Pace Oil & Gas Ltd.
TSX : PCE

Pace Oil & Gas Ltd.

May 10, 2011 01:03 ET

Pace Reports Strong Oil Weighted Growth-Production Increases, Reduced Operating Costs and Record Cash Flow

CALGARY, ALBERTA--(Marketwire - May 10, 2011) - Pace Oil & Gas Ltd. (TSX:PCE) ("Pace" or the "Company") is pleased to provide an update of its operating activities and its financial results for the three months ended March 31, 2011.

During Q1 2011, Pace had an active program including the drilling of 10 (10 net) oil wells, to drive record oil and liquids production up 9% from Q4 2010 (up 66% from Q1 2010).

In the first quarter, Pace continued work related to operating and efficiency enhancements on its production base in Dixonville, Red Earth and Southern Alberta further reducing operating costs to $13.51 per boe, down 2% from Q4 2010 (down 31% from Q1 2010).

The combination of an increase in oil production, reduced operating costs and improved oil prices resulted in increased funds from operations by 36% over Q4 2010 (up 126% from Q1 2010) and up by 18% per share over Q4 (up 58% from Q1 2010).

CORPORATE HIGHLIGHTS:

Strong Production Increases

  • Q1 2011 production up 8.0% from Q4 2010 to average 14,141 boe/d.
  • Q1 2011 oil and liquids production up 8.8% to 5,868 bbls/d (41.5% of total production) from 5,391 bbls/d in Q4 2010.
  • Natural gas production up 7.5% from Q4 2010 to average 49,640 mcf/d.

Funds from Operations Increases

  • Q1 2011 petroleum and natural gassales up 12.4% to $57.6 million from $51.2 million in Q4 2010.
  • Q1 2011 funds from operations up 35.9% to $24.6 million compared to $18.1 million in Q4 2010.

Operating Netback Increases

  • Q1 2011 operating expenses decreased 2.2% to $13.51 per boe from $13.81 per boe in Q4 2010. Operating expenses have declined 31.4% from Q1 2010.
  • Q1 2011 Operating netback per boe up 6.2% to $20.77 from $19.55 per boe in Q4 2010.

Balance Sheet and Financial Flexibility Improves

  • Net debt at March 31, 2011 was $173.2 million. Total bank debt was $159.7 million against available lines of credit of $220 million.
  • Three oil hedges in place in 2011: 1,000 bbls/d swap at $93.95 CDN for calendar year 2011; 500 bbls/d collar at $95.00 to $107.20 CDN for April to December, 2011; and 500 bbls/d collar at $95.00 to $108.00 CDN for April to December, 2011.
  • Oil hedges for the calendar year 2012: 500 bbls/d collar at $95.00 to $117.75 CDN.

Successful Capital Program

  • Q1 2011 Capital expenditures of $45.7 million of which $29.8 million was directed towards drilling and completion activities.
  • Drilled 10 (100% WI) oil wells in Haro, Red Earth and Southern Alberta of which 7 were horizontal.
Financial
(000s, except per share amounts)Q1 2011Q1 2010Q4 2010
Funds from operations$24,599$10,863$18,103
Per share- Basic0.520.330.44
Per share- Diluted0.520.330.44
Net income (loss)$1,687$(17,427)$(36,681)
Per share- Basic0.04(0.54)(0.89)
Per share- Diluted0.04(0.54)(0.89)
Total capital expenditures$45,732$21,852$19,133
Net acquisitions (dispositions)(2,000)4,45350,524
Net debt173,24513,075153,647
Operations
Average daily production
Natural gas (mcf/d)49,64037,66446,184
Oil & NGLs (bbls/d)5,8683,5315,392
Combined (boe/d)14,1419,80813,089
% Oil & NGLs41%36%41%
($/boe)
Sales price$45.22$45.51$42.51
Royalties(9.26)(7.44)(7.38)
Operating expenses(13.51)(19.68)(13.81)
Transportation expenses(1.68)(1.83)(1.77)
Operating netback$20.77$16.56$19.55

OPERATING HIGHLIGHTS

Pace's focus this quarter was on operations in its oil properties at Dixonville, Haro, Red Earth and Southern Alberta. Pace has assembled a large portfolio of resource opportunities throughout its operating areas. This allows Pace to be selective and flexible in its investment strategy – directing investment towards higher valued oil opportunities while keeping the lower priced gas opportunities in inventory waiting on improvements in pricing. The majority of our winter program targeted oil resource plays and we are pleased with the results to date.

Dixonville

Dixonville area production increased to over 3,300 boe/d (85% oil) for the quarter. The Dixonville Montney is a top tier light oil producing property in all of Alberta and is owned 100% by Pace. Pace's Dixonville Montney oil waterflood continues to perform very well. Our technical staff has initiated a more detailed analysis to refine the waterflood and identify potential enhancements to further optimize sweep efficiencies. With this analysis and the strong positive response from the early stages of the waterflood we anticipate increased production and recoveries.

Northwest Alberta - Rainbow, Haro

Pace has a large operating and production base in the Rainbow area where the Company produces over 18 mmcf/d and 435 bbls/d. This provides Pace with area experience and an operating base to pursue our Haro Pekisko program. The Haro area is only accessible during frozen ground conditions thus a comprehensive plan was required to ensure all of our operations could be completed prior to break up in late March. Pace drilled and completed 5 (5.0 net) horizontal wells in this area; completed 2 (1.0 net) wells that were drilled the previous winter season; installed 25 kilometres of oil pipeline; and established water handling and disposal facilities to permit continuous production to our staging area. In all, Pace invested $25 million on its Pekisko oil play this winter. Early indications are positive and further results will be available towards the end of May or early June (after recovery of the frac fluid and a period of sustained production). Pace now has infrastructure in place to mobilize a full scale development program in this area next winter season.

Red Earth

Pace's inventory in Red Earth comprises both conventional Keg River and Granite Wash oil opportunities as well as Slave Point resource oil opportunities. Production for the Red Earth area has increased to 750 bbls/d from our successful drilling program. This area is largely accessible year round and Pace has a large well maintained infrastructure that includes pipelines, oil batteries and water handling facilities. Pace drilled a total of 6 (4.8 net) oil wells over the winter of which 2 (1.5 net) targeted the Slave point while four targeted the Granite Wash/Keg River sands. Four (2.8 net) of these wells have been completed and are currently producing oil; our horizontal Slave Point well (1.0 net) is waiting on completion after break up and one well (1.0 net) was cased for further evaluation of a shallower horizon. Pace has numerous infill drill ready locations in inventory targeting the Slave Point and the Keg River/Granite Wash and looks forward to exploiting this oil rich resource in the coming months.

Southern Alberta

The Company's production from Southern Alberta is over 4,000 boe/d (35% oil). Pace has over 275,000 net acres (430 sections) on which to exploit new and emerging oil resource opportunities we have identified. In Q1 2011, Pace drilled two oil wells targeting the Pekisko oil resource play and the Glauconitic Lithic channel oil play. Pace has a large 3D seismic data base covering this area that is being re-evaluated using enhanced processing techniques that yields information not previously discernable. Pace and other industry participants have been very successful throughout the area drilling both vertical and horizontal wells into these resource plays. Pace plans to be very active in Southern Alberta with over 15 wells to be drilled for the balance of the year.

Deep Basin

Our Deep Basin resource gas opportunity base was targeted in Q1 2011 for selective exploitation. In the Chinook Ridge area, we successfully completed a high rate multi-zone Cadomin Nikanassin well (0.50 net) that initially produced at rates of over 8 mmcf/d and is currently producing at a restricted rate of 1 mmcf/d due to facility constraints. Plans are to loop the existing pipeline this summer (subject to ground conditions) to allow us to produce on an unrestricted basis. Pace has a large and attractive gas resource holding in the Deep Basin area with years of drilling inventory. Due to current natural gas prices we have allocated only a small portion of our capital program to this area for the balance of the year.

Outlook

Pace enjoyed a successful winter that grew our oil production and cash flow to record levels. Pace continues to benefit from its operational experience and the ability to successfully apply new and evolving technologies to unlock resource opportunities in all play types. With Pace's strong technical skills, solid asset base and large portfolio of oil and gas resource opportunities, the Company is positioned for continued and long term growth.

Pace maintains its 2011 capital program of $100 to $110 million which will focus on our oil opportunities. The program is designed to be flexible and the Company expects to manage the program to match its cash flow. With this program, the Company maintains its production targets of 15,000 to 16,000 boe/d with oil and liquids expected to average approximately 45% of total production for the year.

Pace has all of the elements of a top-tier intermediate producer. Pace has a solid oil production base in Dixonville and significant oil resource play inventory in Haro and Southern Alberta to combine with its light oil property in Red Earth plus a 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 delivering future "good news" quarters in the months and years ahead.

Pace will hold its Annual General Meeting on Thursday, May 19, 2011 at the Livingston Club Conference Centre, 222 – 3rd Avenue SW, Calgary, Alberta at 10 am (Calgary time) and invites all shareholders to attend. Pace is a growth oriented, intermediate producer with a breadth of oil and gas resource opportunities focused in Alberta. Pace's common shares trade on the TSX under the symbol PCE.

ADVISORY

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.

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

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 under "Risk Factors" in Pace's Annual Information Form on file with the 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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