Painted Pony Petroleum Ltd.

Painted Pony Petroleum Ltd.

August 24, 2011 21:08 ET

Painted Pony Reports Second Quarter 2011 Financial Results and Operational Update

CALGARY, ALBERTA--(Marketwire - Aug. 24, 2011) - Painted Pony Petroleum Ltd. ("Painted Pony" or the "Company") (TSX VENTURE:PPY.A) (TSX VENTURE:PPY.B) is pleased to report the financial results for the three months ended June 30, 2011 and to provide an operational update. During the second quarter of 2011, Painted Pony's operating and financial highlights include the following significant changes:

  • The Company commissioned a contingent resource assessment for its Montney assets in northeast British Columbia, with an effective date of June 30, 2011. This assessment, resulted in a best-estimate contingent resource of 2.1 trillion cubic feet of gas equivalent net to Painted Pony, which equates to 358.2 million boe ("mmboe"), including 40.2 mmboe of liquids, having a net present value, using a 10% discount rate ("NPV10") of $2.1 billion;
  • Company total proved plus probable reserves grew to 85.6 mmboe (up 163% in 6 months) with a NPV10 of $797.9 million (up 126% in 6 months);
  • Production averaged 3,593 boe per day (weighted 60% gas and 40% oil and liquids), an increase of 42% from the second quarter of 2010;
  • Exited the second quarter of 2011 with no debt and a positive working capital position of $40.3 million and its credit facility was subsequently increased to $80 million;
  • Generated funds flow from operations of $10.4 million ($0.17 per diluted share); and
  • Realized second quarter 2011 field netbacks of $66.48 per boe for oil-weighted assets in Saskatchewan and $15.66 per boe for gas-weighted assets in British Columbia.


Painted Pony completed a mid-year reserves update and a Montney contingent resource assessment. GLJ Petroleum Consultants Ltd. and Sproule Associates Limited were engaged to prepare independent evaluation reports of the reserves and contingent resources on the Company's British Columbia properties and the reserves on the Company's Saskatchewan assets, respectively. Both reports were dated effective June 30, 2011 and were prepared in accordance with National Instrument 51-101 (Standards of Disclosure for Oil and Gas Activities). As previously announced on July 27, 2011, the best estimate contingent resources for the Company's Montney assets increased to 2.1 trillion cubic feet of gas equivalent, equating to 358.2 million boe ("mmboe"), including 40.2 mmboe of liquids, with a net present value using a 10% discount rate ("NPV10") of $2.1 billion. Total proved plus probable reserves totaled 85.6 mmboe, an increase of 163% since December 31, 2010. The NPV10 of the Company's proved plus probable reserves was $797.9 million, an increase of 126% in the first six months of 2011.


At June 30, 2011, the Company had 81,896 net acres (128 net sections) of land in Saskatchewan and 132,175 net acres (207 net sections) of land in British Columbia, including over 127 net sections with Montney rights. As previously announced on July 27, 2011, the Company's British Columbia landholdings have been ascribed a value of $123.7 million by Seaton-Jordan & Associates Ltd. in an updated independent valuation, effective June 30, 2011. Undeveloped Saskatchewan acreage was not included in the Seaton-Jordan Report and was valued at $52.7 million, as at December 31, 2010. The fair value of the undeveloped acreage was determined in accordance with NI 51-101. At the August British Columbia Crown land sale the Company acquired an additional 4,200 net acres of land with Montney rights.


Painted Pony's sales volumes averaged 3,593 boe per day during the three months ended June 30, 2011, an increase of 42% compared to the second quarter of 2010 and 11% less than the first quarter of 2011. These volumes were weighted 60% towards gas compared to 38% in the comparable 2010 period. All of Painted Pony's light oil sales originate from Saskatchewan operations while 94% of the sales of gas, condensate and NGL's are from British Columbia.

Second quarter production in Saskatchewan was adversely affected by extensive flooding, which caused production curtailments and significant delays to operational activity. In addition, a mid-stream gas processing facility experienced an unscheduled plant inlet disruption midway through the second quarter. Repairs to the facility are underway. Sales volumes of solution gas and associated liquids from the Company's Midale Huntoon area are expected to resume in late September. As a result of these disruptions, Saskatchewan sales in the second quarter of 2011 averaged 1,422 boe per day. The Company currently has an estimated 320 boe per day shut-in in Saskatchewan. During recent weeks the excessive wet surface conditions have improved in many areas of Saskatchewan, allowing Painted Pony to progress toward resuming normal production operations.

Sales from British Columbia assets averaged 2,171 boe per day in the second quarter of 2011 compared to 1,945 boe per day in the first quarter. Late in the second quarter of 2011, gas sales from the Cameron/Kobes area were temporarily shut-in for 26 days for the scheduled McMahon gas processing plant turn-around. Gas sales from the Cypress area of approximately 50 boe per day ceased in late June 2011 after a third party pipeline was shut-in for repairs.

Painted Pony is engaged in discussions with a midstream provider in the Blair/Town area to increase gas plant capacity from 24 mmcf per day to 70 mmcf per day, of which at least 32 mmcf per day is expected to be firm service to the Company, by the second quarter of 2012.


The Company's second quarter 2011 drilling program was also significantly impacted by the extended wet conditions in Saskatchewan. Consequently the forecast drilling schedule has been delayed by more than 10 weeks in comparison to prior years. Recent drying weather has permitted the Company to resume its drilling program in some areas. Painted Pony closed the previously announced asset acquisition in the Flat Lake area of Saskatchewan in April. As at June 30, 2011, the Company has aggregated 21 net sections of land prospective for Bakken oil in the area. In the third quarter of 2011, Painted Pony has drilled 1 (0.3 net) well in the area, with production testing over 200 boe per day. The Company expects to drill 4 (1.8 net) additional wells in the Flat Lake area this year.

Painted Pony continues to pursue an active drilling program in Saskatchewan. To-date in the third quarter the Company has drilled 8 (6.6 net) wells. In the second half of 2011, the Company expects to drill a total of 28 (20.3 net) wells in Saskatchewan.


Painted Pony continued to delineate and develop its world-class Montney gas project at Blair/Town and Cameron/Kobes in northeast British Columbia during the second quarter of 2011. In the period, the Company completed and placed 5 (2.3 net) wells on production. Of these wells, 3 (1.5 net) were drilled on a single pad, with each well targeting a different geological layer (upper, middle and lower) of the Montney formation. Each of these three wells were successfully completed, tested and tied into production during the second quarter. The middle Montney well within this group represents the first horizontal completion in this zone, on the Blair/Town block. It is located more than 15 miles north of the nearest producing horizontal middle Montney well.

The two (1.2 net) Montney horizontal wells Painted Pony drilled in the second quarter are currently being completed or tested. In the third quarter to date, 2 (0.7 net) wells have been drilled, of which 1 (0.2 net) is currently being completed. There are 2 (1.2 net) wells currently drilling, targeting the Montney. The Company plans to drill a total of 9 (5.6 net) Montney wells in the second half of 2011.


Painted Pony continues to emphasize conservative financial management, especially in periods of market and credit uncertainty. At June 30, 2011, Painted Pony continued to have an undrawn credit facility and a positive working capital position of $40.3 million. In August 2011, the demand revolving credit facility was increased to $80.0 million, replacing the previous $75.0 million facility, subject to review on or before March 31, 2012.


The Company continues to delineate and develop its two world class resource plays; the Montney in northeast British Columbia and the Bakken in southeast Saskatchewan. In addition Painted Pony plans to commence its first fracture stimulations on the Buckinghorse formation in northeast British Columbia within the next six months. If successful, these exploratory completions could begin to unlock a vast new gas play, which would be vertically stacked over the underlying Montney project. We look forward to a successful second half.


Interested parties are invited to visit the Company's website on Thursday, August 25, 2011 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 or contact:

Financial and Operational Highlights
Three months ended
June 30
, Six months ended
June 30
2011 2010 2011 2010
Financial (000s, except per share)
Petroleum and natural gas revenue (before royalties) $ 17,446 $ 12,752 $ 36,761 $ 26,898
Funds flow from operations(1) $ 10,376 $ 7,704 $ 22,474 $ 16,860
Per share – basic(2) $ 0.17 $ 0.17 $ 0.39 $ 0.38
Per share – diluted(3) $ 0.17 $ 0.17 $ 0.39 $ 0.37
Cash flow from operating activities $ 11,854 $ 8,355 $ 23,409 $ 17,576
Net income (loss) $ (1,824 ) $ 905 $ 320 $ 2,451
Per share – basic(2) $ (0.03 ) $ 0.02 $ 0.01 $ 0.06
Per share – diluted(3) $ (0.03 ) $ 0.02 $ 0.01 $ 0.05
Capital expenditures(4) $ 37,407 $ 32,127 $ 62,492 $ 67,505
Net working capital $ 40,327 $ (8,592 ) $ 40,327 $ (8,592 )
Total assets $ 326,471 $ 175,983 $ 326,471 $ 175,983
Shares outstanding
Class A 59,532,673 44,136,700 59,532,673 44,136,700
Class B 1,173,600 1,173,600 1,173,600 1,173,600
Diluted weighted-average shares 59,359,276 45,077,914 58,350,719 45,164,631
Daily sales volumes
Oil (bbls per day) 1,274 1,518 1,541 1,620
Condensate (bbls per day) 59 23 57 25
NGL's (bbls per day) 91 20 116 19
Gas (mcf per day) 13,012 5,826 12,572 4,581
Total (boe per day) 3,593 2,532 3,809 2,428
Realized prices
Oil (per bbl) $ 102.10 $ 75.04 $ 93.32 $ 77.44
Gas (per mcf) $ 3.95 $ 4.07 $ 3.86 $ 4.48
Field operating netbacks
British Columbia (per boe) $ 15.66 $ 12.34 $ 14.99 $ 12.42
Saskatchewan (per boe) $ 66.48 $ 51.92 $ 60.41 $ 55.30
Company combined (per boe) $ 35.76 $ 36.36 $ 35.85 $ 41.43
  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 International Financial Reporting Standards ("IFRS") as an indicator of the Company's performance. Funds flow from operations and funds flow from operations per share (basic and diluted) does not have any standardized meaning prescribed by IFRS 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. The reconciliation between funds flow from operations and cash flow from operating activities can be found in "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. Basic per share information is calculated on the basis of the weighted average number of Class A shares outstanding in the period.
  3. Diluted per share information reflects the potential dilution effect of options and the convertible Class B shares, each of which may be anti-dilutive. Net income is adjusted for the amount of finance expense applicable to the Class B shares for the period. The conversion of Class B shares into Class A shares, if dilutive, is computed by dividing $10 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.
  4. Including decommissioning obligations and share-based payments.


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 2011; (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 2011 are expected to show growth from 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 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 ( or Painted Pony's website (

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.

The contingent resources estimates, including the corresponding estimates of before tax present value 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.

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)

    Painted Pony Petroleum Ltd.
    Joan E. Dunne
    Vice President, Finance & CFO
    (403) 475-0440
    (403) 238-1487 (FAX)

    Painted Pony Petroleum Ltd.
    300, 602 – 12 Ave SW
    Calgary, AB T2R 1J3