Painted Pony Petroleum Ltd.
TSX VENTURE : PPY.A
TSX VENTURE : PPY.B

Painted Pony Petroleum Ltd.

November 25, 2010 09:22 ET

Painted Pony Announces Third Quarter 2010 Financial Results

CALGARY, ALBERTA--(Marketwire - Nov. 25, 2010) - During the third quarter of 2010, Painted Pony Petroleum Ltd. (TSX VENTURE:PPY.A)(TSX VENTURE:PPY.B) ("Painted Pony" or the "Company") continued to enjoy financial and operational success. Quarterly results include the following:

  • Generated funds flow from operations of $9.1 million ($0.18 per diluted share), up 12.5% on a per share basis over the second quarter of 2010 and 50% on a per share basis over the third quarter of 2009. 

  • Grew daily production to average 3,080 boe/d (weighted 57% oil and liquids and 43% gas) for the quarter, up 22% over the second quarter of 2010, and 86% over the comparable quarter in 2009. This is a 45% growth of production on a per share basis over the third quarter of 2009.

  • Exited the third quarter of 2010 with positive working capital of $22.5 million and no debt.

  • Drilled 16 (11.9 net) wells at a 94% net success rate, including 1 (0.2 net) well drilled under farm-out.

  • Realized third quarter 2010 field netbacks of $54.56 per bbl for oil, on sales prices averaging $75.94 per bbl.

  • Added acreage in both Saskatchewan and British Columbia, bringing total land held to 192,097 net acres.

  • Increased proved plus probable Montney reserves to 17.9 million boe from the Company's 0.1 million boe booked as at December 31, 2009, following a resource evaluation by GLJ Petroleum Consultants Ltd. ("GLJ") effective September 30, 2010. 

  • GLJ's best estimate of Discovered Petroleum Initially in Place ("DPIIP") was 3.65 trillion cubic feet ("tcf") of Montney gas net to the Company. 

  • GLJ determined the total Net Present Value ("NPV"), discounted at 10%, of Proved plus Probable reserves and Contingent Resources effective September 30, 2010 was $519.9 million (112.7 million boe).

To date in the fourth quarter, the Company has accomplished several additional milestones, including:

  • Established commerciality of the Middle Montney on the Cameron/Kobes block with a 20% working interest horizontal well which produced at a restricted rate of 6.0 million cubic feet per day ("mmcf/d") at 1,424 psi, and as high as 8.2 mmcf/d.

  •  Drilled a discovery horizontal Bakken well on farm-in lands in the Flat Lake, Saskatchewan area which tested 208 bbls/d and earned 6,000 net acres of land.

  •  Put in place a $65 million demand revolving facility.

  • Acquired 5.25 net sections of land contiguous to the Company's existing lands in the core production area of Midale, Saskatchewan.

  • Purchased light oil assets producing 90 boe/d and approximately 2,950 net acres in the Hastings and Ingoldsby areas of Saskatchewan.

OPERATIONAL ACTIVITIES

The second half of 2010 saw the beginning of a new era of growth for Painted Pony in both southeast Saskatchewan and northeast British Columbia. 

SOUTHEAST SASKATCHEWAN

In the third quarter, Painted Pony drilled 12 (9.9 net) horizontal and one (0.75 net) vertical well targeting light oil. The Company drilled 10 (9.2 net) Bakken successful horizontal wells in the Midale and Huntoon areas. In addition to ongoing development drilling in core areas, the Company is exploring and continuing to expand into new areas. In the Weyburn area, one (0.37 net) horizontal oil well was drilled and in the Flat Lake area, one (0.35 net) horizontal well was drilled. In the Wapella area one (0.75 net) vertical exploration well was drilled. A farm-in agreement was executed in the second quarter of the year in the Flat Lake area on approximately 17,100 (6,000 net after earning) acres of crown lands targeting Bakken oil. In the third quarter, the Company satisfied the earning provisions of the agreement with the drilling and subsequent completion of a Bakken discovery well (35% working interest), which flowed at an average restricted rate of 208 bbls/d for a 24 hour period following five days of continuous testing. To date in the fourth quarter, Painted Pony has drilled four (2.0 net) horizontal Bakken wells in the Huntoon areas, in various stages of completion. 

In the Huntoon and Midale areas, the installation of a battery and gathering system was completed in the first half of the year. A second area battery and gathering system is currently under construction, with completion anticipated before the end of this year. In the Huntoon area, solution gas and liquids conservation commenced at the end of August with the battery being tied into an existing third-party gas plant; the balance of the wells in the area are expected to be tied-in before the end of this year.

In October, the Company acquired Mississippian oil assets for $10.6 million, primarily in the Hastings and Ingoldsby areas (nearby to Painted Pony's existing operations) from a private company. With production of approximately 90 boe/d and a land base of 2,950 net acres (47% undeveloped), these mostly operated and high working interest assets enhance the Company's low-risk development drilling inventory.

In November, Painted Pony acquired 3,349 net acres (5.25 sections) of 100% working interest lands with Bakken rights for $1.8 million. These Crown lands are contiguous to Painted Pony's Midale core producing area and are expected to add significant development opportunities and synergies with the Company's existing infrastructure.

NORTHEAST BRITISH COLUMBIA

In the third quarter, Painted Pony drilled one (0.2 net) well targeting the Middle Montney formation in the Cameron/Kobes area under the rolling option phase of a farm-out agreement. The Kobes a-A10-J/94-B-09 well flowed in-line at restricted rates between 6.0 and 8.2 mmcf/d during an extended test period and is the first Middle Montney horizontal well in the region. The Middle Montney is considered an important new target on the Company's entire Montney land base. In addition, the Company drilled two (1.0 net) wells targeting Buckinghorse shale gas during the quarter. The wells targeting the Buckinghorse shale are expected to be fracture stimulated in the first half of 2011.

A reserves and resource assessment of Painted Pony's Montney assets in northeast British Columbia was prepared by GLJ effective September 30, 2010. Approximately 40% of the Company's Montney acreage was evaluated as part of the DPIIP and Contingent Resource study. The DPIIP was estimated at 3.65 tcf of gas, net to the Company. GLJ's best estimate of Montney Contingent Resources on the lands evaluated is 568.5 bcfge, or 94.8 million boe. The estimated NPV (discounted at 10%) of the Contingent Resources is $421.6 million. The assessment also increased Painted Pony's Montney proved plus probable reserves to 17.9 million barrels of oil equivalent ("boe") with an estimated NPV (discounted at 10%) of $98.3 million.

In the Cameron/Kobes area, the installation of additional facilities is expected to be completed in the fourth quarter of this year. At Kobes, a 15 mmcf/d capacity production facility was placed on stream in the third quarter of 2010, and at Gundy, a compression and dehydration facility with a 25 mmcf/d capacity is expected to be operational in December 2010. 

Painted Pony's Montney assets have become an exciting part of the Company's future. Given an advantageous location with prolific productivity, exceptional infrastructure, valuable liquids content, provincial royalty incentives, all-season access and sweet gas, the economics of this program are believed to be among the best of all Montney areas.

PRODUCTION

Daily production grew to average 3,080 boe/d in the third quarter, up 86% over the third quarter of 2009, and 22% over the second quarter of 2010. Daily oil sales in the third quarter of 2010 averaged 1,687 bbls/d, an increase of 11% compared to the second quarter of 2010. Third quarter gas sales averaged 7,961 mcf/d, an increase of 37% compared to the second quarter 2010 sales of 5,826 mcf/d. Condensate and NGL's contributed 66 boe/d in the third quarter. 

LAND

At September 30, 2010, the Company had an inventory of 192,097 net acres of land, consisting of 64,434 net acres (101 net sections) in Saskatchewan and 127,663 net acres (199 net sections) in British Columbia. During the fourth quarter to-date, the Company has added 19 net sections of land in Saskatchewan, bringing total inventory to 120 net sections. 

FINANCIAL RESOURCES

Painted Pony's focus on conservative fiscal management continues. In August 2010, the Company issued 6.8 million Class A shares at $6.48 per share, raising $44.1 million before costs. By September 30, 2010, Painted Pony had a positive working capital position of $22.5 million and no debt. In November 2010, a $65 million demand revolving operating credit facility replaced the previous $46 million demand revolving and $10 million acquisition/development credit facilities.

OUTLOOK

In the balance of 2010, the Company plans to drill up to 7 (4.7 net) horizontal oil wells in Saskatchewan. In British Columbia, Painted Pony plans to operate the drilling of 3 (1.3 net) Montney gas wells on the Blair/Town lands. Drilling is continuing under the terms of a joint venture agreement in the Cameron/Kobes area, with a minimum of 2 (0.4 net) wells drilled in the fourth quarter.

In 2011, Painted Pony will focus on continuing to generate incremental value through identification and exploitation of opportunities on its resource plays The Company has set a capital budget of $95 million for the year, which will be reviewed, and potentially revised, on a quarter by quarter basis. In the first quarter, planned operations provide for expenditures of approximately $40 million with the drilling of 13 (9.9 net) wells. Of these, 10 (6.9 net) wells are planned for Saskatchewan and 3 (3.0 net) wells are scheduled for British Columbia. Drilling under the terms of the joint venture agreement in Cameron/Kobes could see up to 5 (1.0) net wells drilled in 2011. 

With both light oil, and sweet gas which is economic even at current gas prices, the Company has the opportunity to show significant production growth. Further de-risking of its land base will continue in both core areas of northeast British Columbia and southeast Saskatchewan in 2011.

INVESTOR RELATIONS

Interested parties are invited to visit the Company's website on Friday, November 26, 2010 to view an updated presentation. 

Painted Pony's Class A Shares and Class B Shares trade on the TSX Venture Exchange under the symbols "PPY.A" and "PPY.B", respectively. For further information, please see www.paintedpony.ca or contact:

Patrick R. Ward
President & CEO
Joan E. Dunne
Vice President, Finance & CFO

PAINTED PONY PETROLEUM LTD.
300, 602 – 12 Ave SW
Calgary, AB T2R 1J3
Phone: (403) 475-0440   Fax: (403) 238-1487

Financial and Operational Highlights
(unaudited)

  Three months ended September 30, Nine months ended September 30,
  2010 2009 2010 2009
Financial (000's except per share and shares outstanding)    
Petroleum and natural gas revenue (before royalties) $ 14,764 $ 7,834 $ 41,662 $ 17,283
Funds flow from operations(1)  $ 9,072 $ 4,513 $ 25,885 $ 8,229
   Per share – basic(2) $ 0.19 $ 0.12 $ 0.55 $ 0.25
   Per share – diluted(2) $ 0.18 $ 0.12 $ 0.54 $ 0.25
Cash flow from operating activities $ 7,648 $ 4,273 $ 25,177 $ 6,303
Net earnings (loss) $ (510) $ (2,046) $ 521 $ (5,609)
   Per share – basic and diluted(2) $ (0.01) $ (0.05) $ 0.01 $ (0.17)
Capital expenditures(3) $ 20,769 $ 26,630 $ 88,160 $ 39,011
Net working capital $ 22,454 $ 1,096 $ 22,454 $ 1,096
Total assets $ 218,282 $112,861 $ 218,282 $ 112,861
Shares outstanding        
               Class A 50,975,700 35,237,700 50,975,700 35,237,700
               Class B 1,173,600 1,173,600 1,173,600 1,173,600
Operational        
Daily sales volumes        
        Oil                           (bbls/d) 1,687 1,008 1,643 713
        Condensate              (bbls/d) 28 24 26 24
        NGL's                       (bbls/d) 38 20 26 15
        Gas                          (mcf/d) 7,961 3,617 5,720 3,881
        Total                         (boe/d) 3,080 1,655 2,648 1,399
Realized prices                                   
        Oil                            (/bbl) $ 75.94 $ 71.18 $ 76.92 $ 64.78
        Gas                          (/mcf) $ 3.65 $ 3.20 $ 4.09 $ 3.99
Field operating netbacks(4)        
        Oil                            (/bbl) $ 54.56 $ 51.08 $ 55.28 $ 43.87
        Gas & NGL's              (/boe) $ 11.23 $ 6.44 $ 12.13 $ 7.35
        Company combined   (/boe) $ 34.97 $ 33.63 $ 38.90 $ 25.95
Wells drilled(5)        
        Gross 15 7 34 12
        Net 11.7 6.3 27.4 10.8
        Net success rate 94% 95% 94% 97%
  1. This table contains the term "funds flow from operations", which should not be considered an alternative to, or more meaningful than "cash flow from operating activities" as determined in accordance with Canadian generally accepted accounting principles ("GAAP") as an indicator of the Company's performance. Funds flow from operations and funds flow from operations per share (basic and diluted) do not have any standardized meaning prescribed by GAAP and may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investment and to repay debt. The reconciliation between funds flow from operations and cash flow from operating activities can be found in the Company's "Management's Discussion and Analysis". Funds flow from operations per share is calculated using the basic and diluted weighted average number of shares for the period, and after the deemed conversion of the Class B shares to Class A shares, consistent with the calculations of earnings per share.
  2. Class B shares are converted into Class A shares at $10 divided by the greater of $1.00 and the Current Trading Price, defined as the weighted average trading price of the Class A shares for the last 30 consecutive trading days.
  3. Including Asset Retirement Costs and capitalized Stock-Based Compensation.
  4. Calculated on a per unit basis as oil, gas and natural gas liquids revenues less royalties, transportation and operating costs.
  5. Does not include wells drilled under farmout agreements.

The information contained herein is for information purposes only and is not an invitation to purchase securities listed on TSX Venture Exchange and/or Toronto Stock Exchange. TMX Group Inc. and its affiliates do not endorse or recommend any securities referenced. Neither TMX Group Inc. nor its affiliated companies represents, warrants or guarantees the accuracy or the completeness of the information. You should not rely on the information contained herein for any trading, business or financial purposes. TMX Group Inc. and its affiliates assume no liability for any errors or inaccuracies herein or any use or reliance upon this information.

Painted Pony Petroleum Ltd. was recognized as a TSX Venture 50® company in 2010. TSX Venture 50 is a trade-mark of TSX Inc. and is used under license.

Advisory

This news release contains certain forward-looking statements, which are based on numerous assumptions including but not limited to (i) drilling success; (ii) production; (iii) future capital expenditures; and (iv) cash flow from operating activities. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect.

With respect to forward-looking statements contained in this document, Painted Pony has made a number of assumptions. The key assumptions underlying the aforementioned forward-looking statements include assumptions that: (i) commodity prices will be volatile throughout 2010; (ii) capital, undeveloped lands and skilled personnel will continue to be available at the level Painted Pony has enjoyed to date; (iii) Painted Pony will be able to obtain equipment in a timely manner to carry out exploration, development and exploitation activities; (iv) production rates in the fourth quarter of 2010 are expected to show growth from the third quarter of 2010; (v) Painted Pony will have sufficient financial resources with which to conduct the capital program; and (vi) the current tax and regulatory regime will remain substantially unchanged. Certain or all of the foregoing assumptions may prove to be untrue.

Certain information regarding Painted Pony set forth in this document, including management's assessment of Painted Pony's future plans and operations, number, type, perceived risk and timing of wells to be drilled, the planning and development of certain prospects, production estimates, treatment under governmental regulatory regimes and expected production growth may constitute forward-looking statements under applicable securities laws and necessarily involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Painted Pony's control, including without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, environmental risks, inability to obtain drilling rigs or other services, capital expenditure costs, including drilling, completion and facility costs, unexpected decline rates in wells, wells not performing as expected, delays resulting from our inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, and stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof. Readers are cautioned that the foregoing list of factors is not exhaustive. Painted Pony's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that the Company will derive therefrom. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.

Additional information on these and other factors that could affect Painted Pony's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or Painted Pony's website (www.paintedpony.ca).

The forward-looking statements contained in this document are made as at the date of this news release and Painted Pony does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Special Note Regarding Disclosure of Reserves or Resources

"Contingent Resources" is defined in the Canadian Oil and Gas Evaluation Handbook as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. Contingent Resources are further classified in accordance with the level of certainty associated with the estimates and may be subclassified based on project maturity and/or characterized by their economic status.

"Discovered Petroleum Initially-In-Place" or "DPIIP" (equivalent to discovered resources) is defined in the Canadian Oil and Gas Evaluation Handbook as that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially-in-place includes production, reserves, and contingent resources; the remainder is unrecoverable.

The most significant positive and negative factors with respect to the Contingent Resource and DPIIP estimates relate to the fact that the field is currently at an early evaluation/delineation stage. The evaluated Montney formation is interpreted to be areally extensive in this region, however well control is limited. Both gas-in-place and productivity may be higher or lower than current estimates. Additional drilling and testing are required to confirm volumetric estimates and reservoir productivity for the Contingent Resources to be reclassified as reserves.

The Contingent Resources estimates, including the corresponding estimates of before tax present value, and the DPIIP estimates are estimates only and the actual results may be greater than or less than the estimates provided herein. There is no certainty that it will be commercially viable or technically feasible to produce any portion of the resources.

It should not be assumed that the undiscounted and discounted net present values represent the fair market value of the reserves. The estimates of resources, reserves or net present values for individual properties may not reflect the same confidence level as estimates of resources, reserves or net present values for all properties, due to the effects of aggregation.

BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

Contact Information

  • Painted Pony Petroleum Ltd.
    Patrick R. Ward
    President & CEO
    (403) 475-0440
    (403) 238-1487 (FAX)
    or
    Painted Pony Petroleum Ltd.
    Joan E. Dunne
    Vice President, Finance & CFO
    (403) 475-0440
    (403) 238-1487 (FAX)
    or
    Painted Pony Petroleum Ltd.
    300, 602 - 12 Ave SW
    Calgary, AB T2R 1J3
    www.paintedpony.ca