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

Painted Pony Petroleum Ltd.

October 18, 2010 08:20 ET

Painted Pony Petroleum Announces Significant Increase in Reserves Following Successful Montney Drilling Results and Operational Update

CALGARY, ALBERTA--(Marketwire - Oct. 18, 2010) - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Company") (TSX VENTURE:PPY.A) (TSX VENTURE:PPY.B) is pleased to announce a significant increase in Montney reserves since year-end 2009 as a result of a successful drilling program in northeast British Columbia ("NEBC"); an independent Montney resource assessment on a portion of Painted Pony's NEBC lands prepared by GLJ Petroleum Consultants Ltd. ("GLJ"); and an operational update.

HIGHLIGHTS

  • GLJ's best estimate of Discovered Petroleum Initially in Place ("DPIIP") of 3.65 trillion cubic feet (tcf) of gas net to the Company. Approximately 40% of the Company's Montney acreage was evaluated as part of the DPIIP and Contingent Resource study.
  • Proved plus probable Montney reserves have increased to 107.5 billion cubic feet of gas equivalent ("bcfge"). This equates to 17.9 million barrels of oil equivalent ("boe"), with an estimated net present value ("NPV") (discounted at 10%) of $98.3 million. This represents a 107 bcfge (17.8 million boe) increase over the 0.5 bcfge (0.1 million boe) of proved plus probable Montney reserves booked at December 31, 2009.
  • GLJ's best estimate of Contingent Resources economically recoverable by the Company 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, which assumes development of the Contingent Resource wells does not commence until December 2013.
  • Painted Pony's net acreage in NEBC has grown to 127,663 net acres (200 net sections), of which 82,122 net acres (128 net sections) include Montney rights.
  • Field estimated production for the Company in September 2010 averaged 3,250 boe/d (weighted 57% oil and liquids and 43% gas), a 28% increase over the average daily rate in the second quarter of 2010.

MONTNEY FORMATION RESERVES AND RESOURCE EVALUATION
GLJ was engaged to prepare an independent reserve and resource evaluation (the "Report") effective September 30, 2010, using GLJ's October 1, 2010 price forecast, in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities ("NI 51-101") following successful drilling results in NEBC (please refer to press releases dated July 26, May 20, March 18 and January 21, 2010).

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.

DPIIP Assessment:
Approximately 40% of Painted Pony's Montney acreage was evaluated in the Report by GLJ to determine DPIIP volumes. GLJ's best estimate of DPIIP associated with the evaluated lands was 3.65 tcf (608 million boe) net to Painted Pony. Future operations on the evaluated lands and additional Company lands are expected to increase the DPIIP estimates in all three Montney intervals.

Contingent Resource Assessment:
Approximately 40% of Painted Pony's Montney acreage was assessed in the Report by GLJ for Contingent Resources, based on well control and test results. GLJ's best estimate of Contingent Resources associated with the evaluated lands was 568.4 bcfge (94.8 million boe) net to Painted Pony. 

Company Share Montney Contingent Resources
Forecast Prices and Costs

  Low Estimate  Best Estimate  High Estimate 
(bcfge ) (mmboe ) (bcfge ) (mmboe ) (bcfge ) (mmboe )
Gas 432.0   72.0   542.5   90.5   647.9   108.0  
Liquids 21.0   3.5   25.8   4.3   31.2   5.2  
Total 452.8   75.5   568.4   94.8   679.0   113.2  

Notes :

  1. "Company Share" refers to the sum of the Company's royalty interest and working interest resources before deduction of royalty burdens payable.
  2. Oil equivalent amounts (boe) have been calculated using a conversion rate of six thousand cubic feet of natural gas per barrel of oil (6 mcf: 1bbl).
  3. Natural gas equivalent amounts (mcfe) have been calculated using a conversion rate of 1 barrel of oil per six thousand cubic feet of natural gas (1 bbl: 6 mcf).
  4. One million boe is equal to 1 mmboe. One billion cubic feet of gas equivalent is equal to 1 bcfge.
  5. The estimates of resources for individual properties may not reflect the same confidence level as estimates of resources for all properties, due to the effects of aggregation.
  6. Columns may not add due to rounding.
Contingent Resource Net Present Value Before Tax
Forecast Prices and Costs ($millions)
 
  As at September 30, 2010  
  0 % 5 % 8 % 10 % 12 %
                     
  Low Estimate 1,783.6   704.4   413.9   290.9   203.6  
  Best Estimate 2,682.3   1,000.8   590.0   421.6   303.8  
  High Estimate 3,687.0   1,235.4   715.7   512.3   372.8  

Notes:

  1. Net present values are stated before deducting income taxes and future estimated site restoration costs, and are reduced for estimated future abandonment costs and estimated capital for future development associated with the Contingent Resource.
  2. It should not be assumed that the undiscounted and discounted net present values represent the fair market value of the Contingent Resource.
  3. The estimates of net present values for individual properties may not reflect the same confidence level as estimates of net present values for all properties, due to the effects of aggregation.
  4. Columns may not add due to rounding.

Although the Company has tested gas at commercial rates from each of the upper, middle and lower Montney intervals, only the upper Montney was evaluated at Blair/Town, and only the lower Montney was evaluated at Cameron/Kobes. The Company expects that its Contingent Resource estimates will grow significantly as drilling proceeds on additional acreage and each of the three Montney intervals are tested for commerciality; an active winter drilling program is planned to accomplish these goals. 

Reserves Evaluation:
Following successful drilling results from the Company's first seven Montney wells, the Report evaluated proved plus probable reserves on less than 8% of Painted Pony's Montney acreage. Effective September 30, 2010 the Company's proved plus probable working interest Montney reserves were 17.9 million boe (107.5 bcfge) compared to 0.1 million boe (0.5 bcfge) at December 31, 2009. 

Company Share Montney Reserves(1),(4)
Forecast Prices and Costs
         
    Natural   Natural Gas   Total   Total  
    Gas(3)   Liquids   (mboe(2)   (mmcfe(3)  
    (mmcf)   (mbbl)   6:1)   1:6)  
Proved                
  Developed producing 3,184   25   556   3,336  
  Developed non-producing 751   6   131   786  
  Undeveloped 14,945   120   2,610   15,660  
Total proved 18,880   151   3,298   19,788  
Probable 83,660   669   14,613   87,678  
Total proved plus probable 102,540   820   17,910   107,460  

Notes:

  1. "Company Share" refers to the sum of the Company's royalty interest and working interest reserves before deduction of royalty burdens payable.
  2. Oil equivalent amounts (boe) have been calculated using a conversion rate of six thousand cubic feet of natural gas per barrel of oil (6 mcf: 1 bbl).
  3. Natural gas equivalent amounts (mcfe) have been calculated using a conversion rate of 1 barrel of oil per six thousand cubic feet of natural gas (1 bbl: 6 mcf).
  4. One thousand barrels is equal to 1 mbbl, and one thousand boe is equal to 1 mboe. One million cubic feet of natural gas is equal to 1 mmcf and one million cubic feet of natural gas equivalent is equal to 1 mmcfe.
  5. The estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effects of aggregation.
  6. Columns may not add due to rounding.
Reserves Net Present Value Before Tax
Forecast Prices and Costs ($millions)
 
    As at September 30, 2010
    0% 5% 8% 10% 12%
Proved          
  Developed producing 15.3 11.3 9.8 9.0 8.4
  Developed non-producing 3.3 2.4 2.0 1.9 1.7
  Undeveloped 39.4 18.8 11.5 7.8 4.8
Total proved 58.0 32.5 23.3 18.7 14.9
Probable 334.7 156.8 103.9 79.6 61.1
Total proved plus probable 392.7 189.3 127.2 98.3 76.0
             

Notes:

  1. Net present values are stated before deducting income taxes and future estimated site restoration costs and are reduced for estimated future abandonment costs and estimated capital for future development associated with the reserves.
  2. It should not be assumed that the undiscounted and discounted net present values represent the fair market value of the reserves.
  3. The estimates of net present values for individual properties may not reflect the same confidence level as estimates of net present values for all properties, due to the effects of aggregation.
  4. Columns may not add due to rounding

The Report represents a 780% increase in volumes and 490% increase in the estimated NPV (discounted at 10%) of the proved plus probable reserves as compared to the reserves associated with the Company's entire British Columbia asset base as at December 31, 2009 (including both Montney and non-Montney reserves). GLJ did not evaluate any non-Montney reserves as part of the Report.

MIDDLE MONTNEY DISCOVERY WELL
The first (0.2 net) horizontal well in the middle Montney formation on the Cameron/Kobes block has been successfully drilled and completed. The well (Kobes a-A10-J/94-B-09) was completed using a large, multi-stage fracture stimulation and flowed at significant gas rates during the cleanup phase. Painted Pony management is encouraged by the initial results, and the operator is continuing to flow the well back. Once the testing phase has been completed, the Company will release the results. No reserves or Contingent Resources have been booked to the middle Montney to date.

NEBC LANDHOLDINGS UPDATE
The Company has continued to accumulate land adjacent to existing blocks in the Blair/Town area of NEBC. Net acreage in NEBC has grown to 127,663 net acres (200 net sections), of which 82,122 net acres (128 net sections) include Montney rights.

CORPORATE PRODUCTION UPDATE
Steady production growth has continued, with field estimated production for September 2010 averaging 3,250 boe/d (weighted 57% light oil and liquids and 43% gas). In the second quarter of 2010, daily production averaged 2,532 boe/d (weighted 62% light oil and liquids and 38% gas).

INVESTOR RELATIONS
Interested parties are invited to visit the Company's website to view an updated presentation dated October 15, 2010.

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

Special Note Regarding Forward-Looking Information
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 2010 are expected to show growth from the first 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 forgoing assumptions may prove to be untrue.

Certain information regarding Painted Pony set forth in this document, including the results of Painted Pony's winter drilling program, management's assessment of Painted Pony's future plans and operations, number, type and timing of wells to be drilled, the planning and development of certain prospects, production estimates, 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 or 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" (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 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.

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.

McfGEs may be misleading, particularly if used in isolation. A McfGE conversion ratio of 1 bbl: 6 Mcf 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