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BNK Petroleum Reports Third Quarter Production

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   |    Monday,November 24,2014

BNK Petroleum Inc. has announced 3rd quarter 2014 results.

All amounts are in U.S. Dollars unless otherwise indicated.

Third Quarter Highlights:

  • Revenue, net of royalties was $5.4 million for third quarter of 2014 and netbacks were $52.14 per BOE, with revenue increasing 230% compared to the third quarter of 2013 due to an increase in production
  • Average production was 971 barrels of oil equivalent per day (BOEPD) for the third quarter, an increase of 222% due to production from the Caney wells drilled at the end of 2013 and in 2014
  • The Hartgraves 1-5H well, which started production in October, had a production rate for the last 10 days of 620 BOEPD and the average initial production (IP) rate for the first 26 days was 536 BOEPD
  • Net loss was $299,000 for the third quarter of 2014 compared to a net loss of $2,445,000 in the third quarter of 2013
  • In July, the Company closed a $100 million credit facility with Morgan Stanley and borrowed the initial commitment amount of $15.9 million during the third quarter
  • Cash flow from operating activities was $2.9 million for the third quarter of 2014 compared to negative cash flow from operating activities of $0.3 million in the third quarter of 2013
  • Cash and working capital totaled $26.8 million and $14.0 million respectively at September 30, 2014
  • Capital expenditures decreased 37% to $22.1 million due to the prior year US drilling program

BNK's President and Chief Executive Officer, Wolf Regener said:

"Our current field production is about 1,600 barrels of oil equivalent per day (BOEPD) including the two new Caney wells from our 2014 US drilling program. The Wiggins 11-2H well, which went into production in September and the Hartgraves 1-5H well, which started producing in early October, subsequent to the end of the quarter. The Hartgraves 1-5H well has a 26 day IP rate of 536 BOEPD, of which 351 barrels is oil and for the last 10 days has averaged 620 BOEPD, of which 393 barrels are oil. The well was completed with our largest hydraulic stimulation to date and the initial data indicates that this should be one of the best Caney wells we have drilled. The performance of the Hartgraves well demonstrates the results of the continued optimization of our drilling and completion procedures.

The first well in our 2014 drilling program, Wiggins 11-2H, had an initial 30 day IP rate of 323 BOEPD as the well experienced a sudden steep decline from its early IP rate with a significantly slower decline thereafter. Based on the results of the Wiggins 11-2H well, as referenced above, we made several modifications in our lateral placement, completion design and flowback procedures when we drilled the more productive Hartgraves 1-5H well.

We are currently re-drilling the lateral portion of the Emery 17-1H well which is our third well in the 2014 drilling program, after the drill string became stuck. We expect to initiate completion operations on this well in November.

The Wiggins 12-8H and the Barnes 7-2H wells both continue their strong performance with combined average production of approximately 500 BOEPD in the third quarter 2014. These wells have been on production for 9 and 11 months respectively.

In the third quarter, we borrowed the initial commitment amount of $15.9 million from our $100 million credit facility. We expect additional commitment amounts will become available due to drilling the additional Caney development.

The Company intends to continue drilling Caney wells subject to receiving additional commitment amounts from our credit facility. By year-end, we are projecting that the Company will have 2 additional wells on production and have a year-end production exit rate between 2,300 to 2,600 BOEPD.

We are fortunate that while the price of oil has declined our netbacks are still quite robust. We are estimating that with the price of WTI at $75 a barrel, NGL prices of $28 a barrel, gas at $4 an MCF and using our 3rd quarter operating expense numbers our netbacks would be approximately $39 a barrel. At $85 WTI, with the same assumptions as above, our netbacks are estimated to be over $44 a barrel.

If the price of oil falls further and the Company slows down the development of the field, the Company's acreage is secure as 93% of the 15,900 acres are already held by production.

For the first nine months of 2014, the Company generated positive cash flow from operations of $8.2 million compared to negative operating cash flow of $8.9 million in the same period of 2013. Our netbacks for the first nine months increased by more than 150% compared to the same period in 2013, which allowed the Company to generate positive operating cash flow due to the higher oil content in the Caney production mix. In addition, we generated gross revenues of almost $21 million for the first nine months of the year.

The Company is currently performing a reservoir analysis on the Gapowo B-1 horizontal well in Poland. Information from the downhole pressure gauges and the fracture stimulation and flowback will be incorporated into the full reservoir analysis. As previously announced, the Company intends to begin its efforts to joint venture with a suitable partner after completing the reservoir analysis.

In the third quarter of 2014, the Company incurred a net loss of $299,000 compared to a net loss of $2,445,000 in the third quarter of 2013. Oil and gas revenue, net of royalties was $5.4 million in the third quarter of 2014, an increase of $3.8 million, or 230%, compared to the prior year quarter.

Average netbacks for the third quarter 2014 were $52.14, an increase of 4% compared to the prior year quarter due to an increase of 3% in average prices in the third quarter 2014.

Production increased 222% in the third quarter 2014 compared to the third quarter 2013 due to the Caney wells drilled at the end of 2013 and in 2014 and the Woodford sale in April 2013.

Capital expenditures decreased from $34.9 million in the third quarter 2013 to $22.1 million in the third quarter 2014 due to the prior year drilling program in the US.

Through the first nine months of 2014, the Company generated net income of $150,000 compared to a loss of $8.7 million in the first nine months of 2013. Oil and gas gross revenues increased by 151% to $20.9 million due to an increase in average prices due to the higher percentage of oil from the Caney formation in the production mix."

Third Quarter 2014 versus Third Quarter 2013

  • Gross oil and gas revenues totaled $6,682,000 in the third quarter 2014 versus $2,023,000 in the third quarter of 2013. Oil revenues were $5,978,000 in the third quarter versus $1,705,000 in the third quarter of 2013, an increase of 251% as oil production increased 280% due to the additional Caney wells drilled. Average oil prices decreased 8% or $8.38 a barrel for the quarter. Natural gas revenues increased $249,000 or 247%, as natural gas production increased 211% mainly due to the additional Caney wells drilled. Average natural gas prices per mcf increased 12% compared to the third quarter of 2013. Natural Gas Liquid (NGL) revenue increased $137,000 or 63% to $354,000 as average production increased 81% to 127 BOEPD due to the additional Caney wells drilled while average NGL prices decreased 10% to $30.32 a barrel.
  • Production and operating expenses increased $521,000 between quarters due to the additional Caney wells added at the end of 2013 and in 2014.
  • Depletion and depreciation expense increased $1,164,000 between quarters due to increased production and a higher depletion base due to the Caney wells.
  • General and administrative expenses decreased $198,000 between quarters primarily due to lower salary and benefit costs.
  • Finance income increased $1,077,000 due to realized and unrealized gains on financial commodity contracts in 2014. Finance expense increased $140,000 primarily due to interest expense on the credit facility.
  • Capital expenditures of $22,082,000 were incurred in the third quarter of 2014 primarily related to the 2014 drilling program in the US and the Gapowo B-1 well in Poland.

First Nine Months 2014 Highlights

  • Revenue, net of royalties was $17.0 million for first nine months of 2014 and netbacks were $56.14 per BOE, an increase in revenue of 151% compared to the first nine months of 2013 due to more oil in the production mix from the Caney wells
  • Average production was 980 BOEPD for the first nine months, an increase of 32% as increased production from the Caney wells drilled at the end of 2013 and in 2014 was offset by the loss of production from the Woodford sale in April 2013
  • Net income was $150,000 for the first nine months of 2014 compared to a loss of $8,694,000 in first nine months of 2013
  • In July, the Company closed a $100 million credit facility with Morgan Stanley and borrowed the initial commitment amount of $15.9 million during the third quarter
  • Completed an equity financing for total net proceeds of approximately $30.8 million
  • Cash flow from operating activities was $8,185,000 for the first nine months of 2014 compared to negative cash flow from operating activities of $8,942,000 in the first nine months of 2013
  • Capital expenditures increased 28% to $57.7 million primarily due to the completion of the 2013 U.S. drilling program, the startup of the 2014 U.S. drilling program and the Gapowo B-1 well in Poland
  • In the second quarter, the Company entered into financial derivative transactions with Morgan Stanley as part of the hedging requirements of the $100 million credit facility. These transactions also meet the Company's risk management strategy to manage commodity price fluctuations and stabilize cash flows for future exploration and development programs

First Nine Months of 2014 versus First Nine Months of 2013

  • Gross oil and gas revenues totaled $20,882,000 in the first nine months of 2014 versus $8,311,000 in the first nine months of 2013. Oil revenues were $18,363,000 in the first nine months versus $4,433,000 in the same period of 2013, an increase of 314% as production increased 301% due to the higher oil content from the Caney wells and average oil prices increased 3% or $2.94 a barrel. Natural gas revenues decreased $416,000 or 27%, due to a decrease in natural gas production of 47% due to the Woodford asset sale in April 2013 which was partially offset by an average natural gas price increase of 37% in the first nine months of 2014. NGL revenue decreased $943,000, or 40%, due to a decrease in NGL production of 50% due to the Woodford sale in April 2013 which was partially offset by an average NGL price increase of 19% in the first nine months of 2014.
  • Management fees and other income decreased due to lower management fees compared to the prior year.
  • Production and operating expenses decreased 6% for the first nine months of 2014 due to a reduced well count due to the Woodford sale in 2013 and reduced gathering costs offset by operating costs for the additional Caney wells in 2014.
  • Depletion and depreciation expense increased $2,521,000 due to increased production and a higher depletion base due to the Caney wells.
  • General and administrative expenses decreased $973,000 primarily due to lower payroll and related costs and lower legal, accounting and consulting expenses.
  • Finance income increased $1,073,000 due to realized and unrealized gains on financial commodity contracts in 2014. Finance expense decreased $9,888,000 primarily due to 2013 interest expense of $7.5 million, which included $3.5 million for the amortization of deferred financings costs and $2.5 million of pre-payment penalties, and a realized loss on financial commodity contracts of $2.5 million as these contracts were all settled in April 2013.