Petrobank Energy and Resources Ltd.
TSX : PBG

Petrobank Energy and Resources Ltd.

March 16, 2010 22:33 ET

Petrobank Reports Q4 2009 Funds Flow From Operations of $279.0 Million or $2.65 Per Share

CALGARY, ALBERTA--(Marketwire - March 16, 2010) - Petrobank Energy and Resources Ltd. ("Petrobank" or the "Company") (TSX:PBG) is pleased to announce 2009 fourth quarter financial and operating results highlighted by funds flow from operations of $2.65 per diluted share and net income of $0.56 per diluted share.

Petrobank's results include the financial and operating results of PetroBakken Energy Ltd. ("PetroBakken") (TSX:PBN), 64% owned by Petrobank, and Petrominerales Ltd. ("Petrominerales") (TSX:PMG), 66% owned by Petrobank. PetroBakken announced fourth quarter and 2009 year end financial and operating results on March 4, 2010. PetroBakken's fourth quarter results include the results of TriStar Oil and Gas Ltd. ("TriStar") that was acquired on October 1, 2009. Petrominerales announced fourth quarter and 2009 year end financial and operating results on March 1, 2010.

All references to $ are Canadian dollars unless otherwise noted.

HIGHLIGHTS

Q4 2009 Highlights and Significant Transactions

- Petrobank's consolidated production increased 87% to 70,176 barrels of oil equivalent per day ("boepd") in the fourth quarter of 2009 compared to 37,618 boepd in the fourth quarter of 2008.

- Funds flow from operations increased by 89% to $279.0 million in the fourth quarter of 2009. On a per diluted share basis, funds flow from operations increased 63% to $2.65.

- Net income more than doubled to $57.1 million in the fourth quarter of 2009. On a per diluted share basis, net income increased 65% to $0.56.

PetroBakken

- On October 1, 2009, Petrobank's 64% owned subsidiary, PetroBakken, acquired TriStar. PetroBakken's results reflect TriStar's assets, liabilities, and operating results for the period following the closing of the transaction on October 1, 2009.

- Fourth quarter production more than doubled to 45,621 boepd compared to 22,274 boepd in the fourth quarter of 2008, primarily due to the acquisition of TriStar and continued production additions from our Bakken light oil properties in southeast Saskatchewan.

- Operating netbacks (excluding hedging gains) averaged $46.68 per boe in the fourth quarter of 2009, an increase of 20% compared to the fourth quarter of 2008, primarily due to higher benchmark oil prices.

- PetroBakken drilled 64.8 net wells in the quarter, the vast majority of which were drilled in southeast Saskatchewan.

Petrominerales

- Fourth quarter production increased to 24,555 barrels of oil per day ("bopd") compared to 15,344 bopd in the fourth quarter of 2008, due to production increases at Corcel, Mapache and Neiva.

- Operating netbacks averaged US$47.37 per barrel, an increase of 34% compared to the fourth quarter of 2008, primarily due to higher benchmark oil prices.

2009 Highlights and Significant Transactions

- Petrobank's consolidated production increased 69% to 48,693 boepd in 2009 from 28,742 boepd in 2008 due to production increases in PetroBakken and Petrominerales.

- Funds flow from operations increased 5% to $697.4 million in 2009 despite significantly lower oil and natural gas benchmark prices. On a per diluted share basis, funds flow from operations only decreased 2% to $7.17 in 2009.

- Net income decreased to $145.1 million in 2009. On a per diluted share basis, net income decreased by 45% to $1.52 in 2009, mainly due to lower oil and natural gas benchmark prices.

PetroBakken

- 2009 production increased 48% to 26,333 boepd compared to 17,775 boepd in 2008, due to production additions from our Bakken light oil properties and the acquisition of TriStar in the fourth quarter of 2009.

- Operating netbacks averaged $43.04 per boe, a decrease of 37% compared to 2008, primarily due to lower benchmark oil and natural gas prices.

- Drilled 117.3 net wells in 2009, the vast majority of which were in southeast Saskatchewan.

Petrominerales

- 2009 production more than doubled to 22,360 bopd compared to 10,967 bopd in 2008, primarily due to exploration success at Corcel and Mapache along with additions from our development program at Neiva.

- Operating netbacks averaged US$38.20 per barrel, a decrease of 42% compared to 2008, primarily due to lower benchmark oil prices.

- Most active exploration company in Colombia in 2009 drilling 10 exploration and 36 development wells.

- Constructed the Monterrey crude oil offloading facility providing strategic offloading capacity.

- Strong financial position with an undrawn US$150 million credit facility, top-decile operating netbacks combined with significant production and cash flow growth.

- Repurchased 1,991,000 common shares.

- Entered an agreement to acquire all of the outstanding shares of PanAndean Resources plc ("PanAndean") (AIM:PRE) for Pounds Sterling 18.7 million (US$28.5 million). PanAndean assets include four blocks in Peru and one in Colombia totalling 6.3 million gross (2.7 million net) acres.

Subsequent Events

- On January 8, 2010, Petrobank completed an early conversion offering which resulted in US$250.7 million principal amount of 5.125% convertible debentures due July 10, 2015 being exercised early. Upon the conversion, a total of 7,452,099 Petrobank common shares were issued.

PetroBakken

- January 2010 production averaged 43,600 boepd, after the disposition in December 2009 of approximately 2,000 boepd.

- On January 25, 2010, PetroBakken completed a US$750 million of convertible debenture offering. The debentures are convertible into common shares of PetroBakken at a conversion price of US$39.61 per share, have an annual coupon rate of 3.125% and mature in February 2016.

- On January 28, 2010, PetroBakken entered into an arrangement agreement to acquire all of the issued and outstanding shares of Result Energy Inc. ("Result") for cash consideration of $200 million and the issuance of 11.2 million PetroBakken common shares. Result had positive working capital of approximately $60 million as at the announcement date. The arrangement is expected to close on or about April 1, 2010.

- On February 25, 2010, PetroBakken acquired all of the issued and outstanding shares of Berens Energy Ltd. for a cash consideration of $271 million and the assumption of bank indebtedness of approximately $72 million for total consideration of approximately $343 million.

- On March 12, 2010, PetroBakken acquired all of the issued and outstanding shares of Rondo Petroleum Inc. ("Rondo") for consideration of $88.7 million cash, the issuance of approximately 5.5 million PetroBakken shares and the assumption of Rondo's debt. As a result, Petrobank's ownership interest in PetroBakken is now 62%.

- In February and early March 2010 PetroBakken closed three divestitures representing approximately 3,100 boepd (55% natural gas) of production for gross proceeds of $112 million.

Petrominerales

- Production has increased significantly since the Candelilla-1 and 2 wells were placed on production, averaging 41,102 bopd in February 2010.

PETROBANK'S LIQUIDITY AND CAPITAL RESOURCES

Petrobank, PetroBakken and Petrominerales manage their capital structure independently, they generate their own cash flows, and have the ability to fund their operations through the issuance of secured and unsecured debt as well as equity financing. Petrobank's capital resources are focused on funding corporate and Heavy Oil Business Unit expenditures. At December 31, 2009, independent of PetroBakken and Petrominerales, Petrobank on a standalone basis had no bank debt outstanding and positive working capital of $21.2 million.

Based on Petrobank's current ownership and PetroBakken's intentions of paying an annual dividend of $0.96 per PetroBakken share, Petrobank expects to receive $105 million of dividends annually from PetroBakken paid monthly. Petrobank can also raise funds by selling a portion of its ownership in PetroBakken and Petrominerales or by issuing additional debt secured by these interests.

Petrobank expects to sufficiently fund our HBU capital expenditure program and convertible debenture interest with existing cash, available credit, cash from operations and dividends received from PetroBakken.

SUMMARY OF FINANCIAL AND OPERATING RESULTS

The following table provides a summary of Petrobank's financial and operating results for the three and twelve month periods ended December 31, 2009 and 2008. Consolidated financial statements with Management's Discussion and Analysis ("MD&A") will be available on the Company's website at www.petrobank.com and on the SEDAR website at www.sedar.com.



Three months ended Years ended
December 31, December 31,
% %
Q4 2009 Q4 2008 change 2009 2008 change
----------------------------------------------------------------------------
Financial
($000s, except
where noted)
Oil and natural gas
revenue 446,021 206,161 116 1,093,674 950,068 15
Funds flow from
operations (1) 279,004 147,813 89 697,437 665,933 5
Per share
-basic ($) 2.99 1.78 68 7.88 8.09 (3)
-diluted ($) 2.65 1.63 63 7.17 7.28 (2)
Net income 57,108 28,083 103 145,079 244,482 (41)
Per share
-basic ($) 0.61 0.34 79 1.64 2.97 (45)
-diluted ($) 0.56 0.34 65 1.52 2.76 (45)
Capital
expenditures
PetroBakken (2) 177,278 200,186 (11) 394,023 545,833 (28)
Petrominerales
(3) 86,566 56,325 54 320,815 281,748 14
HBU 15,554 23,471 (34) 76,019 82,332 (8)
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Total Company 279,398 279,982 - 790,857 909,913 (13)
Total assets 5,766,568 2,361,707 144 5,766,568 2,361,707 144
Common shares
outstanding,
end of year
(000s)
Basic 93,617 83,525 12 93,617 83,525 12
Diluted (4) 108,596 99,043 10 108,596 99,043 10
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Operations
PetroBakken operating
netback ($/boe
except where noted)
(1)(5)
Oil and NGL
revenue
($/bbl) (6) 71.63 57.71 24 64.27 92.80 (31)
Natural gas revenue
($/mcf) (6) 4.61 6.86 (33) 4.40 8.06 (45)
Oil and natural
gas revenue (6) 65.05 55.90 16 58.97 86.78 (32)
Royalties 10.14 8.62 18 8.55 10.03 (15)
Production
expenses 8.23 8.24 - 7.38 8.76 (16)
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Operating netback
(7) 46.68 39.04 20 43.04 67.99 (37)
Petrominerales
operating netback
($/bbl)(1)
Oil revenue (6) 65.23 54.93 19 56.59 87.15 (35)
Royalties 7.14 4.68 53 5.76 8.46 (32)
Production expenses 8.05 7.80 3 8.01 9.08 (12)
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Operating netback
(7) 50.04 42.45 18 42.82 69.61 (38)
Average daily
production
PetroBakken - oil
and NGL (bbls) 38,796 19,841 96 22,648 15,369 47
PetroBakken -
natural gas
(mcf) 40,951 14,598 181 22,110 14,436 53
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Total PetroBakken
(boe) (5) 45,621 22,274 105 26,333 17,775 48
Petrominerales -
oil (bbls) (8) 24,555 15,344 60 22,360 10,967 104
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Total Company
conventional
(boe) (9) 70,176 37,618 87 48,693 28,742 69
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(1) Non-GAAP measure. See "Non-GAAP Measures" section in this press release.
(2) PetroBakken was referred to in prior quarters as the Canadian Business
Unit ("CBU") and only includes operational results of TriStar after
October 1, 2009.
(3) Petrominerales was referred to in prior quarters as the Latin American
Business Unit ("LABU").
(4) Assumes 10.7 million common shares will be issued upon conversion of
Petrobank's convertible debentures.
(5) Six mcf of natural gas is equivalent to one boe.
(6) Net of transportation expenses.
(7) Excludes hedging activities.
(8) Actual production sold for the fourth quarter of 2009 was 25,607 bopd
(Q4 2008 - 15,344 bopd), and for the year ended December 31, 2009 was
22,490 bopd (2008 - 10,967 bopd).
(9) HBU bitumen volumes are excluded from average daily production as
Conklin operations are considered to be in the pre-operating stage and
accordingly are capitalized.


2009 YEAR END RESERVES AND RESOURCES

Petrobank announced year-end reserves on March 10, 2010, highlighted as follows.

- Total Company share of proved plus probable ("2P") reserves increased by 26% to 197.0 million barrels of oil equivalent ("boe") (2P + best estimate contingent resources - 796.1 million boe).

- Total Company share of 2P NPV, before tax, increased by 40% to $4.3 billion (2P + best estimate contingent resources - $7.1 billion).

- HBU 2P reserves plus best estimate contingent recoverable bitumen resources totaled 669.1 million barrels with NPV, before tax, discounted at 8% of $3.3 billion.

- McDaniel and Associates Consultants Ltd. ("McDaniel") completed the first comprehensive evaluation (the "Transition Report") of THAI™ at our Conklin project as the initial step for assigning reserves and resources, concluding that the Conklin Project is successfully proving the THAI™ process. The Transition Report assigns a best estimate THAI™ exploitable bitumen-in-place of 1.8 billion barrels on our Whitesands leases, exceeding the SAGD exploitable bitumen-in-place by 17% or 259 million barrels.

- PetroBakken 2P reserves increased by 141% to 143.6 million boe at December 31, 2009.

- PetroBakken 2009 working interest production was replaced 9.9 times as a result of increases in reserves from operations and acquisitions.

- PetroBakken NPV (before tax, discounted at 10%) of 2P reserves increased by 145% to $3.7 billion.

- Petrominerales total proved reserves increased by 43% to 36.0 million barrels of oil and 2P reserves increased by 44% to 53.1 million barrels of oil.

- Petrominerales total proved reserve additions replaced 2009 production by 232% and 2P reserve additions replaced 299% of 2009 production.

- Petrominerales NPV (before tax, discounted at 10%) of 2P reserves increased by 69% to US$2.1 billion.



CORPORATE RESERVES / RESOURCES SUMMARY BY BUSINESS UNIT

Working Interest, Forecast Prices
Total
PetroBakken Petrominerales HBU Company(1)
(mboe) (mbbls) (mbbls) (mboe)
----------------------------------------------------------------------------
Developed Producing 59,412 18,533 - 50,255
Total Proved 89,470 35,987 - 81,012
Proved + Probable (2P) 143,638 53,107 70,013 196,992
Best Estimate Contingent
Resources - - 599,081 599,081
2P + Best Estimate Contingent
Resources 143,638 53,107 669,094 796,073

(1) Total Company includes only Petrobank's 64% share of PetroBakken
reserves and 66% share of Petrominerales reserves, as at December 31,
2009.


Net Present Value, Before Tax, Forecast Prices (millions) (1)
Total
PetroBakken Petrominerales HBU Company(2)
($) (US$) ($) ($)
----------------------------------------------------------------------------
Developed Producing 1,921 844 - 1,812
Total Proved 2,456 1,458 - 2,579
Proved + Probable (2P) 3,651 2,082 482 4,257
Best Estimate Contingent
Resources - - 2,828 2,828
2P + Best Estimate Contingent
Resources 3,651 2,082 3,310 7,085


Net Present Value, After Tax, Forecast Prices (millions) (1)
Total
PetroBakken Petrominerales HBU Company(2)
($) (US$) ($) ($)
----------------------------------------------------------------------------
Developed Producing 1,719 715 - 1,594
Total Proved 2,090 1,134 - 2,121
Proved + Probable (2P) 2,969 1,555 370 3,344
Best Estimate Contingent
Resources - - 1,958 1,958
2P + Best Estimate Contingent
Resources 2,969 1,555 2,329 5,303

(1) Net present values are discounted at 10% for PetroBakken and
Petrominerales, and at 8% for the HBU.
(2) Total Company includes only Petrobank's 64% share of PetroBakken
reserves and 66% share of Petrominerales reserves, as at December 31,
2009 converted using a US$/$ exchange rate of 1.0466.


INVESTOR CONFERENCE CALL

Management of Petrobank will be holding a conference call for investors, financial analysts, media and any interested persons on Wednesday, March 17, 2010 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss Petrobank fourth quarter financial and operating results. The investor conference call details are as follows:

Live call dial-in numbers: 416-340-2216 / 866-226-1792

Replay dial-in numbers: 416-695-5800 / 800-408-3053

Replay pass code: 7306464

The live audio webcast link is: http://events.digitalmedia.telus.com/petrobank/031710/index.php and is also available on our website at: http://www.petrobank.com/investors/.

Petrobank Energy and Resources Ltd. is a Calgary-based oil and natural gas exploration and production company with operations in western Canada and Latin America. The Company operates high-impact projects through three business units and a technology subsidiary. The Canadian Business Unit, operated by Petrobank's 62% owned TSX-listed subsidiary, PetroBakken Energy Ltd. (TSX:PBN), 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. The Latin American Business Unit, operated by Petrobank's 66% owned TSX listed subsidiary, Petrominerales Ltd. (TSX:PMG), is a Latin America-based exploration and production company producing oil in Colombia with 14 exploration blocks covering a total of 1.8 million acres in the Llanos and Putumayo Basins and 2.6 million gross acres in the Ucayali Basin of Peru. Whitesands Insitu Partnership, a partnership between Petrobank and its wholly-owned subsidiary Whitesands Insitu Inc., owns 75 net sections of oil sands leases in Alberta, 36 sections of oil sands licenses in Saskatchewan and operates the Whitesands project which is field-demonstrating Petrobank's patented THAI ™ heavy oil recovery process. THAI ™ is an evolutionary in-situ combustion technology for the recovery of bitumen and heavy oil that integrates existing proven technologies and provides the opportunity to create a step change in the development of heavy oil resources globally. THAI ™ and CAPRI ™ are registered trademarks of Archon Technologies Ltd., a wholly-owned subsidiary of Petrobank.

Non-GAAP Measures: This press release contains financial terms that are not considered measures under Canadian generally accepted accounting principles ("GAAP"), such as funds flow from operations, funds flow per share and operating netback. These measures are commonly utilized in the oil and gas industry and are considered informative for management and shareholders. Specifically, funds flow from operations and funds flow per share reflect cash generated from operating activities before changes in non-cash working capital. Management considers funds flow from operations and funds flow per share important as they help evaluate performance and demonstrate the Company's ability to generate sufficient cash to fund future growth opportunities and repay debt or financing obligations. Profitability relative to commodity prices per unit of production is demonstrated by an operating netback. Funds flow from operations, funds flow per share and operating netbacks may not be comparable to those reported by other companies nor should they be viewed as an alternative to net income or other measures of financial performance calculated in accordance with GAAP.

The following table shows the reconciliation of funds flow from operations to cash flow from operating activities for the periods noted:



Three months ended Years ended
December 31, December 31,
2009 2008 2009 2008
----------------------------------------------------------------------------
Funds flow from operations: Non-GAAP 279,004 147,813 697,437 665,933
Changes in non-cash working capital 70,385 75,853 18,377 (12,323)
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Cash flow from operating activities:
GAAP 349,389 223,666 715,814 653,610
----------------------------------------------------------------------------
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Forward-Looking Statements: Certain information provided in this press release constitutes forward-looking statements. The words "anticipate", "expect", "project", "estimate", "forecast" and similar expressions are intended to identify such forward-looking statements. Specifically, this press release contains forward-looking statements relating to financial results, results from operations and the timing of certain 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. You can find a discussion of those risks and uncertainties in our Canadian securities filings. Such factors include, but are not limited to: general economic, market and business conditions; fluctuations in oil prices; the results of exploration and development drilling, recompletions and related activities; timing and rig availability, outcome of exploration contract negotiations; 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. Except as may be required by applicable securities laws, Petrobank assumes no obligation to publicly update or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.

Barrels of Oil Equivalent: Disclosure provided in this press release in respect of barrels of oil equivalent ("boe") units may be misleading, particularly if used in isolation. A boe conversion relationship of 6 mcf to 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 well head.

Resources and Contingent Resources: In this press release, Petrobank has disclosed estimated volumes of "contingent resources" or "resource" estimates. "Resources" are oil and gas volumes that are estimated to have originally existed in the earth's crust as naturally occurring accumulations but are not capable of being classified as "reserves". The following are excerpts from the definition of "contingent resources" as contained in Section 5 of the COGE Handbook, which is referenced by the Canadian Securities Administrators in "National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities". "Contingent resources" are 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 sub classified based on project maturity and/or characterized by their economic status. "Resources" and "contingent resources" do not constitute, and should not be confused with, reserves.

Possible Reserves: Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

Net Present Values: Estimated values of future net revenue disclosed in this press release do not necessarily represent fair market values.

Aggregation of Reserves and Resources: Certain tables in this press release contain volumes that are an arithmetic sum of multiple estimates of reserves and resources, which statistical principles indicate may be misleading as to volumes that may actually be recovered. Readers should give attention to the estimates of individual classes of reserves or resources and appreciate the differing probabilities of recovery associated with each class of reserves and resources, as discussed herein, and as discussed in our Annual Information Form which will be filed on the SEDAR website at www.sedar.com later in March.

Contact Information

  • Petrobank Energy and Resources Ltd.
    John D. Wright
    President and Chief Executive Officer
    (403) 750-4400
    or
    Petrobank Energy and Resources Ltd.
    Chris J. Bloomer
    Senior Vice President and Chief Operating Officer, Heavy Oil
    (403) 750-4400
    or
    Petrobank Energy and Resources Ltd.
    Corey C. Ruttan
    Senior Vice President and Chief Financial Officer
    (403) 750-4400
    ir@petrobank.com
    www.petrobank.com