Petrominerales Ltd.

Petrominerales Ltd.

August 02, 2012 03:45 ET

Petrominerales Reports Second Quarter Financial Results Highlighted by Funds Flow from Operations of US$173.7 Million

CALGARY, ALBERTA--(Marketwire - Aug. 2, 2012) - Petrominerales Ltd. ("Petrominerales" or the "Company") (TSX:PMG)(BVC:PMGC) is pleased to announce our 2012 second quarter financial results highlighted by funds flow from operations of US$173.7 million or US$1.78 per share on sales volumes of produced oil averaging 32,138 barrels of oil per day ("bopd"). During the quarter, we completed a series of transactions that allowed us to repurchase 10 percent of our common shares and extend the maturity of our convertible bond debt. Our balance sheet remains strong with US$160.6 million of cash and a completely undrawn, secured credit facility. This financial flexibility gives us the strength to execute our ongoing high-impact exploration program.


The following table provides a summary of Petrominerales' financial and operating results for the second quarters ended June 30, 2012 and 2011. Consolidated financial statements with Management's Discussion and Analysis ("MD&A") are now available on the Company's website at and will also be available on the SEDAR website at

Financial Highlights
(US$ millions, except where noted)
Three months ended
June 30,
Six months ended
June 30,
2012 2011 % change 2012 2011 % change
Oil sales 289.8 378.0 (23 ) 622.8 727.7 (14 )
Funds flow from operations(1) 173.7 194.7 (11 ) 373.5 376.5 (1 )
Per share - basic ($) 1.78 1.88 (5 ) 3.79 3.63 4
- diluted ($) 1.50 1.62 (7 ) 3.23 3.12 4
Adjusted net income (1)(2) 38.3 113.9 (66 ) 118.6 189.7 (37 )
Per share - basic ($) 0.39 1.10 (65 ) 1.20 1.83 (34 )
- diluted ($) 0.38 0.99 (62 ) 1.14 1.67 (32 )
Dividends declared 11.0 13.7 (20 ) 23.5 27.1 (13 )
Expenditures on PP&E and E&E(3) 150.6 174.8 (14 ) 369.0 324.3 14
As at, June 30, 2012 March 31, 2012 December 31,
Cash 160.6 175.6 295.4
Net working capital surplus(1) 24.9 36.2 73.8
Debt(5) 671.1 550.0 550.0
Total assets 2,244.4 2,283.2 2,226.5
Common shares (000s) 89,778 99,719 99,375
Fully diluted common shares (000s)(4) 97,002 106,924 106,883
Operating Highlights
Three months ended June 30, Six months ended June 30,
2012 2011 % change 2012 2011 % change
Production (bopd)
Deep Llanos 20,936 29,955 (30 ) 22,261 30,050 (26 )
Central Llanos 4,914 4,386 12 4,657 4,486 4
Neiva 3,428 3,939 (13 ) 3,587 4,029 (11 )
Orito 1,827 2,028 (10 ) 2,026 1,989 2
Heavy oil 8 - - 37 - -
Total production 31,113 40,308 (23 ) 32,568 40,554 (20 )
Sales volumes 32,138 39,202 (18 ) 32,475 39,442 (18 )
Operating netback ($/bbl)(1)
WTI benchmark price 93.48 102.34 (9 ) 98.20 98.47 -
Brent benchmark price 108.44 118.32 (8 ) 113.46 111.76 2
Discount to Brent 9.35 12.35 (25 ) 8.09 9.83 (18 )
Sales price 99.09 105.97 (6 ) 105.37 101.93 3
Transportation expenses 7.42 10.82 (31 ) 7.12 10.09 (29 )
Realized crude oil price 91.67 95.15 (4 ) 98.25 91.84 7
Royalties 10.63 12.82 (17 ) 11.18 12.16 (8 )
Production expenses 16.62 12.74 30 14.91 10.22 46
Operating netback(1) 64.42 69.59 (7 ) 72.16 69.46 4
(1) Non-IFRS measure. See "Non-IFRS Measures" section.
(2) Management considers adjusted net income a more representative measure of the Company's economic performance. Net income has been adjusted for the IFRS accounting effects of the convertible debentures. See "Non-IFRS Measures" section.
(3) PP&E consists of property, plant and equipment assets and E&E consists of exploration and evaluation assets from the consolidated statement of cash flow.
(4) Consists of the sum of common shares, stock options, deferred common shares, incentive shares and potential shares issuable on conversion of in-the-money convertible debentures outstanding as at the period-end date. At June 30, 2012, March 31, 2012 and December 31, 2011, the convertible debentures were considered debt since the bond conversion prices of $33.17 and $18.00 were higher than the Company's stock price.
(5) Debt represents the principal amount of out-of-the-money convertible bonds outstanding.
(Comparisons are second quarter 2012 compared to the second quarter of 2011 unless otherwise noted)
  • During the quarter, we enhanced our capital structure by issuing US$400 million of convertible debentures that mature in June 2017, repurchasing US$279.9 million of existing convertible debentures that had an early settlement option in August 2013, and repurchasing and cancelling 10 percent, or 10.06 million, of our shares for US$140.1 million.
  • We had two new oil discoveries on the Corcel Block, Guala and Chilaco, and drilled a successful development well on the Casimena Block, Yenac-4.
  • Our operating netbacks averaged US$64.42 per barrel in the second quarter, a seven percent decrease over the second quarter of 2011, primarily due to lower world oil prices and higher operating costs, offset by transportation savings achieved from our OCENSA pipeline acquisition.
  • Capital expenditures were US$150.6 million, or 31 percent lower than the first quarter of 2012, we expect our cost run-rate for the remainder of 2012 to be less than these second quarter levels.
  • Funds flow from operations was US$173.7 million or US$1.78 per basic share, representing 11 and five percent decreases over 2011 primarily due to lower sales volumes and sales prices.
  • Adjusted net income was US$38.3 million or US$0.39 per basic share, representing 65 and 62 percent decreases over 2011 largely due to lower oil sales, lower oil prices and higher depletion.
Production (bopd)
Second Quarter
First Quarter
Fourth Quarter
Deep Llanos 17,810 20,936 23,596 26,237
Central Llanos 4,917 4,914 4,416 3,226
Neiva 3,322 3,428 3,746 3,993
Orito 1,404 1,827 2,226 1,897
Heavy oil - 8 63 -
Total production 27,453 31,113 34,047 35,353

Second quarter production averaged 31,113 bopd, 2,934 bopd or nine percent lower than the first quarter of 2012. Our Deep Llanos production decreased 2,660 bopd or 11 percent mainly due to natural declines and the temporary shut-in of Yatay-1 in April to start the downhole pump, offset partially by our Guala-1 discovery that was brought on production in mid-June. Our Central Llanos production increased 498 bopd or 11 percent due to the Yenac-4 development well brought on production and the full quarter production from Tucuso-1, partially offset by the Mapache block wells being shut-in due to community disruptions. Orito production decreased 18 percent primarily due to 350 bopd of shut-in production following a mud slide. Neiva production decreased eight percent mainly due to natural declines. We plan to recommence both our Orito and Neiva drilling programs in the first quarter of 2013 upon receipt of environmental permits.

Production averaged 27,453 bopd during July, twelve percent or 3,660 bopd lower than the second quarter average primarily due to our Yatay-1 well being offline for six days, a reduction of 1,375 bopd, and natural declines. We expect our Yatay-1 well to be back on production August 2nd. In addition, we have approximately 1,100 bopd of production offline temporarily on the Orito block due to a recent mudslide, certain wells awaiting workovers and facility disruptions. We also have approximately 500 bopd of production shut in on the northern part of our Mapache block as a result of community disruptions.

Deep Llanos Basin (Corcel, Guatiquia and South Block 31), Colombia

During the quarter we drilled two wells, Guala-1 and Hungaro-1. Guala-1 was drilled to a total measured depth of 12,432 feet. Well logs indicate 47 feet of potential net oil pay, 38 feet in the Lower Sand 1 formation and nine feet in the Guadalupe formation. After completing the well in the Lower Sand 1, we installed an electric submersible pump and placed the well on production on June 17th at a stabilized oil rate of 2,046 bopd of 17 degree API oil, at a six percent water-cut. The well averaged 1,944 bopd during the remainder of the month. Our Hungaro-1 prospect was drilled to a total measured depth of 13,510 feet. After analysis of well logs and drilling data, we decided to abandon the well. The rig has since moved to our Mambo-1 prospect on the Corcel Block and began drilling operations on July 1st. This prospect has similar features of and is adjacent to our recent Guala discovery. We also commenced drilling our Guarana-1 prospect, which is adjacent to our Macapay oil discovery that has produced over 600,000 barrels of oil since June 2011.

Foothills Blocks (Block 25, 31, 59 and 15), Deep Llanos Basin, Colombia

Our Bromelia-1 prospect reached total depth of 18,550 feet on May 9th. The well appears to be split into an oil bearing section and a gas bearing section. The petrophysical analysis of the oil bearing section indicates the presence of 142 feet of net potential pay in six different formations; the largest intervals were the Barco, Mirador and Carbonera formations. Logs were not run over the high-pressure, high-temperature gas zone penetrated in the Une formation; however, 14 feet of net potential pay can be inferred based on gas chromatograph readings, the presence of gas in the mud system, and the gamma logs.

We cased the well and have initially identified up to four zones to test. The potential oil zones are being tested first due to logistics, shorter lead times and the relative ease of commercialization.

Testing of the first zone in the Barco formation has been completed and although the formation demonstrated positive reservoir characteristics, the test recovered water. After we recovered the testing string to surface, we found that the downhole packer and test string were coated in heavy oil. Our initial interpretation is that the residual heavy oil encountered would not be economic to produce.

Our plan is to complete the testing of three more potential oil bearing zones, the lower and upper Mirador and Carbonera formations, by early in the fourth quarter. We expect reservoir quality and the potential for producible oil to improve as we move uphole and test the remaining intervals. We plan to conduct a long-term production test of the high-pressure, high-temperature gas bearing zone, depending on the results from the potential oil bearing zones.

We have also initiated a 256 square kilometre 3D seismic acquisition program on the northeastern portion of Block 25, where we see some highly prospective structures on our 2D seismic. Based on our plan to acquire a large, regional 3D seismic program, we have decided to defer drilling the Canatua prospect until 2013.

On Block 59, we have completed the acquisition of a large, 379 square kilometre 3D seismic program. We are encouraged by our initial review of the seismic and are planning a multi-well exploration program on this block starting in the first half of 2013.

On Block 31, we are evaluating and interpreting the large overthrust trend on our recently acquired 3D seismic program that was previously identified on existing 2D seismic data. Initial mapping indicates that there may be multiple structures present along this trend. We have identified a provisional location near an abandoned well drilled in 1971. This well reached a total depth of 15,990 feet in the Carbonera C7 formation and encountered an oil show in a stratigraphically higher middle Carbonera sand.

Central Llanos Basin (Casimena, Castor, Casanare Este, Mapache Blocks), Colombia

In the second quarter, we drilled an appraisal well on our Casimena Block, Yenac-4. Well logs indicate 55 feet of net pay, 36 feet in the Upper Mirador formation and 19 feet in the Lower Mirador formation. We placed Yenac-4 on production in late April at over 1,000 bopd of 16 degree API, and the well averaged 846 bopd for the remainder of the quarter.

We have received our Yenac exploitation license, and we are working to accelerate our Yenac horizontal drilling program, which could commence in the fourth quarter of 2012 and will be targeting the Lower Mirador formation.

Llanos Basin Heavy Oil Blocks (Rio Ariari, Chiguiro Oeste, Chiguiro Este), Colombia

In the second quarter, we drilled one vertical well, Dara-1, on our Chiguiro Oeste Block. The Dara-1 prospect was testing two play concepts: first, a sand draped over a Paleozoic remnant; and second, a potential Paleozoic trap. We encountered 129 feet of reservoir in the Mirador formation, as predicted, however the reservoir was swept of oil and we only encountered water.

We also drilled one stratigraphic well, ES-45, prior to community disturbances that occurred on the Rio Ariari Block. In April, certain roads on the portion of our Rio Ariari Block near Vista Hermosa, Meta, were illegally blocked. As a result, we temporarily suspended exploration operations, including testing work on our Tatama-1 horizontal well and on our stratigraphic drilling program, and mobilized all equipment to our Chiguiro Oeste Block.

We are planning to move the drilling rig to the eastern portion of the Rio Ariari Block to drill four initial exploration prospects with the objective of testing new play concepts and defining new, high-potential resource on the Block. In addition, we are initiating an 80 kilometre 2D seismic program on the eastern portion of the Block, and once completed, we plan to drill an additional four stratigraphic wells in this region.

Orito (Putumayo Basin) and Neiva (Upper Magdalena Basin), Colombia

We did not drill any wells on our Orito or Neiva fields during the second quarter, as we in the process of updating environmental permits on both blocks. We expect to recommence our development drilling program in the first quarter of 2013.

Block 126, Peru

During the quarter we completed our logistics work for our second exploration prospect, Sheshea 1X, and we commenced drilling the well on July 19th. We anticipate drilling and testing of Sheshea 1X to be completed in the fourth quarter of 2012, and are planning to test up to five reservoir intervals in this well. The Sheshea prospect is a potentially large, 10,000 acre, closed structure with multiple reservoir opportunities located approximately 50 kilometres south of our first exploration well, La Colpa 2X. Based on our geological and geophysical analysis, we estimate that the prospect could potentially contain over 100 million barrels of undiscovered petroleum initially-in-place.

On July 24th, we completed our previously announced acquisition of our former partner's remaining 20 percent working interest in blocks 126, 141 and 161 in Peru for total consideration of US$5 million, satisfied by the issuance of 524,871 shares of Petrominerales. As a result, Petrominerales owns our former joint venture partner's Peruvian operating subsidiary that previously held the 20 percent working interest in Blocks 126, 141 and 161, with working capital of US$2 million on closing. Further, the transaction enabled us to extinguish the rights to contingent consideration of up to US$8 million that was payable by Petrominerales to our former partner under previous agreements, subject to achievement of certain production thresholds. Petrominerales now holds 100% of the interest in blocks 126, 141 and 161 in Peru.

Blocks 114 and 131, Peru

Petrominerales holds a 30 percent working interest in Blocks 114 and 131. On Block 131, the operator has identified two drillable prospects. The Environmental Impact Assessment ("EIA") for drilling was submitted in June 2011 and the first well is planned for April 2013. On Block 114, the acquisition of 260 kilometres of 2D seismic resumed in June 2012 with final interpretation expected by July 2013. Pending interpretation of the data, drilling is expected to begin in the fourth quarter of 2013. The operator is responsible for our share of the costs under the current seismic exploration phase, as well as our share of costs for the first exploration well on each block.

Block 161 and 141, Peru

Block 161, situated in east central Peru, is 1.2 million acres in size and Petrominerales holds a 100 percent working interest. Terms of reference to complete the EIA's Public Consultation Plan are in the final stages of the Peruvian Ministry of Energy and Mines approval. Upon completion and approval of the EIA, the planned 353 kilometre 2D seismic program will commence, likely in the second half of 2013. Block 141, situated in southern Peru, is 1.3 million acres in size, of which Petrominerales has a 100 percent working interest. In July 2012, we received approval to commence our Public Consultation Plan, a key step in the completion of EIA. Our commitment to complete a 300 kilometre 2D seismic program is currently scheduled to begin in early 2014, pending the completion and approval of the EIA.


We further strengthened our balance sheet with our recent convertible bond issuance by extending the maturity on US$250 million of pre-existing convertible debt by four years, while buying back and cancelling 10 percent of our outstanding common shares. At June 30, 2012, our balance sheet included cash on hand of US$160.6 million and a completely undrawn, secured credit facility.

Our immediate focus is on executing our high-impact exploration drilling programs in Colombia and Peru. In addition, we are acquiring over 1,000 square kilometres of new 3D seismic, of which 664 square kilometres has been acquired and is currently being interpreted. We expect these 3D seismic acquisitions to add significantly to our prospect inventory and to provide new drilling opportunities for our 2013 program. With remaining test results on Bromelia expected in the third quarter, up to four more wells to be drilled in the Corcel area and Sheshea-1X to be drilled in Peru, we are looking forward to updating our shareholders on our progress throughout the remainder of 2012.


Management of Petrominerales will be holding a conference call for investors, financial analysts, media and any interested persons on Thursday, August 2, 2012 at 9:00 a.m. (Mountain Time) (11:00 a.m. Eastern Time) to discuss our 2012 second quarter financial and operating results.

The investor conference call details are as follows:

Live call dial-in number(s): 416-695-6622 / 800-565-0813

Live audio webcast link:

Replay dial-in numbers: 905-694-9451 / 800-408-3053

Replay Pass code: 9492828

Petrominerales Ltd. is an international oil and gas company operating in Latin America since 2002. Today, Petrominerales is one of the most active exploration companies and one of the largest oil producers in Colombia. Our high quality land base and multi-year inventory of exploration opportunities provides long-term growth potential for years to come.

Non-IFRS Measures. This press release contains financial terms that are not considered measures under International Financial Reporting Standards ("IFRS"), such as funds flow from operations, adjusted net income, funds flow per share, adjusted net income per share, working capital, net (debt) surplus and operating netback. These measures are commonly utilized in the oil and gas industry and are considered informative for management and shareholders. We evaluate our performance and that of our business segments based on funds flow from operations and adjusted net income. Funds flow from operations is a non-IFRS term that represents cash generated from operating activities before changes in non-cash working capital. Adjusted net income is determined by adding back any losses or deducting any gains on the derivative liabilities and effects of the buyback of the convertible debentures (accelerated accretion and gain on settlement). Management considers funds flow from operations, funds flow per share, adjusted net income and adjusted net income 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. Working capital includes current assets less current liabilities and is used to evaluate the Company's short-term financial leverage. Net (debt) surplus includes current assets less current liabilities and the principal amount of out-of-the-money convertible debentures (i.e. when they are out of the money and not repayable in common shares at maturity) and is used to evaluate the Company's financial leverage. Operating netback is determined by dividing oil revenue less royalties, transportation and production expenses by sales volume of produced oil. Management considers operating netback important as it is a measure of profitability per barrel sold and reflects the quality of production. Funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, working capital, net (debt) surplus 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, net income or other measures of financial performance calculated in accordance with IFRS.

Forward‐Looking Statements. Certain information provided in this press release constitutes forward‐looking statements. Specifically, this press release contains forward‐looking statements relating to the Company's future exploration and development activities and the timing for bringing wells on production. 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 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, the ability to transport and market our production, timing of completion of infrastructure and transportation projects, weather and access to drilling locations. 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; availability of transportation and offloading capacity, 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 Petrominerales 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, Petrominerales 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.

Undiscovered Petroleum Initially-In-Place ("UPIIP"). UPIIP, equivalent to undiscovered resources, are those quantities of petroleum that are estimated, on a given date, to be contained in accumulations yet to be discovered. The recoverable portion of UPIIP is referred to as prospective resources, the remainder as unrecoverable. Undiscovered resources carry discovery risk. There is no certainty that any portion of these resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources. A recovery project cannot be defined for this volume of UPIIP at this time.

Contact Information

  • Petrominerales Ltd.
    Corey C. Ruttan
    President and Chief Executive Officer
    403.705.8850 or 011.571.629.2701

    Petrominerales Ltd.
    Jack F. Scott
    Chief Operating Officer
    403.705.8850 or 011.571.629.2701

    Petrominerales Ltd.
    Kelly D. Sledz
    Chief Financial Officer
    403.705.8850 or 011.571.629.2701