PetroBakken Energy Ltd.
TSX : PBN

PetroBakken Energy Ltd.

November 08, 2010 23:26 ET

Petrobakken Announces Third Quarter 2010 Results With Over 40,000 boepd of Production and an Operating Netback of $43.61 per boe

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2010) - PetroBakken Energy Ltd. ("PetroBakken" or the "Company") (TSX:PBN), a 59% owned subsidiary of Petrobank Energy and Resources Ltd. (TSX:PBG), is pleased to announce third quarter 2010 financial and operating results. PetroBakken third quarter 2010 financial and operating results were highlighted by funds flow from operations of $140.8 million ($0.71 per diluted share), representing a 95% improvement over the third quarter of 2009, a strong operating netback of $43.61 per barrel of oil equivalent ("boe") and average production of 40,095 barrels of oil equivalent ("boepd"). Drilling activity increased in the third quarter over the second quarter but was impacted by wet weather causing delays in completions and production additions. The fourth quarter will continue to be active with a drilling program growing to 19 rigs focusing primarily on our Bakken and Cardium light oil resource plays.

FINANCIAL & OPERATING RESULTS

The following table provides a summary of PetroBakken's financial and operating results for the three months ended September 30, 2010 and 2009. Interim consolidated financial statements with Management's Discussion and Analysis ("MD&A") are available on the Company's website at www.petrobakken.com and will also be available on the SEDAR website at www.sedar.com.



Three months ended September 30, Q3 2010 Q3 2009 % change
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Financial ($000s, except where noted)
Oil and natural gas revenue 228,537 101,316 126
Funds flow from operations (1) 140,761 72,102 95
Per share - basic ($)(2) 0.75 0.66 14
- diluted ($)(2) 0.71 0.66 8
Net income 9,194 9,864 (7)
Per share - basic ($)(2) 0.05 0.09 (44)
- diluted ($)(2) 0.05 0.09 (44)
Capital expenditures 241,309 107,820 124
Total assets 5,613,332 1,421,233 295
Net debt (1) 857,318 11,750 7,196
Dividends 45,177 - -
Common shares, end of period (000)
Basic 188,302 109,800 71
Diluted (2) 188,766 109,800 72

Three months ended September 30, Q3 2010 Q3 2009 % change
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Operations

Operating netback ($/boe except
where noted) (1) (3)
Oil and NGL revenue ($/bbl) (4) 68.43 67.65 1
Natural gas revenue ($/mcf) (4) 3.82 3.55 8
Oil, NGL and natural gas revenue (4) 60.63 60.66 -
Royalties 8.64 9.62 (10)
Production expenses 8.38 6.83 23
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Operating netback (5) 43.61 44.21 (1)
Average daily production (3)
Oil and NGL (bbls) 33,230 15,185 119
Natural gas (mcf) 41,193 16,177 155
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Total (boe) 40,095 17,881 124
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1. Non-GAAP measure. See "Non-GAAP Measures" section within this press
release.
2. Consists of common shares, stock options, deferred common shares,
incentive shares and convertible debentures as at the period end date.
Assumes 109,800,001 common shares were outstanding in the third quarter
of 2009.
3. Six mcf of natural gas is equivalent to one barrel of oil equivalent
("boe").
4. Net of transportation expenses.
5. Excludes hedging activities


HIGHLIGHTS

(In this report, quarterly comparisons are third quarter 2010 compared to third quarter 2009 unless otherwise noted. Third quarter 2009 results refer to the former Petrobank Canadian Business Unit, and are prior to the acquisition of TriStar Oil & Gas Ltd. ("TriStar") in October 2009.)



-- PetroBakken's production averaged 40,095 boepd in the third quarter of
2010, a 124% increase over the prior year, primarily driven by the
acquisition of TriStar on October 1, 2009 and drilling activities in the
Bakken. Production declined 5% compared to the second quarter of 2010
due to delays in servicing, drilling and bringing wells on production as
a result of wet weather, particularly for our Cardium play in central
Alberta.

-- Our operating netback (excluding hedging gains) of $43.61/boe decreased
slightly by 1% from the prior year primarily due to the increase in
production expenses as a result of production acquired from TriStar.
Compared to the second quarter of 2010, operating netbacks decreased 5%
primarily as a result of lower pricing (attributable to wider oil
differentials) and increased production expenses, partially offset by
lower royalties.

-- Our production and strong operating netback resulted in funds flow from
operations of $140.8 million ($0.71 per diluted share). Capital
expenditures were $241.3 million in the third quarter, of which $55.5
million related to asset and land acquisitions.

-- PetroBakken drilled 115 (75.0 net) wells with a 99% success rate in the
third quarter; including 54 (42.9 net) in the Bakken, 33 (12.5 net) in
conventional plays in southeast Saskatchewan, and 28 (19.6 net) in the
Cardium. At the end of the quarter 22.8 net wells were waiting to be
completed and/or placed on production, the majority of which were
associated with our Cardium play.


OPERATIONAL UPDATE

Average Daily Production
Three months ended Nine months ended
September 30, September 30,
Oil and Oil and
NGL Gas Total NGL Gas Total
Asset Team (bbl/d) (Mcf/d) (boe/d) (bbl/d) (Mcf/d) (boe/d)
----------------------------------------------------------------------------
Bakken 23,314 7,077 24,493 27,049 7,077 28,229
SE Saskatchewan
Conventional 5,992 2,717 6,445 4,892 2,357 5,285
Central Alberta 2,640 15,380 5,203 1,886 12,090 3,901
Northeast British
Columbia 178 4,117 864 97 3,734 719
Other Alberta 1,106 11,902 3,090 1,305 14,215 3,674
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33,230 41,193 40,095 35,229 39,473 41,808
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Production for the third quarter averaged 40,095 boepd, comprised of 33,230 bopd of light oil and natural gas liquids and 41,193 MMcf/d of natural gas. This is 124% above the third quarter of 2009 and 5% below the second quarter of 2010. Liquids production declined 5% in the third quarter 2010 from the second quarter due to drilling, completion and well servicing delays associated with wet weather and temporarily shutting in Bakken production while the Midale gas plant was being expanded from 8 MMcf/d to 12.5 MMcf/d. The gas plant expansion will allow more Bakken gas and associated liquids production to be conserved while reducing trucking costs. Gas production decreased 7% primarily due to the Midale gas plant expansion and declines on acquired production. We are still restricting production on our bilateral Montney natural gas well at Monias in northeast British Columbia to approximately 2 MMcf/d as we continue testing on this well. There was more rain than typical in the third quarter causing field activity to be delayed. As drilling and completion activity accelerates, we expect our production to increase late in the fourth quarter of this year and into the first quarter of next year. In early November, field estimates indicate our production currently stands at approximately 41,500 boepd.

Despite the weather delays our third quarter 2010 drilling activity more than doubled from second quarter levels and resulted in 115 (75.0 net) wells drilled with a 99% success rate. A total of 54 (42.9 net) wells were drilled for the Bakken and 33 (12.5 net) wells were drilled for conventional Mississippian resources. The remaining 28 wells, (19.6 net), were drilled for Cardium in Alberta. During the third quarter completion crews working in the Cardium were delayed more than the drilling crews because of more frequent location moves. Currently, we have eight rigs drilling in the Bakken, one rig drilling for conventional Mississippian targets in southeast Saskatchewan and eight rigs drilling in the Cardium in central Alberta, with plans to increase this number to ten by mid-November. The increase in Cardium drilling rigs should allow us to drill over 60 net wells this year despite the earlier delays due to weather. However, completion activity will lag our original plans causing production increases to be pushed out into the first quarter of 2011. Our Bakken drilling for the year will decrease slightly as a result of the completion delays experienced in the third quarter. In northeast British Columbia, completion activities have commenced on the horizontal well we drilled in the Horn River basin earlier this year, and we have just begun drilling a horizontal Montney well at Monias. A second Montney well is expected to be drilled in the first quarter of 2011 after which completion operations will begin for both wells. Based on our updated plans we expect to drill over 170 (140 net) wells in the Bakken resource play in southeast Saskatchewan, over 85 (60 net) wells in the Cardium resource play in central Alberta, and over 70 (45 net) wells in our conventional light oil plays in southeast Saskatchewan and Manitoba in 2010.

During the third quarter we were active acquiring land in Alberta and Saskatchewan, spending $35.9 million to lease mineral rights on approximately 36,000 net acres. In addition, we completed several property transactions, acquiring 11,700 net acres of land in the Cardium fairway while disposing of 9,600 acres of non-core land. With these transactions we have increased our Cardium opportunity base to over 240 net sections of undeveloped land and over 650 locations in inventory.

BAKKEN UPDATE

Bakken production declined 3% in the third quarter from the second quarter of 2010. During the quarter we experienced greater downtime (approximately 2% higher than normal) as well servicing was sporadic due to poor lease conditions caused by wet weather, which negatively impacted existing production by 500 boepd and also impacted the timing of bringing new wells on production. At the end of the third quarter we had 4.2 net Bakken wells waiting to be put on production. The Midale gas plant had to be temporarily shut-in for about a week while the expansion was completed, which reduced production by approximately 180 boepd for the quarter.

The Midale plant expansion has increased the amount of gas that we can conserve by 4.5 MMcf/d, which will also increase liquids production. In addition, it will allow us to reduce trucking from batteries that are now connected to this plant and increase processing revenue as we accept third party production. During the fourth quarter and first quarter of 2011 we will build two new multi-well batteries as we continue to optimize operations by connecting additional wells into our gathering and plant system. This will eliminate a number of single well batteries to further reduce trucking costs.

In the north end of the Bakken fairway where, when fracture stimulating wells, it is easier to break out of zone due to a thinner cap rock and potentially risk watering out wells, we have been experimenting with our fracing technique. Initially we have delayed fracing a number of wells in order to create a pressure sink in the near wellbore area, so when they are stimulated it increases the likelihood of staying in the productive zone. This delay temporarily affects production as the un-stimulated wells will produce at much lower rates. We also continue to experiment with a variety of changes to the design of our fracture stimulation techniques in order to improve efficiencies and enhance primary recoveries.

The development of the Bakken fairway using bilateral wells for primary recovery continues to yield positive results. We have now drilled over 141 (134.3 net) bilateral wells since we began this program just over a year ago; a complete well list can be found on our website. To-date, cumulative production has increased by approximately 25% when compared to the single lateral offsets. As the number of wells and production history grows, we are now finding areas of the Bakken fairway (such as in the north end of the fairway) where completion technique is more critical for well optimization than is the choice of drilling bilateral or single lateral wells. The evolution of Bakken development has shown us that increasing contact with the reservoir is the key to improving primary recoveries. As the fairway is down spaced, bilateral wells, at a cost of $2.4 million per quarter section, are more capital efficient than drilling two single lateral wells, at a combined cost of $3.6 million per quarter section, to access the same reserves.

CARDIUM ACTIVITY UPDATE

Implementing our Cardium program has been delayed significantly primarily due to weather related delays, however we are encouraged with the progress we have made on optimizing our drilling and completion techniques. While we were able to drill 28 (19.6 net) wells in the third quarter, we were only able to complete 12 (5.6 net) wells and bring 12 (5.1 net) wells on production. Completing and bringing wells on production still remains back logged as completion crews, which generally move three times more often than drilling crews, faced moving restrictions with lease access issues. As a result, we expect production additions from this program to be pushed out to later in the fourth quarter and the first quarter of 2011. Current Cardium production is approximately 2,600 boepd with a current back log of 26 (17.7 net) wells waiting to be either completed and/or placed on production.

To-date in the Cardium play we have been experimenting with drilling and completion techniques and have narrowed these down to monobore drilling with open hole, ball and packer style completions and utilizing slick water fracture stimulations. While we are continuing to experiment with completion techniques, we are pleased with the results to date. Early production rates are generally meeting or exceeding our expectations and future costs are expected to come down. The table below provides production results from our Cardium wells.



----------------------------------------------------------------------------
Average Daily Oil Production(i)
(wells contributing to average)
----------------------------------------------------------------------------
Frac Fluid 30 60
Operator Type 7 days days days 90 days
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1. PBN drill & 166
completion Slick Water 286 bopd 189 bopd bopd n/a


(5 wells) (3 wells) (1 well)
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2. PBN or
predecessor Slickwater/ 262 bopd 185 bopd 156 bopd 165 bopd
drill/

PBN completion gelled water/

gelled oil (9 wells) (7 wells) (3 wells) (2 wells)

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3. Predecessor
drill & Gelled oil/ 157 bopd 128 bopd 112 bopd 101 bopd
completion no
PBN slick water
involvement (1 well)(17 wells) (17 wells) (16 wells)(14 wells)
----------------------------------------------------------------------------

Wells in row 1. are a subset of wells identified in row 2.

(i)Based on field estimates


While we have limited results up to this time, the adoption of our drilling and completion techniques demonstrate increases in production, both when we first became involved with the completion process and then, to a greater degree, when we were responsible for the entire operation. We do expect production rates to continue to improve as we gain experience with this play and our activity increases. Future costs are also expected to decrease as we have reduced drilling and completion time and utilize a less expensive frac fluid. Poor lease conditions have driven up 2010 costs, however with normal lease conditions, we expect costs in the deeper West Pembina area to be under $3.0 million per well and in the shallower East Pembina area to be under $2.5 million per well, further improving economics of the play.

FINANCIAL UPDATE

PetroBakken's financial performance continued to be strong in the third quarter with solid production and high operating netbacks due to our light oil focus, resulting in funds flow from operations of $140.8 million ($0.75 per basic and $0.71 per diluted share). Our operating netback declined 5% compared to the second quarter of 2010, driven primarily by a decrease in realized prices per boe and an increase in production expenses per boe. Realized prices decreased due to widening oil price differentials as a result of pipeline constraints and lower gas prices. Production expenses increased on a per boe basis as production decreased due to drilling delays but fixed costs remained consistent.

Capital expenditures for the quarter of $241.3 million related mainly to our drilling program and asset and land acquisitions. Net debt increased from the second quarter primarily due to increased capital expenditures. At September 30, 2010, our financial position remained strong with $302.7 million of available credit and a bank debt to third quarter annualized earnings before interest, taxes and non-cash items ratio of 1.1 to 1.

During the second quarter we instituted a normal course issuer bid ("NCIB") with the ability to purchase up to 9.4 million shares within a twelve month period commencing May 17, 2010 subject to certain daily restrictions. We put the NCIB in place as we believe our shares are currently undervalued and we have been purchasing shares through an automatic purchase plan. To-date, we have purchased 1,420,800 shares for $31.2 million.

SUMMARY AND OUTLOOK

The wet weather in the third quarter created challenges in executing our programs. While we were able to increase drilling activity from the second quarter, we were not able to complete as many wells as we would like and get them on production. As a result, our production decreased 5% from second quarter levels, however, we look for it to increase in the fourth quarter and into the first quarter of 2011 as our field activities get caught up. Operating netback and funds from operations were still strong during the quarter and we have maintained our financial flexibility with a bank debt to annualized funds flow from operations ratio of 1.1 to 1 and $302.7 million in available credit. We successfully completed the expansion of the Midale gas plant, which will help optimize our Bakken operations, and we made excellent progress defining the Cardium drilling and completion techniques we wish to utilize. In addition, we were able to add to our land position in our key strategic plays through mineral leases and property acquisitions. The fourth quarter will continue to be active with up to 19 rigs running and we look forward to updating investors as our progress continues.

INVESTOR CONFERENCE CALL

Management of PetroBakken will be holding a conference call for investors, financial analysts, media and any interested persons on Tuesday, November 9, 2010 at 9:00 am (Mountain time) (11:00 a.m. Eastern Time) to discuss PetroBakken's third quarter financial and operating results. The investor conference call details are as follows:



Live call dial-in numbers: 416-695-6623 / 888-769-8320
Replay dial-in numbers: 416-695-5800 / 800-408-3053
Replay pass code: 6580046


The live audio webcast link is: http://events.digitalmedia.telus.com/petrobakken/110910/index.php and is also available on our website at: http://www.petrobakken.com/investors/.

PetroBakken Energy Ltd. is a premier light oil production company combining, high growth, long-life Bakken reserves and production with legacy conventional light oil assets, delivering industry leading operating netbacks, strong cash flows and production growth. PetroBakken is applying leading edge technology to a multi-year inventory of Bakken and Cardium light oil development locations, along with a significant inventory of opportunities in the Horn River and Montney gas resource plays in northeast BC. Our strategy is to deliver accretive production and reserves growth, along with an attractive dividend yield.

Non-GAAP Measures. This report contains financial terms that are not considered measures under Canadian generally accepted accounting principles ("GAAP"), such as funds flow from operations, net debt and operating netback. These measures are commonly utilized in the oil and gas industry and are considered informative for management and stakeholders. Specifically, funds flow from operations reflects cash generated from operating activities before changes in non-cash working capital. Management considers funds flow from operations important as it helps evaluate performance and demonstrate the ability to generate sufficient cash to fund future growth opportunities, pay dividends and repay debt. Net debt includes bank debt outstanding plus current liabilities less current assets and is used to evaluate PetroBakken's financial leverage. Profitability relative to commodity prices per unit of production is demonstrated by an operating netback. Operating netback reflects revenues less royalties, transportation costs, and production expenses divided by production for the period. Funds flow from operations, net debt and operating netbacks may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations or other measures of financial performance calculated in accordance with GAAP.

Forward Looking Statements. This press release contains forward-looking statements. More particularly, it contains forward-looking statements concerning potential exploration and development activities, potential geological characteristics of our properties, the potential for enhanced recovery and production and the reduction of operating costs from the application of completion and recompletion activities and the construction of facilities, expected production growth and the preparation for and potential impact of the implementation of International Financial Reporting Standards. The forward-looking statements are based on certain key expectations and assumptions, including expectations and assumptions concerning the availability of capital, the success of future drilling, completion, recompletion and development activities, the performance of existing wells, the performance of new wells, prevailing commodity prices and economic conditions, the availability of labour and services, weather and access to drilling locations, the geological nature of the formations targeted and prevailing accounting standards.

Although we believe that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because we can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, reliance on industry partners, availability of equipment and personnel, uncertainty surrounding timing for drilling and completion activities resulting from weather and other factors, changes in applicable regulatory regimes and health, safety and environmental risks), commodity price and exchange rate fluctuations and general economic conditions. Certain of these risks are set out in more detail in our Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.

Contact Information

  • PetroBakken Energy Ltd.
    John D. Wright
    Chairman of the Board and Chief Executive Officer
    403.750.4400
    or
    PetroBakken Energy Ltd.
    R. Gregg Smith
    President and Chief Operating Officer
    403.750.4400
    or
    PetroBakken Energy Ltd.
    Peter D. Scott
    Senior Vice President and Chief Financial Officer
    403.750.4400
    or
    PetroBakken Energy Ltd.
    William A. Kanters
    Vice President Business Development and Corporate Planning
    403.750.4400
    ir@petrobakken.com
    www.petrobakken.com