the context of the prevailing commodity environment.

Capital Expenditures

  • Capital expenditures are expected to total $100 to $110 million in 2011 with 85% to 90% of the expenditures directed towards our oil opportunities. The Company expects to allocate approximately 25% to 30% of the budget to Northwest Alberta, 25% to 30% to Dixonville and Red Earth, and 30% to 35% to Southern Alberta, with the balance to the Deep Basin and other corporate activities
  • Our capital allocation to oil is driven by the strength of the oil price and superior economic returns relative to natural gas. With these oil investments we expect our oil and liquids production in 2011 will increase to approximately 45% of production for the year and exit the year at approximately 50% of total production

Production and Operating Guidance

  • Pace expects 2011 production to average between 15,000 and 16,000 boe/d with oil and liquids expected to average approximately 45% of total production

  • Forecasting royalty rates to increase and average 18% to 22% of revenues

  • Operating costs are targeted to decrease to between $13.50 and $14.50 per boe and transportation charges are expected to average between $1.50 and $1.85 per boe

  • The Company expects its cash G&A to average between $2.50 per boe and $2.75 per boe and its financial charges in the $1.50 to $1.70 per boe range

  • Pace's capital program targets to achieve strong financial results. With these expectations, the Company is forecasting strong per share funds from operations growth in 2011

"We are opportunity and resource rich with a large portfolio of both oil and gas projects that makes us confident about the long term strength and potential of Pace," said Fred Woods. "We look forward to continued success and positive results from our program."

AUDITED CONSOLIDATED FINANCIAL STATEMENTS, MD&A AND AIF

Pace's audited consolidated financial statements for the year ended December 31, 2010 together with the notes thereto, Management Discussion and Analysis for the year ended December 31, 2010 and Pace's Annual Information Form for the year ended December 31, 2010 will be filed on SEDAR today and can be accessed at www.sedar.com or by visiting Pace's website at www.paceoil.ca. Also, please see our Press Release dated March 1, 2010 for a detailed review of our reserves.

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. In addition, Pace has a prolific natural gas resource base. Pace is excited about the opportunities it has identified and looks forward to applying its expertise to increase shareholder value. Pace's common shares trade on the TSX under the symbol "PCE". We also trade over the counter in the United States with the symbol "MDOEF".

NOTE REGARDING RESERVES INFORMATION

  • Natural gas is converted to barrels of oil equivalent ("boe") at a ratio of six thousand cubic feet to one barrel of oil. Boe's may be misleading, particularly if used in isolation. In accordance with NI 51-101, a boe conversion ratio for natural gas of 6 mcf:1 bbl has been used which 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 aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.

  • Certain terms and abbreviations used herein, but not defined or described, are defined in NI 51-101 or the COGE Handbook and, unless the context otherwise requires, shall have the same meanings herein as in NI 51-101 or the COGE Handbook.

FORWARD-LOOKING STATEMENTS

Certain statements contained within this press release 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. The use of any of the words "targeting", "continue", "until", "forecast", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward- looking statements. 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, 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. In addition, this press release contains forward-looking statements with respect to: (i) production volumes and expectations regarding the timing of when additional production volumes will be brought on stream; (ii) Pace's drilling plans and the results therefrom including expectations regarding well completions and the start up of new wells; (iii) future development and exploration activities and the timing thereof; (iv) Pace's plans for the development of its proven and probable undeveloped reserves. With respect to the forward-looking statements contained in this press release, Pace has made assumptions regarding:

  • prevailing commodity prices and exchange rates;

  • availability of labour and drilling equipment;

  • future operating expenses including processing and gathering fees;

  • timing and amount of capital expenditures;

  • government regulation in the areas of taxation, royalty rates and environmental protection;

  • production of new and existing wells and the timing of new wells coming on-stream;

  • the performance characteristics of oil and natural gas properties; and

  • the size of oil and natural gas reserves.

Although Pace believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Pace can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. 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. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to:

  • volatility in market prices for oil and natural gas, and in exchange rates;

  • liabilities inherent in oil and natural gas operations and limitations on insurance;

  • changes or fluctuations in production levels;

  • stock market volatility and market valuation of our stock;

  • uncertainties associated with estimating oil and natural gas reserves;

  • competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;

  • incorrect assessments of the value of acquisitions and exploration and development programs;

  • geological, technical, drilling, production and processing problems;

  • changes in legislation including changes in tax laws, royalty rates and incentive programs relating to the oil and natural gas industry; and

other factors which are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this press release 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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