Petrobank Energy and Resources Ltd.

Petrobank Energy and Resources Ltd.

March 18, 2005 09:00 ET

Petrobank Announces Year End Results Including A $16.6 Million Gain On Disposition And $5.21 Per Share Net Asset Value




MARCH 18, 2005 - 09:00 ET

Petrobank Announces Year End Results Including A $16.6
Million Gain On Disposition And $5.21 Per Share Net
Asset Value

CALGARY, ALBERTA--(CCNMatthews - March 18, 2005) - Petrobank Energy and
Resources Ltd. ("Petrobank") (TSX:PBG)(TSX:PBG.NT.A) is pleased to
announce fourth quarter and year-end financial and operating results.


2004 was a year focused on asset enhancement and the disposition of
certain mature properties. We have entered 2005 with a strong balance
sheet, an excellent portfolio of opportunities and a solid base of
production and reserves. Some of the transactions that we completed in
2004 include the following:

- In January 2004, Petrobank sold the Company's Wapella property, which
produced 1,324 barrels of oil per day (bopd) in the fourth quarter of
2003, for net proceeds of $35.5 million.

- We sold the Epping, Edmonton, Swimming and Wetaskiwin properties
during 2004 that produced at a combined rate of approximately 250 boe
per day (boepd) at the time of their disposition for total proceeds of
$11.4 million.

- The Company realized a $16.6 million gain on the disposition of
several properties, including Nevis, Rainbow, Shekilie, Lashburn,
Eyehill and Red Jacket, in December 2004. Net proceeds totaled $96.1
million for these properties that were producing approximately 2,700
boepd. The proceeds were partially used to eliminate bank debt and in
January 2005 to repurchase subordinated notes with a face value of $14.3

Despite these significant property dispositions, which generated total
proceeds of $143.0 million, consolidated average production remained
consistent with the prior year at 5,790 boepd. Fourth quarter production
averaged 5,552 boepd compared with 7,255 boepd (5,931 boepd excluding
production from Wapella) in the comparable 2003 period.

Cash flow from operations increased by 11 percent in 2004 to $32.4
million despite the negative impact of hedging losses. Cash flow per
share of $0.43 per share for the year was consistent with 2003. Hedging
losses totaled $11.5 million for the year and $3.6 million in the fourth
quarter, negatively impacting earnings and cash flow from operations.
These hedges expired on December 31, 2004. Without these hedging losses,
cash flow per share would have increased by 49 percent to $0.64 for 2004
and by 88% to $0.15 in the fourth quarter

Petrobank recorded fourth quarter net income of $8.6 million compared to
an $18.5 million net loss in the comparable 2003 period. The improvement
was primarily due to the $16.6 million gain recorded in the current
period and the $16.9 million impairment charge recorded in 2003. Capital
expenditures in 2004 totaled $47.9 million ($30.4 million in Canada,
$13.9 million in Latin America, and $3.6 million in the Heavy Oil
Business Unit) and proceeds from dispositions totaled $143.0 million,
for net proceeds of $95.1 million.

Other key highlights of 2004 include:

- Net debt decreased from $151.0 million at the end of 2003 to $35.2
million at the end of 2004.

- Year-end Canadian proved plus probable reserves were 9.2 mmboe with a
before-tax NPV 10% of $108.4 million.

- Canadian proved plus probable reserves additions replaced production
by more than 400%

- Year-end Colombian proved plus probable reserves increased 38% to 9.5
mmbbls and before-tax NPV 10% increased 61% to U.S.$98.1 million.

- December 31, 2004 net asset value is calculated to be $5.21 per share.


(millions, except per share amounts)
As at December 31, 2004

Proved and probable reserves, discounted at 10%
before tax, forecast pricing
Canada $108.4
Colombia 117.7
Canadian Business Unit undeveloped land and seismic ($75/acre) 27.3
Heavy Oil Business Unit(1) 73.5
Working capital 60.7
Carrying value of 9% subordinated debt(2) (95.9)
Net asset value $291.7

Basic common shares outstanding 55.0
Basic net asset value per basic common share $5.30

Diluted common shares outstanding(3) 56.6
Net asset value per diluted common share $5.21

(1) The Heavy Oil Business Unit consists of: WHITESANDS Insitu Ltd.
(WHITESANDS) and its pilot project; and Archon Technologies Ltd.
(Archon) which holds the intellectual property rights to the THAI™
and CAPRI™ heavy oil recovery processes. No value has been attributed
to Archon but in March 2005 the Company entered into an agreement to
sell a 16% interest in WHITESANDS for $14 million which translates in to
a $73.5 million value for Petrobank's remaining 84% interest. This
transaction is expected to close in early April.

(2) At December 31, 2004, face value and trading value were $100.4
million and $94.9 million respectively.

(3) Based on year-end share price of $2.32 per share, assumes 1.6
million in-the-money stock options are exercised for proceeds of $3.2


The following table provides a summary of Petrobank's financial and
operating results for the three and twelve month periods ended December
31, 2004 and 2003. Audited consolidated financial statements with
Management's Discussion and Analysis (MD&A) are available on our website
at under the "Investor Relations - Financial Reports"

Three months ended Years ended
December 31, % December 31, %
2004 2003 change 2004 2003 change

($000s, except
where noted)
Oil and natural
gas revenue 17,028 20,540 (17) 73,377 67,504 9
Cash flow from
operations(1) 6,659 8,701 (23) 32,437 29,258 11
Per share -
basic ($)(2) 0.08 0.12 (33) 0.43 0.45 (4)
Per share -
diluted ($)(2) 0.08 0.12 (33) 0.43 0.44 (2)
Net income (loss) 8,580 (18,468) 8,506 (14,919)
Net income (loss)
attributable to
common shareholders 6,630 (20,248) 833 (23,339)
Per share - basic
and diluted ($) 0.12 (0.38) 0.02 (0.49)
Capital expenditures 14,272 27,338 (48) 47,901 116,060 (59)
Net debt(3) 35,183 150,955 (77) 35,183 150,955 (77)
Common shares
outstanding, end
of period (000s)
Basic 54,956 54,503 1 54,956 54,503 1
Diluted 59,758 59,599 - 59,758 59,599 -


Canadian operating
netback ($/boe
except where noted)
Oil and NGL
revenue ($/bbl)(5) 19.53 25.76 (24) 25.42 28.48 (11)
Natural gas
revenue ($/mcf)(5) 5.80 5.89 (2) 5.99 6.44 (7)
Oil and natural
gas revenue(5) 29.90 30.57 (2) 31.84 32.42 (2)
Royalties 7.53 5.12 47 7.17 6.56 9
Production expenses 7.81 7.55 3 7.07 7.48 (5)
expenses 0.93 0.85 9 0.94 0.82 15
Operating netback 13.63 17.05 (20) 16.66 17.56 (5)

Colombian operating
netback ($/bbl)
Oil revenue 46.45 31.66 47 43.70 32.22 36
Royalties 3.71 2.53 47 3.51 2.56 37
Production expenses 7.08 15.62 (55) 7.67 10.48 (27)
Operating netback 35.66 13.51 164 32.52 19.18 70

Average daily production
Canada - oil
and NGL (bbls) 1,417 2,931 (52) 1,732 2,840 (39)
Canada - natural
gas (mcf) 17,880 17,702 1 16,196 10,821 50
Total Canada (boe) 4,397 5,881 (25) 4,431 4,643 (5)
Colombia - oil
(bbls) 1,155 1,374 (16) 1,359 1,068 27
Total Company (boe) 5,552 7,255 (23) 5,790 5,711 1

(1) Cash flow from operations before changes in other non-cash items.

(2) Calculated based on cash flow from operations before changes in
other non-cash items less interest paid on subordinated notes.

(3) Includes working capital (deficiency) and subordinated notes
reflected as equity on the balance sheet.

(4) 6 Mcf of natural gas is equivalent to 1 barrel of oil equivalent

(5) Canadian sales prices are shown after hedging costs.


Canadian Business Unit

Fourth quarter Canadian production averaged 4,397 boepd or 2,028 boepd
excluding production from properties disposed during the fourth quarter.
Current production is in excess of 2,200 boepd and is expected to double
by year-end 2005 through the execution of our $40 million capital
program for 2005. The bulk of the budget and resulting production
additions are expected to occur between May and July at our Jumpbush
property where we are planning a 50-well shallow gas drilling program
and facility expansion to 25 mmcfpd (working interest - 17.8 mmcfpd).

At Princeton, our initial CBM evaluation test well has been completed
and we are now in the final planning stages of a fracture stimulation
and long term testing program, which we expect to commence in early

Latin American Business Unit

In Colombia, production averaged 1,155 barrels of oil per day from our
Orito and Neiva blocks in the fourth quarter and is currently at
approximately 1,200 barrels of oil per day. Drilling has now commenced
on our Orito 116 location, which is targeting a large southwest
extension to the main producing region of the Orito field. If
successful, this well could lead to a number of additional offsetting
locations, some of which have been assigned probable and possible
reserves in the D&M evaluation.

Our base Colombian capital budget for 2005 is U.S.$13.5 million but with
success could be expanded to over U.S.$30 million, which would see up to
four more wells drilled at Orito and five at Neiva in 2005. An expanded
Colombian capital budget would be financed with the proceeds from the
planned second quarter initial public offering (IPO) of the Company's
subsidiary, Petrominerales Colombia Ltd. (Petrominerales). The proposed
IPO involves listing Petrominerales on the Toronto Stock Exchange (TSX)
and the Alternative Investment Market (AIM) in London. Also in
connection with the IPO, the Company expects to sell a minority portion
of its shareholdings in Petrominerales, providing increased financial
flexibility to Petrobank.

We are presently negotiating five new exploration blocks in Colombia,
one is contiguous with our Orito block in the Putumayo Basin and the
other four are in the Llanos Basin where we have identified a series of
geological trends offering multi-pool prospects that can be delineated
through the application of 3D seismic as an exploration and development

Heavy Oil Business Unit

We recently announced a $23.8 million WHITESANDS financing which is
expected to close in early April 2005. The investor will acquire a 16
percent interest in WHITESANDS for $14.0 million (40 percent of the
estimated pilot project costs) and will also acquire 3 million common
shares of Petrobank for $9.8 million. Collectively, the proceeds will
fund approximately 68 percent of the estimated costs required to
complete the WHITESANDS pilot.

Field activities at our WHITESANDS - THAI™ project have now
commenced. We have drilled a total of 9 vertical stratigraphic wells
both on and off the pilot site and civil work is essentially complete.
The results from these 9 wells strongly reinforced the resource
assessment completed earlier in 2004 by Fekete Associates, which
estimated an in-place bitumen resource of 1.3 billion barrels. As a
result of an early spring break up in Northern Alberta we plan to drill
the pilot's 3 horizontal production wells, 3 vertical air injection
wells and 3 observation wells, and commence full facility construction
this summer. The targeted start-up date for the pilot is on schedule for
the fourth quarter of 2005.


Our fourth quarter dispositions and reserve updates along with our
recently announced WHITESANDS financing have highlighted some of the
unrecognized value embedded in each of our business units and has
culminated in a year-end net asset value of $5.21 per share. With a
significant 2005 Canadian drilling program, the planned IPO of our
Petrominerales subsidiary, and the kick off of our WHITESANDS pilot
project, 2005 is positioned to be a very exciting year for Petrobank.

Natural gas volumes have been converted to barrels of oil equivalent
("boe") so that six thousand cubic feet ("mcf") of natural gas equals
one barrel based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency
at the well head. Boes may be misleading, particularly if used in

Certain statements in this release are "forward-looking statements"
within the meaning of the United States Private Securities Litigation
Reform Act of 1995. Specifically, this press release contains
forward-looking statements relating to, prospects for technologies which
remain unproven and the expected amount and timing of capital projects.
The reader is cautioned that assumptions used in the preparation of such
information, although considered reasonable at the time of preparation,
may prove to be incorrect. Actual results achieved during the forecast
period will vary from the information provided herein as a result of
numerous known and unknown risks and uncertainties and other factors.
Such factors include, but are not limited to: the ability to
economically test, develop and utilize the technologies described
herein, the feasibility of the technologies, general economic, market
and business conditions; fluctuations in oil and gas prices; the results
of exploration and development of drilling and related activities;
fluctuation in foreign currency exchange rates; the uncertainty of
reserve estimates; changes in environmental and other regulations; risks
associated with oil and gas operations; and other factors, many of which
are beyond the control of the Company. There is no representation by
Petrobank that actual results achieved during the forecast period will
be the same in whole or in part as those forecast.


Contact Information

    Petrobank Energy and Resources Ltd.
    John D. Wright
    President and CEO
    (403) 750-4400
    Petrobank Energy and Resources Ltd.
    Chris J. Bloomer
    Vice-President Heavy Oil and CFO
    (403) 750-4400
    Petrobank Energy and Resources Ltd.
    Corey C. Ruttan
    Director Corporate Finance and Investor Relations
    (403) 750-4400
    (403) 266-5794 (FAX)