Petro-Reef Resources Ltd.
TSX VENTURE : PER

Petro-Reef Resources Ltd.

August 30, 2011 10:22 ET

Petro-Reef Releases Q2 Financial Results

CALGARY, ALBERTA--(Marketwire - Aug. 30, 2011) - Petro-Reef Resources Ltd. (TSX VENTURE:PER) has released its second quarter 2011 results. Full financial details are contained in the financial statements, and management's discussion and analysis filed on SEDAR.

For the three months ended June 30, 2011, the company produced an average of 589 barrels of oil equivalent per day (boe/d) comprising 163 barrels per day of oil and natural gas liquids and 2,555,000 cubic feet per day of natural gas. The company received an average of $91.68 per barrel for oil and $3.81 per thousand cubic feet for natural gas.

Daily Production
Three months ended June 30 2011 2010 % Change
Average Average
Crude Oil and NGL (bbl/d) 163 124 31.5%
Natural Gas (mcf/d) 2,555 4,022 -36.5%
Combined (boe/d) 589 794 -25.9%
Six months ended June 30 2011 2010 % Change
Average Average
Crude Oil and NGL (bbl/d) 229 130 76.2%
Natural Gas (mcf/d) 2,808 4,553 -38.3%
Combined (boe/d) 697 889 -21.6%

Total revenue decreased 0.5% to $2,249,472 for the three month period ended June 30, 2011 compared to $2,259,732 for the same period ended June 30, 2010. Petro-Reef realized a combined price per boe for the three month period ended June 30, 2011 of $41.95 representing a 34.1% increase compared to the realized price per unit of production of $31.27 for the same period ended June 30, 2010. The 34.1% increase in average price offset a 25.9% decrease in average daily production volumes.

Three months ended June 30 2011 2010 % Change 2011 2010 % Change
($/boe ) ($/boe )
Gross Revenue 2,249,472 2,259,732 (0.5 ) 41.95 31.27 34.1
Realized gain (loss) on risk management contracts 304,819 209,558 45.5 5.69 2.90 96.0
Royalties (369,899 ) (276,434 ) 33.8 (6.90 ) (3.83 ) 80.3
Revenue After Royalties 2,184,392 2,192,856 (0.4 ) 40.74 30.35 34.2
Operating expenses 831,653 751,269 10.7 15.51 10.40 49.2
General & Administrative Expenses 303,152 419,047 (27.7 ) 5.65 5.80 (2.5 )
Interest Expense 96,339 93,036 3.6 1.80 1.29 39.5
Cash flow 953,248 929,504 2.6 17.78 12.86 38.2
Unrealized gain (loss) on risk management contracts 394,883 (370,857 ) - 7.36 (5.13 ) -
Other income - - - - - -
Stock based compensation 192,717 38,733 397.6 3.59 0.54 570.5
Accretion 17,386 16,852 3.2 0.32 0.23 39.0
Depletion and depreciation 1,229,832 1,554,142 (20.9 ) 22.94 21.51 6.6
Income Before Income taxes (91,804 ) (1,051,080 ) - (1.71 ) (14.55 ) -
Deferred income tax expense (recovery) (93,167 ) (145,575 ) (36.0 ) (1.74 ) (2.01 ) (13.8 )
Net Income (loss) 1,363 (905,505 ) (100.2 ) 0.03 (12.53 ) (100.2 )
Per Share – Basic 0.00 (0.02 )
Per Share - Diluted 0.00 (0.02 )

Total revenue decreased 0.6% to $5,371,751 for the six month period ended June 30, 2011 compared to $5,401,784 for the same period ended June 30, 2010. Petro-Reef realized a combined price per boe for the six month period ended June 30, 2011 of $42.55 representing a 26.7% increase compared to the realized price per unit of production of $33.57 for the same period ended June 30, 2010. The 26.7% increase in average price offset a 21.6% decrease in average daily production volumes.

Six months ended June 30 2011 2010 % Change 2011 2010 % Change
($/boe ) ($/boe )
Gross Revenue 5,371,751 5,401,784 (0.6 ) 42.55 33.57 26.7
Realized gain (loss) on risk management contracts 479,954 127,484 276.5 3.80 0.79 379.8
Royalties (882,957 ) (634,890 ) 39.1 (6.99 ) (3.95 ) 77.3
Revenue After Royalties 4,968,748 4,894,378 1.5 39.36 30.42 29.4
Operating expenses 1,677,727 1,450,063 15.7 13.29 9.01 47.5
General & Administrative Expenses 507,876 772,472 (34.3 ) 4.02 4.80 (16.2 )
Interest Expense 195,749 247,108 (20.8 ) 1.55 1.54 1.0
Cash flow 2,587,396 2,424,735 6.7 20.49 15.07 36.0
Unrealized gain (loss) on risk management contracts (508,790 ) 925,726 - (4.03 ) 5.75 -
Other income 250,919 173,663 44.5 1.99 1.08 84.2
Stock based compensation 333,253 103,759 221.2 2.64 0.64 309.4
Accretion 34,329 32,787 4.7 0.27 0.20 33.4
Depletion and depreciation 2,867,450 3,390,772 (15.4 ) 22.71 21.07 7.8
Income Before Income taxes (905,507 ) (3,194 ) - (7.17 ) (0.02 ) -
Deferred income tax expense 146,725 463,418 (68.3 ) 1.16 2.88 (59.6 )
Net Income (loss) (1,052,232 ) (466,612 ) 125.5 (8.33 ) (2.90 ) 187.4
Per Share – Basic (0.02 ) (0.01 )
Per Share - Diluted (0.02 ) (0.01 )

In Q2 2011 Petro-Reef had cash flow of $953,248 as compared to $929,504 in the same period in 2010. Year to date cash flow totaled $2,587,396 in 2011 as compared to $2,424,735 in 2010.

Three months ended June 30, 2011 2011 2010
Net Income (Loss) For The Period $ 1,363 (905,505 )
Future Income Tax Provision (93,167 ) (145,575 )
Other income - -
Unrealized Loss (Gain) on Risk Management Contracts (394,883 ) 370,857
Accretion Expense 17,386 16,852
Stock-Based Compensation 192,717 38,733
Depletion And Amortization 1,229,832 1,554,142
Cash Flow From Operations $ 953,248 929,504
Six months ended June 30, 2011 2011 2010
Net Income (Loss) For The Period $ (1,052,232 ) (466,612 )
Future Income Tax Provision 146,725 463,418
Other income (250,919 ) (173,663 )
Unrealized Loss (Gain) on Risk Management Contracts 508,790 (925,726 )
Accretion Expense 34,329 32,787
Stock-Based Compensation 333,253 103,759
Depletion And Amortization 2,867,450 3,390,772
Cash Flow From Operations $ 2,587,396 2,424,735

Operations

The Company entered Q2 2011 producing 785 boe/day comprised of 251 bbl/day oil & NGL and 3,206 mcf/day of gas. The production split was 32% oil & NGL and 68% gas.

On April 27 the Energy Resources Conservation Board of Alberta ("ERCB") notified Petro-Reef that production volumes would have to be temporarily restricted at Alexander 6-7-56-26W4 and 11-7-56-26W4 due to a high Gas/Oil ratio ("GOR"). The total production shut-in was 212 boe/day comprised of 161 bbl/day of oil & NGL and 308 mcf/day of gas.

On May 19, 2011 the Company made an application to the ERCB for Good Production Practices ("GPP") to resolve the GOR issue on the Detrital pool at Alexander. On August 25, 2011 after 121 days the ERCB finally lifted the production restrictions and the wells were placed back on-stream. The ERCB approved an increase in the Maximum Rate Limitation ("MRL") at Alexander 6-7 and 11-7 to 125 bbl/day from each well and lifted the GOR restrictions.

After spring break-up, two of the wells drilled in Q1/Q2 2011 at Alexander (13-7-56-26W4 and 02/10-7-56-26W4) were completed and tested. The 13-7 well was a successful oil well in the Detrital formation and the 02/10-7 well was a successful oil well in the Alexander zone. Tie-in work on the wells started in July, 2011 and both wells came on-stream in early August, 2011. Tieing in 13-7 and 02/10-7 added 317 mcf/day of gas and 69 bbl/day of oil (122 boe/day).

The new wells at 13-7 and 02/10-7 had initial production rates lower than previously expected after testing. The 02/10-7 well is producing 180 bbl/day of liquids however the water cut is running at 66% with oil at 34% (61 bbl/day). The 13-7 well is flowing at 16 bbl/day of oil and 280 mcf/day of gas however it has been determined that the well requires a pump jack to unload the fluid. The Company is presently installing a pump jack and anticipates an increase in both oil and gas rates once the pump jack is in operation. The Company's 6-7 Detrital well has a pump jack and is capable of producing over 100 bbl/day of oil from the same zone.

In June, 2011 the Company recompleted two wells at Alexander 8-7-56-26W4 and 2-1-56-27W4. The 8-7 well is producing gas from the lower Detrital zone and the 2-1 well is producing oil and gas from the Calahoo formation. These two wells were brought on-stream adding 700 mcf/day of gas and 9 bbl/day of oil (126 boe/day).

At the Company's Nordegg exploration well at Goose River 7-9-68-18W5 recorders were installed down-hole prior to spring break-up. This summer the recorders were retrieved and surface and downhole pressures were taken. Also, a static gradient was carried out on the wellbore to further establish reservoir characteristics. Fluid level in the well was at 336 metres from surface and the formation pressure was 2,002 psig. The Company is currently evaluating this information which will be incorporated when determining the 2011/2012 winter program. The first stage of the winter program will be to finish swabbing the 400 barrels of frac fluid still left in the well bore and production test the Nordegg zone.

On August 26, 2011 a new well at 9-12-56-27W4 was spud targeting the Detrital oil formation. The well reached total depth on August 29, 2011 and has been logged. Production casing will be installed and completion operations will proceed in the next 30 days.

Financial

In June, 2011 as a result of an annual review the Company's secured revolving loan with a Canadian financial institution was reduced to $11.0 million from $15.0 million and the Company's secured development loan with a Canadian financial institution was increased to $6.0 million from $1.0 million.

The Company has the ability to draw on the development loan for the drilling of new wells subject to certain working capital ratio restrictions.

In July, 2011 the Company drew down on its development loan in the amount of $3,149,766 increasing the total funds available from $11.0 million to $14.2 million. The bank debt balance at June 30, 2011 was $12.1 million and the working capital deficit was $1.7 million.

In August, 2011 Petro-Reef Resources Ltd. closed a private placement financing of Flow Through Shares for gross proceeds of $2,391,200. Pursuant to the offering, Petro-Reef issued 5,978,000 common shares on a flow-through basis at a purchase price of 40 cents per common share.

At the date of this report the Company has approximately $11,600,000 drawn on its credit facilities.

  1. Funds from operations, funds from operations per share, operating netbacks and cash flow per barrel of oil equivalent are not defined by generally accepted accounting principles in Canada and are regarded as non-GAAP measures. Funds from operations and funds from operations per share are calculated as cash provided by operating activities before changes in non-cash working capital, and decommissioning obligations settled. Funds from operations are used to analyze the company's operating performance and the ability of the business to generate the cash flow necessary to finance future growth through capital investment and to repay debt. Funds from operations do not have a standardized measure prescribed by GAAP, and therefore may not be comparable with the calculations of similar measures for other companies. The company also presents funds from operations per share whereby per share amounts are calculated using the weighted average number of common shares outstanding consistent with the calculation of net income or loss per share.
  2. The term barrel of oil equivalent may be misleading, particularly if used in isolation. A boe conversion ratio of 6,000 cubic feet per barrel of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio mix of 6,000 cubic feet of gas to one barrel of oil.

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

Contact Information

  • Petro-Reef Resources Ltd.
    Hugh M. Thomson
    Vice-President Finance and CFO
    (403) 265-6444
    (403) 264-1348 (FAX)

    Petro-Reef Resources Ltd.
    970, 10655 Southport Road S.W.
    Calgary, Alberta T2W 4Y1
    info@petro-reef.ca
    www.petro-reef.ca