/NOT FOR DISTRIBUTION IN THE UNITED
STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES/
CALGARY, April 10, 2013 /CNW/ - Palliser Oil & Gas
Corporation ("Palliser" or the "Company") (TSX
VENTURE:PXL) is pleased to report 2012 year end reserves and
financial and operating results for the three months and year ended
December 31, 2012. Certain selected
financial and operational information is set out below and should
be read in conjunction with Palliser's financial statements
complete with the notes to the financial statements and related
MD&A which will be available at www.sedar.com and the Company's
website at www.palliserogc.com.
Operating & Financial Highlights - Three
months and year ended December 31,
2012 and 2011
|
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Three months ended
December 31 |
|
Year ended
December 31 |
|
2012 |
|
2011 |
|
% Change |
|
2012 |
|
2011 |
|
% Change |
Operating |
|
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|
|
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|
Wells drilled, re-entered or reactivated (gross and net) |
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|
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|
Oil |
|
6 |
|
|
10 |
|
-40% |
|
|
18 |
|
|
18 |
|
0% |
Salt water disposal |
|
- |
|
|
4 |
|
-100% |
|
|
3 |
|
|
4 |
|
-25% |
Total |
|
6 |
|
|
14 |
|
-57% |
|
|
21 |
|
|
22 |
|
-5% |
Success (%) |
|
83% |
|
|
91% |
|
-9% |
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|
90% |
|
|
95% |
|
-5% |
Undeveloped land Greater Lloydminster (net acres) |
|
32,542 |
|
|
18,239 |
|
78% |
|
|
32,542 |
|
|
18,239 |
|
78% |
Undeveloped land Medicine Hat (net acres) |
|
31,602 |
|
|
29,362 |
|
8% |
|
|
31,602 |
|
|
29,362 |
|
8% |
Total undeveloped land (net acres) |
|
64,144 |
|
|
47,601 |
|
35% |
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|
64,144 |
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|
47,601 |
|
35% |
Average daily production |
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Crude oil (bbl per day) |
|
2,450 |
|
|
1,597 |
|
53% |
|
|
2,065 |
|
|
1,319 |
|
57% |
Natural gas (Mcf per day) |
|
293 |
|
|
360 |
|
-19% |
|
|
351 |
|
|
344 |
|
2% |
Barrels of oil equivalent (boe per day, 6:1) |
|
2,498 |
|
|
1,657 |
|
51% |
|
|
2,124 |
|
|
1,377 |
|
54% |
Crude oil production (%) |
|
98% |
|
|
96% |
|
2% |
|
|
97% |
|
|
96% |
|
1% |
Average sales prices |
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|
Crude oil ($ per bbl) |
$ |
58.96 |
|
$ |
77.65 |
|
-24% |
|
$ |
62.51 |
|
$ |
69.26 |
|
-10% |
Natural gas ($ per Mcf) |
$ |
3.11 |
|
$ |
2.77 |
|
12% |
|
$ |
2.26 |
|
$ |
3.41 |
|
-34% |
Barrels of oil equivalent ($ per boe, 6:1) |
$ |
58.18 |
|
$ |
75.45 |
|
-23% |
|
$ |
61.18 |
|
$ |
67.24 |
|
-9% |
Operating netback ($ per boe) |
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Petroleum and natural gas sales |
$ |
58.18 |
|
$ |
75.45 |
|
-23% |
|
$ |
61.18 |
|
$ |
67.24 |
|
-9% |
Realized gain (loss) on financial derivatives |
$ |
8.10 |
|
$ |
(4.54) |
|
- |
|
$ |
4.81 |
|
$ |
(1.38) |
|
- |
Royalties |
$ |
13.13 |
|
$ |
20.74 |
|
-37% |
|
$ |
14.26 |
|
$ |
16.52 |
|
-14% |
Production & operating expenses |
$ |
22.98 |
|
$ |
29.42 |
|
-22% |
|
$ |
23.04 |
|
$ |
31.31 |
|
-26% |
Operating netback (1) |
$ |
30.17 |
|
$ |
20.75 |
|
45% |
|
$ |
28.69 |
|
$ |
18.03 |
|
59% |
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Financial ($000's except per
share amounts) |
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Three months ended
December 31 |
|
Year ended
December 31 |
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2012 |
2011 |
|
% Change |
|
2012 |
2011 |
|
% Change |
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Oil and natural gas sales |
$ |
13,373 |
$ |
11,499 |
|
16% |
|
$ |
47,547 |
$ |
33,781 |
|
41% |
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Funds flow from |
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operating activities (2) |
$ |
5,405 |
$ |
2,014 |
|
168% |
|
$ |
16,873 |
$ |
4,424 |
|
281% |
Per share - basic and diluted |
$ |
0.09 |
$ |
0.05 |
|
80% |
|
$ |
0.31 |
$ |
0.11 |
|
182% |
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Income (loss) and |
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|
comprehensive income (loss) |
$ |
(513) |
$ |
(2,421) |
|
- |
|
$ |
1,538 |
$ |
(4,905) |
|
- |
Per share - basic and diluted |
$ |
(0.01) |
$ |
(0.05) |
|
- |
|
$ |
0.03 |
$ |
(0.12) |
|
- |
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Weighted average |
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shares outstanding |
|
57,739,515 |
|
44,170,752 |
|
31% |
|
|
55,182,838 |
|
41,936,343 |
|
32% |
Shares outstanding |
|
58,915,979 |
|
54,130,348 |
|
9% |
|
|
58,915,979 |
|
54,130,348 |
|
9% |
|
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Capital expenditures (3) |
$ |
7,975 |
$ |
12,888 |
|
-38% |
|
$ |
36,446 |
$ |
41,560 |
|
-12% |
Working capital (net debt) (4) |
$ |
(37,345) |
$ |
(20,864) |
|
79% |
|
$ |
(37,345) |
$ |
(20,864) |
|
79% |
Shareholders' equity |
$ |
45,448 |
$ |
39,859 |
|
14% |
|
$ |
45,448 |
$ |
39,859 |
|
14% |
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|
(1) Operating netback is a non-IFRS measure
and is the net of petroleum and natural gas sales, realized gain or
loss on financial derivatives, royalties and production &
operating expenses.
(2) Funds flow from operating activities is a
non-IFRS measure that represents cash flow from operations less
decommissioning expenditures and changes in non-cash working
capital related to operating activities. Funds flow per share
amounts are calculated using weighted average shares outstanding
consistent with the calculation of net income per share. Funds flow
from operating activities is a key measure as it demonstrates the
Company's ability to generate the funds necessary to achieve future
growth through capital investment. This table also contains other
industry benchmarks and terms, such as working capital (calculated
as current assets less current liabilities) and operating netbacks
(calculated on a per unit basis as production sales less royalties,
transportation and operating costs), which are not recognized
measures under IFRS. Management believes these are useful
supplemental measures of, firstly, the total net position of
current assets and current liabilities of the Company and secondly,
the profitability relative to commodity prices. Other
entities may calculate these figures differently than Palliser.
(3) Capital expenditures exclude decommissioning
liability costs and capitalized share-based compensation.
(4) Working capital (net debt) is a non-IFRS
measure representing the total bank loan, accounts payable and
accrued liabilities, less accounts receivable, deposits and prepaid
expenses. |
Reserves
Palliser's reserves have been independently
evaluated by the Corporation's independent reserve engineering
firm, Sproule Unconventional Limited ("Sproule"). The
reserves were evaluated in accordance with National Instrument
51-101 Standards of Disclosure for Oil and Gas Activities ("NI
51-101") and the Canadian Oil and Gas Evaluation Handbook
(""COGEH"") reserves definitions.
Reserves and Net Present Value (Forecast
Prices and Costs)
The following tables summarize Palliser's
remaining gross interest reserve volumes along with the value of
future net revenue utilizing Sproule's forecast pricing and cost
estimates as at December 31,
2012.
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Reserves |
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|
Oil & NGL |
|
Gas |
|
BOE |
December 31, 2012 |
|
Gross
Mbbls |
|
Net
Mbbls |
|
Gross
MMcf |
|
Net
MMcf |
|
Gross
Mboe |
|
Net
Mboe |
Proved |
|
|
|
|
|
|
|
|
|
|
|
|
|
Producing |
|
2,332 |
|
1,908 |
|
712 |
|
675 |
|
2,452 |
|
2,021 |
|
Non-producing |
|
1,058 |
|
851 |
|
- |
|
- |
|
1,058 |
|
851 |
|
Undeveloped |
|
2,069 |
|
1,666 |
|
- |
|
- |
|
2,069 |
|
1,666 |
Total proved |
|
5,459 |
|
4,425 |
|
712 |
|
675 |
|
5,579 |
|
4,538 |
|
Probable |
|
2,310 |
|
1,840 |
|
187 |
|
177 |
|
2,342 |
|
1,869 |
Total proved plus probable |
|
7,769 |
|
6,265 |
|
898 |
|
852 |
|
7,921 |
|
6,408 |
|
|
|
|
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|
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|
|
|
|
|
|
|
Net present value of future net
revenue |
|
|
|
|
|
|
|
|
Present value
($000's)(1) |
|
discounted
at rate of |
December 31, 2012 |
|
0% |
|
5% |
|
10% |
Proved |
|
|
|
|
|
|
|
Producing |
|
$58,021 |
|
$52,712 |
|
$48,459 |
|
Non-producing |
|
28,278 |
|
20,424 |
|
15,277 |
|
Undeveloped |
|
32,196 |
|
25,406 |
|
20,149 |
Total proved |
|
118,494 |
|
98,542 |
|
83,886 |
Probable |
|
68,973 |
|
53,506 |
|
42,934 |
Total proved plus probable |
|
$187,467 |
|
$152,048 |
|
$126,820 |
|
|
|
|
|
|
|
(1) Values shown are calculated on a before tax basis |
Pricing Assumptions
The following benchmark prices, inflation rates and exchange
rates were used by Sproule for the forecast price and cost
evaluation effective December 31,
2012.
|
|
|
|
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|
|
|
|
|
|
|
|
Oil
WTI |
|
Oil
WCS 20.5 API |
|
Foreign
Exchange |
|
Natural Gas
AECO Spot |
|
Inflation
Rate |
Year |
|
US $/bbl |
|
CDN $/bbl |
|
Rate |
|
Cdn $/MMbtu |
|
% / year |
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
89.63 |
|
69.33 |
|
1.001 |
|
3.31 |
|
1.5% |
2014 |
|
89.93 |
|
74.57 |
|
1.001 |
|
3.72 |
|
1.5% |
2015 |
|
88.29 |
|
73.21 |
|
1.001 |
|
3.91 |
|
1.5% |
2016 |
|
95.52 |
|
80.17 |
|
1.001 |
|
4.70 |
|
1.5% |
2017 |
|
96.96 |
|
81.37 |
|
1.001 |
|
5.32 |
|
1.5% |
2018 |
|
98.41 |
|
82.59 |
|
1.001 |
|
5.40 |
|
1.5% |
2019 |
|
99.89 |
|
83.83 |
|
1.001 |
|
5.49 |
|
1.5% |
2020 |
|
101.38 |
|
85.08 |
|
1.001 |
|
5.58 |
|
1.5% |
2021 |
|
102.91 |
|
86.36 |
|
1.001 |
|
5.67 |
|
1.5% |
2022 |
|
104.45 |
|
87.66 |
|
1.001 |
|
5.76 |
|
1.5% |
2023+ |
|
+1.5%/year |
|
+1.5%/year |
|
1.001 |
|
+1.5%/year |
|
+1.5%/year |
Crude oil price is WTI at Cushing, Oklahoma, natural gas is the
AECO spot price |
Reserves Reconciliation
The following table is a reconciliation of Palliser's gross
interest reserves at December 31,
2012 and December 31, 2011
using Sproule's forecast pricing and cost estimates as at
December 31, 2012 and December 31, 2011.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heavy Oil
(Mbbl) |
|
Natural Gas(
MMcf) |
|
BOE (Mboe) |
Reserves |
|
Proved |
|
Probable |
|
Total |
|
Proved |
|
Probable |
|
Total |
|
Proved |
|
Probable |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
1,638 |
|
2,077 |
|
3,715 |
|
744 |
|
452 |
|
1,196 |
|
1,762 |
|
2,152 |
|
3,914 |
Additions (1) |
|
3,371 |
|
1,371 |
|
4,742 |
|
- |
|
- |
|
- |
|
3,371 |
|
1,371 |
|
4,742 |
Revisions(2) |
|
924 |
|
48 |
|
(324) |
|
96 |
|
(266) |
|
(170) |
|
940 |
|
(1,292) |
|
(352) |
Acquistions |
|
283 |
|
111 |
|
393 |
|
- |
|
- |
|
- |
|
283 |
|
111 |
|
393 |
|
|
6,216 |
|
2,310 |
|
8,526 |
|
840 |
|
186 |
|
1,026 |
|
6,356 |
|
2,341 |
|
8,697 |
Production |
|
(756) |
|
- |
|
(756) |
|
(128) |
|
- |
|
(128) |
|
(777) |
|
- |
|
(777) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 |
|
5,461 |
|
2,310 |
|
7,771 |
|
712 |
|
186 |
|
898 |
|
5,579 |
|
2,341 |
|
7,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Additions include discoveries, extensions,
infill drilling and improved recovery
(2) Technical revisions include technical revisions and
economic factors |
Finding, Development and Acquisition Costs
("FD&A")
The following table summarizes Palliser's
finding, development and acquisition costs for the years ended
December 31, 2012, 2011 and 2010
including future development costs ("FDC").
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
2011 |
|
2010 |
|
3 Year Avg |
Proved |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
$ |
42,449 |
|
$ |
44,042 |
|
$ |
13,620 |
|
$ |
33,370 |
FDC - opening balance (1) |
$ |
9,954 |
|
$ |
9,165 |
|
$ |
4,048 |
|
$ |
7,722 |
FDC - closing balance |
$ |
36,690 |
|
$ |
9,954 |
|
$ |
9,165 |
|
$ |
18,603 |
FDC - change |
|
$ |
26,736 |
|
$ |
789 |
|
$ |
5,117 |
|
$ |
10,881 |
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
including FDC change |
$ |
69,185 |
|
$ |
44,831 |
|
$ |
18,737 |
|
$ |
44,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves additions |
|
4,594 |
|
|
912 |
|
|
882 |
|
|
2,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
FD&A (before FDC) |
$ |
9.24 |
|
$ |
48.29 |
|
$ |
15.44 |
|
$ |
15.67 |
FD&A (after FDC) |
$ |
15.06 |
|
$ |
49.16 |
|
$ |
21.24 |
|
$ |
20.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved plus probable |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
$ |
42,449 |
|
$ |
44,042 |
|
$ |
13,620 |
|
$ |
33,370 |
FDC - opening balance |
$ |
22,793 |
|
$ |
15,965 |
|
$ |
7,441 |
|
$ |
15,400 |
FDC - closing balance |
$ |
40,728 |
|
$ |
22,793 |
|
$ |
15,965 |
|
$ |
26,495 |
FDC - change |
|
$ |
17,935 |
|
$ |
6,828 |
|
$ |
8,524 |
|
$ |
11,096 |
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
including FDC change |
$ |
60,384 |
|
$ |
50,870 |
|
$ |
22,144 |
|
$ |
44,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves additions |
|
4,782 |
|
|
1,413 |
|
|
1,813 |
|
|
2,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
FD&A (before FDC) |
$ |
8.88 |
|
$ |
31.17 |
|
$ |
7.51 |
|
$ |
12.50 |
FD&A (after FDC) |
$ |
12.63 |
|
$ |
36.00 |
|
$ |
12.21 |
|
$ |
16.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating netback |
$ |
28.69 |
|
$ |
18.03 |
|
$ |
22.03 |
|
$ |
24.12 |
Recycle ratio (before FDC) |
|
3.2 |
|
|
0.6 |
|
|
2.9 |
|
|
1.9 |
Recycle ratio (after FDC) |
|
2.3 |
|
|
0.5 |
|
|
1.8 |
|
|
1.4 |
|
|
|
|
|
|
|
|
(1) Future capital expenditures
required to convert proved non-producing and probable reserves into
proved producing |
Undeveloped Land
The following table summarizes Palliser's
undeveloped land holdings and the fair value of those landholdings,
as at December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
2011 |
Acres |
|
Gross |
|
Net |
|
Gross |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
Alberta |
|
53,231 |
|
|
45,264 |
|
43,806 |
|
|
35,579 |
Saskatchewan |
|
19,090 |
|
|
18,880 |
|
12,095 |
|
|
12,022 |
Total |
|
72,321 |
|
|
64,144 |
|
55,901 |
|
|
47,601 |
Fair value of net undeveloped acres ($000)
(1) |
|
|
|
$ |
10,860 |
|
|
|
$ |
5,666 |
Average working interest |
|
|
|
|
89% |
|
|
|
|
85% |
(1) |
Valuation is based on management's estimation
of fair market value. 2012 values assume $300 per acre for
undeveloped heavy oil acreage with no booked reserves and $100 per
acre for natural gas acreage with no
booked reserves |
Net Asset Value |
|
|
|
|
|
Reserve value ($000) |
|
2012 |
|
2011 |
Proved + probable (1) |
|
$126,820 |
|
$78,626 |
|
Add: land value(2) |
|
10,860 |
|
5,666 |
|
Seismic(2) |
|
1,350 |
|
1,350 |
|
Working capital (deficiency) and bank
indebtedness |
|
(37,345) |
|
(20,864) |
Net asset value |
|
$101,685 |
|
$64,778 |
Year end shares outstanding (000) |
|
58,916 |
|
54,130 |
Net asset value per share - basic |
|
$1.73 |
|
$1.20 |
Fully diluted shares outstanding |
|
64,432 |
|
57,862 |
Net asset value per share - fully diluted |
|
$1.66 |
|
$1.19 |
|
|
(1) |
Present value discount 10% before taxes |
(2) |
Valuation is based on management's estimation of fair market
value |
|
|
Reserve Life Index ("RLI")
The reserve life index has been calculated based
on year end reserves divided by fourth quarter 2012 average
production of 2,498 boe/d.
|
|
|
|
|
|
|
Proved |
|
Proved plus
probable |
|
|
|
|
|
Total company interest reserves (Mboe) |
|
5,579 |
|
7,920 |
Fourth quarter 2012 production average (boe/d) |
|
2,498 |
|
2,498 |
RLI based on fourth quarter 2012 production average
(years) |
|
6.1 |
|
8.7 |
|
|
|
|
|
2012 Highlights
- Significantly increased reserves. Total proved reserves
increased 217% to 5.58 million boe and proved plus probable
reserves increased 102% to 7.92 million boe with the proved plus
probable reserve life index increasing to 8.7 years (based on
average Q4 2012 production, annualized).
- Recorded strong FD&A metrics and recycle ratios.
Proved plus probable finding, development and acquisition costs
(including future development capital) of $12.63/boe in 2012 and a three year average of
$16.66/boe, resulting in a recycle
ratio of 2.3 times in 2012 and a three year average of 1.4
times.
- Increased net asset value per share 39%. Net asset value
(debt adjusted, fully diluted, discounted at 10% before tax) was
$1.66 per share compared with
$1.19 in 2011.
- Increased production per weighted average share 18%.
Yearly production averaged 2,124 boe/d, up 54% from the prior year,
and fourth quarter 2012 production averaged 2,498 boe/d, up 51%
from fourth quarter 2011;
- Reduced operating costs 26%. Production and operating
expenses averaged $23.04/boe in 2012,
26% lower than 2011;
- Increased operating netbacks 59%. Operating netbacks
averaged $28.69/boe, 59% higher than
in the prior year;
- Increased funds flow from operations per share 182%.
Funds flow from operating activities was $16.9 million ($0.31/share), 281% higher than $4.4 million ($0.11/share) in 2011;
- Executed a $36.4 million
capital program. The 2012 capital program included 17 wells
completed for heavy oil production, expansion of the Company's salt
water disposal infrastructure, and a key strategic property
acquisition which added 140 bbl/d of heavy oil production;
- Increased undeveloped heavy oil land position. The
Company's undeveloped heavy oil land position at year-end 2012 was
32,542 net acres, a 78% increase from 2011;
- Maintained a significant prospect inventory. The
Company's prospect inventory stands at 140 locations, none of which
are included in the 2012 independent reserves report; and
- Started shipping oil by rail to improve operating
netbacks. Palliser commenced shipping heavy oil by rail in
September.
Operations
Palliser achieved record production of 2,498
boe/d (98% oil weighting) during the fourth quarter of 2012,
representing 15 consecutive quarters of production growth. Average
production for the year was 2,124 boe/d, representing a 54%
increase over 2011; production per share increased 18%.
We continue to focus our program on heavy oil
projects within the greater Lloydminster area. Capital expenditures for
2012 amounted to $36.4 million. We
maintained a 100% working interest in our capital program, which
included 21 wells. This program resulted in 17 wells being
completed for heavy oil production, three salt water disposal
wells, and one dry well, for a 90% success rate (one well targeted
for heavy oil was cased for salt water disposal). Eight property
acquisitions were completed, adding 170 bbls/d of production and 75
non-producing well bores for future development and reactivation
potential utilizing the Company's high volume lift ("HVL")
strategy. A select number of wells were reactivated by the end of
2012, increasing production from the new properties to over 300
bbl/d in December, with significant additional re-entries and
reactivations planned for 2013 and beyond. Undeveloped heavy oil
land holdings increased 78% in 2012.
Reserves
The 2012 year end independent reserves
evaluation was completed by Sproule Unconventional Ltd.
("Sproule"). Proved developed producing reserves increased 102% to
2.45 million boe, total proved reserves increased 217% to 5.58
million boe, and total proved plus probable reserves increased 102%
to 7.92 million boe. Having another year of production performance
history from our HVL production resulted in a better reflection of
ultimate pool recoveries from both existing production as well as
future undeveloped locations.
Our HVL strategy has not only proven its
consistency with a track record of production growth, but has also
proven its economic viability with sustainable low operating
expenses and favourable high netbacks in comparison to our peers in
the Lloydminster heavy oil area.
Generally, individual well performance continues to meet or exceed
internal estimates, and further performance history continues to
demonstrate additional increases to recovery factors.
Proved plus probable reserves additions
(including revisions) totalled 4.78 million boe in 2012 and 8.00
million boe for the three year period from 2010 to 2012. Finding
and development costs including future development capital were
$12.63 per boe in 2012 and
$16.66 per boe for the three year
period. These metrics resulted in recycle ratios of 2.3 times in
2012 and a three year average of 1.4 times.
Palliser's December 31,
2012 total proved plus probable reserves were valued at
$126.8 million, resulting in a net
asset value (debt adjusted, fully diluted, discounted at 10% before
tax) of $1.66 per share. The
Company's reserve life index based on annualized fourth quarter
2012 average production was 6.1 years for total proved reserves and
8.7 years for total proved plus probable reserves.
Financial
Palliser significantly improved the
profitability of its operations in 2012. Production and operating
expenses averaged $23.04/boe in 2012,
26% lower than 2011 and operating netbacks averaged $28.69/boe, 59% higher than the prior year.
This resulted in record funds flow from operating activities of
$16.9 million ($0.31/share), 281% higher than $4.4 million ($0.11/share) in 2011.
The Company exited 2012 with net debt of
$37.3 million relative to a current
total credit facility of $52.0
million. Funds flow from operating activities in the fourth
quarter amounted to $5.4 million,
resulting in net debt to annualized 2012 Q4 funds flow from
operating activities ratio of 1.73 times. Subsequent to year end,
the Company completed an equity issuance for gross proceeds of
$3.15 million, further strengthening
the Company's balance sheet.
Outlook
Palliser is proud to have a strong track record
of production growth, gaining significant momentum over the last
year. The first quarter of 2013 has presented several challenges to
the Company; however, we are confident we are well positioned to
deliver continued strong results in 2013.
First quarter 2013 production is below budget
and is estimated to average approximately 2,200 boe/d. Along with
normal production declines through the quarter, production was
impacted by offset drilling in one of Palliser's core areas, which
necessitated the temporary shut in of approximately 300 bbl/d of
production. The wells were shut in early February and were brought
back on production late in the first quarter. Production from the
wells continues to ramp up in the second quarter with current
corporate production estimated to be approximately 2,400 boe/d. We
had an active drilling and reactivation program in the first
quarter of 2013 totaling 11 wells, all at 100% working interest.
This program resulted in 10 heavy oil wells and one salt water
disposal well, for a 100% success rate. These wells were all
brought on production late in the quarter, and as such, had no
impact on first quarter production. With production additions from
these new wells expected to build through the second quarter, we
remain on track to achieve our 2013 average production guidance of
2,700 to 2,800 boe/d.
Lower production volumes for the first quarter
of 2013, combined with unusually harsh winter operating conditions,
will result in higher than budgeted first quarter operating costs,
forecast to be approximately $29/boe.
Despite this high quarterly operating cost number, we are expecting
operating costs in the second quarter of 2013 to return to
approximately $23/boe and we remain
on track to continue to be a sustainable low operating cost
producer.
The first quarter 2013 also saw significant
increased heavy oil differentials, resulting in lower net wellhead
pricing. Lower production volumes, combined with these wide heavy
oil differentials, will result in lower than budgeted funds flow in
the first quarter. The second quarter is progressing favorably,
with improved current heavy oil pricing, growing production, and
return to lower operating expenses. We believe this keeps us on
track to achieve our 2013 budget: funds flow from operating
activities of approximately $20
million, operating netbacks of $26/boe, and year-end net debt of $39 million.
In light of the wider heavy oil differential at
the start of 2013, the Board of Directors previously approved a
2013 capital budget of $24 million,
assuming US$93.00 WTI per barrel and
$63.00 WCS per barrel pricing. Our
internally driven capital program is to be funded by cash flow and
credit facilities. As previously noted, the heavy oil differential
has narrowed significantly, and WCS pricing for the second quarter
is forecast to be materially higher than the budgeted $63.00 WCS per barrel. If heavy oil differentials
continue to remain favourable, the Company is poised to prudently
expand its capital program.
To reduce funds flow risk from commodity price
volatility, the Company has hedged approximately 45% of budgeted
production volumes for 2013, through a combination of WTI CAD and
WCS fixed price swaps, which provides the Company with greater
certainty and funds flow support to offset volatility and
potentially weaker commodity prices. Additionally, Palliser has
augmented its hedge position by shipping heavy oil production by
rail to the Gulf Coast. Palliser commenced shipping by rail in
September 2012 and is currently
shipping approximately 1,000 bbl/d, representing approximately 40%
of corporate production. With minimal additional capital, we can
increase the percentage shipped by rail to in excess of 50% by
year-end. As the majority of our production has double tank systems
installed at single well batteries, production is able to ship
clean, meeting the specifications of the rail terminals.
Palliser continues to possess a large heavy oil
prospect inventory which currently stands at 140 locations, none of
which are included in the 2012 independent Sproule reserve report.
This inventory supports a multi-year drilling and re-activation
program, and affords significant growth opportunities for future
capital programs. We are continually working to expand our prospect
inventory through organic growth as well as the acquisition market.
Palliser successfully closed three strategic property acquisitions
during the first quarter of 2013, and expects to continue to pursue
additional acquisitions that align with our strategy.
We would like to pay tribute to our employees
for their valuable contributions to Palliser's continued success
and extend our thanks to our shareholders for their ongoing
support. We look forward to delivering continued growth and
increased profitability in order to maximize value for our
shareholders.
Palliser is a Calgary-based
emerging junior oil and gas company currently focused on heavy oil
production in the greater Lloydminster area of both Alberta and Saskatchewan. For further information
regarding Palliser Oil & Gas Corporation, the reader is invited
to visit the Company's website at www.palliserogc.com.
Forward-Looking Statements
Certain statements contained herein
constitute forward-looking statements or information (collectively
"forward-looking statements") within the meaning of
applicable securities legislation, including, but not limited to
management's assessment of future plans and operations, including:
commodity focus; drilling plans and potential locations; expected
production levels; development plans; reserves growth; production
and operating sales and expenses; reservoir characteristics; the
results of applying certain operational development techniques;
certain economic factors; and capital expenditures.
Forward-looking statements are typically identified by words such
as "anticipate", "estimate", "expect", "forecast", "may", "will",
"project" and similar words suggesting future events or performance
or may be identified by reference to a future date. In addition,
statements relating to oil and gas reserves and resources are
deemed to be forward-looking statements as they involve the implied
assessment, based on certain estimates and assumptions, that the
reserves or resources described, as the case may be, exist in the
quantities predicted or estimated and can be profitably produced in
the future. With respect to forward-looking statements
herein, Palliser has made assumptions regarding, among other
things; future capital expenditure levels; future oil and natural
gas prices; "differentials" between West Texas Intermediate and
Western Canadian Select benchmark pricing; future oil and natural
gas production levels; future water disposal capacity; future
exchange rates and interest rates; ability to obtain equipment and
services in a timely manner to carry out development activities;
ability to market oil and natural gas successfully to current and
new customers; the impact of increasing competition; the ability to
obtain financing on acceptable terms; and the ability to add
production and reserves through development and exploitation
activities. Although Palliser believes that the expectations
reflected in the forward-looking statements contained herein, and
the assumptions on which such forward-looking statements are made,
are reasonable, there can be no assurance that such expectations
will prove to be correct. Readers are cautioned not to place undue
reliance on forward-looking statements included herein, as there
can be no assurance that the plans, intentions or expectations upon
which the forward-looking statements are based will occur. By their
nature, forward-looking statements involve numerous risks and
uncertainties that contribute to the possibility that the
forward-looking statements will not occur, which may cause
Palliser's actual performance and financial results in future
periods to differ materially from any estimates or
projections. Additional information on these and other
factors that could affect Palliser's results are included in
reports on file with Canadian securities regulatory authorities,
including the Company's Annual Information Form, and may be
accessed through the SEDAR website at www.sedar.com.
The forward-looking statements contained
herein speak only as of the date hereof. Except as expressly
required by applicable securities laws, Palliser does not undertake
any obligation to, nor does it intend to, publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise. The forward-looking
statements contained herein are expressly qualified by this
cautionary statement. In addition, readers are cautioned that
historical results are not necessarily indicative of future
performance.
Production volumes are commonly expressed on
a barrel of equivalent ("BOE") basis whereby natural gas volumes
are converted at a ratio of six thousand cubic feet to one barrel
of oil. The intention is to convert oil and natural gas
measurement units into one basis for improved analysis of results
and comparisons with other industry participants. The term BOE may
be misleading, particularly if used in isolation. The
conversion ratio is based on an energy equivalent method and does
not represent an economic value equivalency at the
wellhead.
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this Press release.
SOURCE Palliser Oil & Gas Corporation