CALGARY, ALBERTA--(Marketwire - April 21, 2011) - Petro-Reef Resources Ltd. (TSX VENTURE:PER), ("Petro-Reef" or the "Company") is pleased to release its year end and Q4 financial and operating results and its December 31, 2010 reserve report.
Gross revenue increased to $3,086,137 for the three month period ended December 31, 2010 as a result of a 29% increase in production volumes over Q3 2010, and $451,634 in realized gains on financial instruments. The increase in gross revenues translated into cash flow of $1,478,452 in Q4 2010 an increase of $934,314 over Q3 2010 cash flow of $544,138.In Q4 2010 the Company closed a $6,100,000common share and flow through share financing. The Company issued 11,966,400 units, consisting of a common share issued at a price of $0.35, as well as a common share warrant with an exercise price of $0.50 per warrant, for gross proceeds of $4,188,240. Petro-Reef also issued 4,779,400 units, consisting of a flow-through common share issued at a price of $0.40 as well as a half common share warrant with an exercise price of $0.50 per warrant for gross proceeds of $1,911,760.
Petro-Reef's company gross proved plus probable reserves at December 31, 2010, based on an independent engineering year-end evaluation, indicated a physical reserve decrease of 9 percent to 1,580 MBOE from 1,744 MBOE in the previous year, after extensions, technical revisions, discoveries, acquisitions, economic factors, and production. However, the Company reserves increased 3% in Net Present Value due to a higher ratio of oil. Reserves were comprised of 56% natural gas and 44% crude oil and natural gas liquids (2009 - 74% natural gas and 26% crude oil and natural gas liquids). Of the total reserves reported (using forecast prices) Petro-Reef's company gross reserves are 60% proved and 40% probable.
Financial
For the twelve month period ended December 31, 2010, Petro-Reef generated cash flow from operations of $4,447,326 ($0.11 per basic share), an increase of 39% compared to $3,190,518 ($0.09 per basic share) for the twelve month period ended December 31, 2009. Cash flow from operations increased as a result of higher crude oil prices, lower operating expenses and a realized gain on financial instruments of $996,822 for the year.
Capital expenditures for 2010 totaled $7.8 million increasing 74% over the $4.5 million expended in 2009. Total debt at year end was $10.6 million.
Operations
Average production of 856 boe/d for Q4 was an increase of 12% from Q4 2009. This increase is attributable to growing oil production volumes from the Company's core Alexander field. Petro-Reef's Q4 production mix was 26% oil and liquids and 74% natural gas as compared to 16% oil and liquids and 84% natural gas for the same period in 2009.
Operating expenses fell 20.0% to $2,925,862 for the twelve month period ended December 31, 2010 compared to $3,655,421 for the same period ended December 31, 2009. Production expenses on a per unit of production basis decreased 19.7% to $9.67 for the twelve month period ended December 31, 2010 compared to $12.04 for the same period ended December 31, 2009.
Petro-Reef participated in the drilling of 2.0 (1.79 net) wells in the fourth quarter of 2010. One of these wells was completed and brought onstream in Q4 2010. The second is expected to be on stream in Q2 2011. The Company is currently producing 338 Bbl/day of oil and NGL, and 2,913 mcf/day of natural gas (823 boe/day). The current production mix is 41% oil and 59% natural gas. With 100% of the 2011 budget allocated to oil exploration and development the Company anticipates that it will become equally balanced between oil/NGL and natural gas by the end of this year.
Outlook
Cash flow from operations in 2010 increased to $4.5 million, a 39% increase from $3.2 million in 2009. With a very favourable pricing regime and production from drilling increasing, the Company expects further increases in its cash flow in 2011.
Cash flow for 2011 combined with the Company's existing credit facility and funds from equity issued in late 2010 have provided the Company with a very strong balance sheet and financial strength and flexibility. This financial strength and flexibility will allow the Company to undertake a $9 million capital program in 2011.
As a result of drilling success at Alexander in 2010, Petro-Reef is focusing on further drilling in 2011 targeting oilin the same reservoir. The Company drilled three wellsat Alexander in Q1 2011. Up to four more wells are planned at Alexander, Alberta for the balance of 2011. Also, in Q1 2011 the Company drilled and completed the first test well at Goose River, Alberta targeting oil in the Nordegg formation. Completion and testing operations on the wells drilled in Q1 2011 will continue after spring breakup.
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SUMMARY OF FINANCIAL AND OPERATIONAL RESULTS
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Three Months Ended December 31
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2010 2009 % Change
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FINANCIAL
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Oil and gas revenue(3) 3,086,137 2,399,999 29
Cash flow from operations(1) 1,478,452 737,169 101
Per share - basic 0.04 0.02 100
Net loss (1,351,334) (1,413,275) -4
Per share - basic (0.03) (0.04) -25
Total debt 10,560,062 12,594,941 -16
Shares outstanding - end of year 55,943,157 39,156,241 43
Capital expenditures 1,698,201 2,616,301 -35
Wells drilled (net)
Oil 1.79 1.00 79
Gas 0.00 2.00 -100
Dry 0.00 0.00
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Total net wells drilled 1.79 3.00 -40
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OPERATIONAL
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Daily production
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Oil & NGL (bbl) 223 119 87
Natural gas (mcf) 3,796 3,880 -2
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Oil equivalent (boe @ 6:1)(2) 856 765 12
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Commodity prices ($Cdn)
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Oil & NGL (bbl) 66.96 71.43 -6
Natural gas (mcf) 3.61 4.59 -21
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Oil equivalent (boe @ 6:1) 33.47 34.01 -2
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Operating netback ($ per boe)
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Revenue 33.47 34.01 -2
Royalty (3.64) (3.27) 11
Operating cost (9.59) (14.98) -36
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Operating netback per boe 20.24 15.76 28
General and administrative (5.24) (3.80) 38
Finance charges and fees (1.95) (1.57) 24
Realized hedging gains 5.74 0.07 8,100
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Cash flow per Boe 18.79 10.46 80
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Year Ended December 31
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2010 2009 % Change
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FINANCIAL
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Oil and gas revenue(3) 10,773,949 9,312,588 16
Cash flow from operations(1) 4,447,326 3,190,518 39
Per share - basic 0.11 0.09 22
Net loss (5,049,195) (4,892,712) 3
Per share - basic (0.12) (0.13) 0
Total debt 10,560,062 12,594,941 -16
Shares outstanding - end of year 55,943,157 39,156,241 43
Capital expenditures 7,787,921 4,483,528 74
Wells drilled (net)
Oil 1.79 1.00 79
Gas 0.94 2.00 -53
Dry 0.00 0.00
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Total net wells drilled 2.73 3.00 -9
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OPERATIONAL
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Daily production
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Oil & NGL (bbl) 148 135 10
Natural gas (mcf) 4,086 4,182 -2
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Oil equivalent (boe @ 6:1)(2) 829 832 0
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Commodity prices ($Cdn)
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Oil & NGL (bbl) 69.92 58.86 19
Natural gas (mcf) 4.02 4.15 -3
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Oil equivalent (boe @ 6:1) 32.31 29.52 9
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Operating netback ($ per boe)
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Revenue 32.31 29.52 9
Royalty (4.06) (3.00) 35
Operating cost (9.67) (12.04) -20
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Operating netback per boe 18.58 14.48 28
General and administrative (5.14) (3.69) 39
Finance charges and fees (2.03) (1.44) 41
Realized hedging gains 3.29 1.14 189
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Cash flow per Boe 14.70 17.87 -18
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(1)"Cash flow from operations", "cash flow from operations per share",
"netbacks" and "netbacks per boe" are not defined by Generally Accepted
Accounting Principles (''GAAP") in Canada and are regarded as non-GAAP
measures. Cash flow from operations and cash flow from operations per
share are calculated as cash provided by operating activities before
changes in non-cash working capital and asset retirement expenditures.
Cash flow from operations is used to analyze the Company's operating
performance, the ability of the business to generate the cash flow
necessary to fund future growth through capital investment and to repay
debt. Cash flow from operations does 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 cash flow from operationsper 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 barrels of oil equivalent ("boe") may be misleading,
particularly if used in isolation. A boe conversion ratio of six
thousand cubic feet per barrel (6 mcf/bbl) 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 six thousand
cubic feet of gas to one barrel of oil.
(3) Includes realized gains on financial instruments
Reserves Summary
The December 31, 2010 evaluation was prepared using definitions in accordance with National Instrument 51-101.The reserve reconciliation reflects current proved, probable, and proved plus probable reserves. The December 31, 2009 report was prepared by Sproule Associates Limited and the December 31, 2010 report was prepared by McDaniel & Associates Consultants Ltd.
Reserves Gross and Net (Forecast Prices and Costs) - December 31, 2010
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Light and Medium Natural Gas Barrels of Oil
Oil Equivalent
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Reserves Category Gross Net Gross Net Gross Net
(Mbbl) (Mbbl) (MMcf) (MMcf) (Mboe) (Mboe)
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Proved Developed Producing 236.9 214.6 2,688.5 2,293.3 684.9 596.9
Developed Non-Producing 12.4 11.1 447.0 404.3 86.9 78.5
Undeveloped 123.5 112.9 331.7 308.2 178.9 164.3
Total Proved 372.8 338.7 3,467.2 3,005.9 950.7 839.7
Probable 330.1 301.1 1,794.5 1,598.3 629.2 567.5
Total Proved Plus Probable 702.9 639.7 5,261.8 4,604.2 1.579.9 1,407.2
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N1 51-101 Summary of Net Present Values of Future Net Revenue as of
December 31, 2010 Forecast Prices and Costs
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0% DCF 5% DCF 10% DCF 15% DCF
Reserves Category (M$) (M$) (M$) (M$)
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Proved Developed Producing 15,458 14,401 13,508 12,743
Developed Non-Producing 1,927 1,372 1,058 868
Undeveloped 5,876 5,365 4,925 4,543
Total Proved 23,261 21,139 19,490 18,154
Probable 23,839 18,693 15,251 12,825
Total Proved Plus Probable 47,100 39,832 34,741 30,979
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Using a ten percent (10%) NPV, the value of proved plus probable reserves at forecast prices andcosts (before Income Taxes) increased by 3% to $34,741,400 as compared with last year's established reserves of $33,684,000.
Forecast Prices Used in Estimates
McDaniel employed the following pricing, exchange rate and inflation rate assumptions in estimating Petro-Reef reserve data as of December 31, 2010:
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Edmonton
Par Cromer Natural
WTI Price Medium Gas (1)
Crude 40 degrees 29.3 degrees AECO Gas
Oil API API Prices
Year ($US/bbl) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/MMBtu)
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Historical
2005 55.56 68.72 57.47 8.58
2006 66.23 72.80 61.25 7.16
2007 72.30 76.35 65.40 6.65
2008 99.60 102.20 93.20 8.15
2009 61.80 65.90 62.80 4.20
2010 79.40 77.45 73.75 4.15
Forecast
2011 85.00 84.20 77.20 4.25
2012 87.70 88.40 80.40 4.90
2013 90.50 91.80 82.50 5.40
2014 93.40 94.80 85.20 5.90
2015 96.30 97.70 87.90 6.35
Thereafter 2.0% Escalation Rates
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Edmonton Edmonton Inflation Exchange
Condensate Butane Rate (2) Rate (3)
Year ($Cdn/bbl) ($Cdn/bbl) (%/Yr) ($US/$Cdn)
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Historical
2005 69.63 52.58 2.1 0.826
2006 75.06 60.10 2.2 0.880
2007 77.36 63.75 2.0 0.935
2008 104.75 75.25 2.4 0.943
2009 68.15 49.25 2.0 0.880
2010 84.20 66.05 2.0 0.971
Forecast
2011 88.20 67.90 2.0 0.975
2012 90.40 71.20 2.0 0.975
2013 93.90 74.00 2.0 0.975
2014 96.90 76.40 2.0 0.975
2015 99.90 78.70 2.0 0.975
Thereafter 2.0% Escalation Rates
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Reconciliation of Changes in Reserves
Light, Medium Oil and NGL Natural Gas
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Gross Gross
Proved Proved
Gross Gross Plus Gross Gross Plus
Proved Probable Probable Proved Probable Probable
Factors (Mbbl) (Mbbl) (Mbbl) (MMcf) (MMcf) (MMcf)
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December 31,
2009 241.40 216.20 457.60 4,184.00 3,532.00 7,716.00
Extensions 119.80 186.10 305.90 507.50 593.00 1,100.50
Technical
Revisions 61.20 (72.20) (11.00) (105.30)(2,330.40) (2,435.70)
Acquisitions 4.40 - 4.40 372.00 - 372.00
Production (54.00) - (54.00) (1,491.00) - (1,491.00)
December 31,
2010 372.80 330.10 702.90 3,467.20 1,794.60 5,261.80
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BOE
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Gross
Proved
Gross Gross Plus
Proved Probable Probable
Factors (BOE) (BOE) (BOE)
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December 31,
2009 938.70 804.90 1,743.60
Extensions 204.40 284.90 489.30
Technical
Revisions 43.70 (460.60) (416.90)
Acquisitions 66.40 - 66.40
Production (302.50) - (302.50)
December 31,
2010 950.70 629.20 1,579.90
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Based on established reserves and production volumes, Petro-Reef's reserve life index was 4.2 years (39.8 years remaining life) on a proved plus probable basis at the end of 2010 compared with 4.9 years at the end of 2009. Petro-Reef's reserve life index (RLI) is an indication of the number of years it would take to deplete the Company's reserves.
Forward-Looking Statements: All statements, other than statements of historical fact, set forth in this news release, including without limitation, assumptions and statements regarding reservoirs, resources and reserves, future production rates, exploration and development results, financial results, and future plans, operations and objectives of the Corporation are forward-looking statements that involve substantial known and unknown risks and uncertainties. Some of these risks and uncertainties are beyond management's control, including but not limited to, the impact of general economic conditions, industry conditions, fluctuation of commodity prices, fluctuation of foreign exchange rates, environmental risks, industry competition, availability of qualified personnel and management, availability of materials, equipment and third party services, stock market volatility, timely and cost effective access to sufficient capital from internal and external sources. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable by the Corporation at the time of preparation, may prove to be incorrect. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Reference is made to barrels of oil equivalent (BOE). Barrels of oil equivalent may be misleading, particularly if used in isolation. In accordance with National Instrument 51-101, a BOE conversion ratio for natural gas of 6 Mcf: 1 bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this news release.
Contact Information:
Theodore M. Donhuysen
President and C.E.O.
(403) 265-6444
(403) 264-1348
info@petro-reef.ca
www.petro-reef.ca
Petro-Reef Resources Ltd.
970, 10655 Southport Road S.W.
Calgary, Alberta T2W 4Y1