Operational Updates

PetroBakken to Accelerate Cardium Drilling; Cut Back on Bakken

Share Print Bookmark    |    Wednesday,November 07,2012

PetroBakken Energy Ltd. has reported an operations update as well as provided a third quarter financial and operating results.

Operating Highlights

• Early November production is approximately 45,000 barrels of oil equivalent per day (boepd), based on field estimates, with 53 net wells in inventory waiting to be completed or brought on stream.
• For the balance of 2012, we plan on drilling 42 net wells and bringing 74 net wells on production.
• A new facility in our Cardium business unit at Brazeau is expected to be completed by the end of November, allowing us to bring on incremental production in excess of 2,500 boepd.
• We are accelerating a portion of Q1 2013 capital program into the fourth quarter of this year and expect 2012 capital expenditures of $975 million prior to dispositions ($340 million net of dispositions), which will positively impact our 2013 production rates.
• As part of our capital plan expansion, we have acquired 218 net sections of land in a new potential resource play area, bringing our new prospect land inventory to 512 net sections.
• We are currently running 17 drilling rigs, 6 fracing spreads and 13 completion service rigs.

Third Quarter Financial & Operating Highlights

(In this press release, quarterly comparisons are third quarter 2012 compared to third quarter 2011, and the first nine months of 2012 compared to the first nine months of 2011 unless otherwise noted.)

• Third quarter production averaged 38,503 boepd (82% light oil and liquids), relatively flat over the third quarter of 2011, due primarily to the disposition of producing assets in the first half of 2012 and a delayed start to the second half 2012 capital program.
• Nine month production averaged 41,303 boepd, a 7% increase over the same period in 2011.
• Our operating netback for the third quarter was $45.09/boe, influenced by lower realized commodity prices, as light oil differentials to WTI were wider than historical levels.
• Funds flow from operations was $122 million ($0.65 per basic share) for the quarter, a 20% decrease over the third quarter of 2011, primarily due to lower realized commodity prices.
• Capital expenditures before dispositions totalled $283 million in the third quarter, resulting in 82 net wells drilled.
• Net income was $24 million ($0.13 per basic share) for the third quarter.

Current Operations Update

Our activity has continued at a strong pace since the end of September, and we currently have 17 drilling rigs, 6 fracing spreads and 13 completion service rigs working in the field. Since the end of the third quarter, we have drilled 41 net wells and brought 31 net wells on production, with a current inventory of 53 wells waiting to be completed or brought on production. As expected, the execution of our program has increased production from 39,200 boepd in September to 45,000 boepd in early November, based on field estimates.

2012 Capital Expenditures

We are updating our forecasted 2012 capital expenditures to $975 million, prior to dispositions ($340 million after dispositions). This increase reflects an active land acquisition strategy in a potential new resource play in which we accumulated 218 net sections and an acceleration of certain 2013 capital investments in drilling and completions, facility construction, and optimization efforts which we expect to positively impact production results in early 2013. As part of our plan, we will be drilling an additional 15 net Cardium wells, while partially offsetting this effort by reducing our Bakken business unit drilling count by 10 net wells, which were targeting Mississippian opportunities. Facility and optimization capital that is being accelerated, particularly in southeast Saskatchewan, will allow us to increase production and should reduce downtime during spring break-up in 2013. Given the timing of this capital acceleration there will be minimal impact on 2012 production rates, as the majority of the impact will be seen in the first quarter of 2013. We are maintaining our 2012 exit rate production guidance of 52,000 to 56,000 boepd.

Operating Results

Our third quarter average production of 38,503 boepd was comprised of 15,767 boepd from the Bakken business unit, 14,721 boepd from the Cardium business unit, and the remainder from the Saskatchewan Conventional and AB/BC business units. A delayed start to our second half capital program resulted in third quarter production levels being flat to the second quarter. However, reduced industry activity during the second half of 2012 has provided increased access to services, allowing us to catch up on our drilling program. The results of this activity will be realized in the fourth quarter.

Average Daily Production

Production expenses on a per boe basis were 7% lower in the third quarter of 2012 as compared to the second quarter. This decrease was primarily due to reduced trucking costs resulting from the completion of our new Cardium facility. Production expenses for the first nine months of 2012 were relatively consistent to 2011 on a unit of production basis and slightly higher on a total basis due to increased production.

Q3 2012 Drilling Activity

The majority of the capital expenditures in the third quarter were focused on drilling and completions following spring break-up. We executed an aggressive program that represented a 4% increase over the same period last year. Drilling activity focused primarily on the Bakken and Cardium business units, where 40 and 32 net wells were drilled, respectively, with an additional 10 net wells drilled in our Saskatchewan Conventional business unit. We completed 46 net wells during the quarter, including 30 net wells in the Bakken business unit and 8 net wells in each of the Cardium and Saskatchewan Conventional business units. The production resulting from this activity, including bringing on the 43 net wells in inventory at the end of the quarter, will largely be realized in the fourth quarter.

Bakken Shale Business Unit

In southeast Saskatchewan, the Bakken business unit averaged 15,767 boepd of production, an increase of six percent over the second quarter, as the majority of our shut-in production related to spring break-up conditions was restored. Drilling activity increased throughout the third quarter, resulting in 40 net wells drilled and 31 net wells brought on production. Currently, we have 7 drilling rigs operating in this business unit and have drilled 17 net wells since quarter-end, with 15 net wells waiting to be completed or brought on production.

Cardium Business Unit

In Alberta, the Cardium business unit averaged 14,721 boepd of production, a decrease of seven percent from the second quarter of 2012, due to a delayed start to our second half capital program and restricted production and downtime resulting from routine maintenance of individual wells and facilities. A battery and a gathering system expansion in the Brazeau area of West Pembina is expected to be completed by the end of November, which will significantly reduce current well restrictions, reduce trucking expenses and add over 2,500 boepd of production. During the quarter we drilled 32 net wells and brought 15 net wells on production in the Cardium, most of which were in the last half of the quarter and had minimal impact on production during the period. We currently have 8 drilling rigs operating in the Cardium and have drilled 16 net wells since the end of September, with 29 net wells in inventory waiting to be completed or brought on production.

Other Activity

Our southeast Saskatchewan Conventional business unit continues to provide a low decline, light oil production base. Production averaged 5,437 boepd in the third quarter of 2012, and we drilled 10 net wells. Two drilling rigs are currently operating in this area.

In our Alberta/BC business unit, we have 2,578 boepd of production and have compiled an inventory of over 294 net sections of land prospective for new oil resource plays in one or more of the Nordegg, Montney, Duvernay and Swan Hills zones. We plan to drill 6 wells in the fourth quarter targeting the Swan Hills or Montney zones. In addition, we have now accumulated 218 net sections of land through Crown sales in another new potential resource play area.

Outlook

Beginning in the third quarter, drilling activity levels increased as we ramped up the execution of our 2012 drilling program. This activity has continued into the fourth quarter, during which we plan to drill a further 83 wells and bring an additional 105 wells onto production. The addition of these new wells to our early November production rate of approximately 45,000 boepd, together with the removal of current production restrictions caused by facility constraints, puts us on pace to meet our forecast 2012 exit production rate of 52,000 boepd to 56,000 boepd.

Petrobank Reorganization

On October 29, 2012, PetroBakken and Petrobank entered into an arrangement agreement that will see Petrobank shareholders receive Petrobank's proportionate interest in PetroBakken. Pursuant to the Reorganization, a new Alberta corporation will be formed which will acquire all of the existing assets and liabilities of Petrobank, including THAI® and related technologies, but excluding Petrobank's ownership interest in PetroBakken shares, and existing shareholders of Petrobank will receive one share of New Petrobank for each Petrobank share held.

Following this distribution of Petrobank's heavy oil business to New Petrobank, Petrobank and PetroBakken will, through a series of transactions, amalgamate, with the resulting company to continue under the name "PetroBakken Energy Ltd.". Existing PetroBakken shareholders will receive one share of New PetroBakken for every share of PetroBakken held prior to the Reorganization and Petrobank shareholders will receive, in aggregate, a number of New PetroBakken shares equal to the number of PetroBakken shares held by Petrobank immediately prior to the Reorganization, approximately 1.06 to 1.10 New PetroBakken shares for each Petrobank share held. The number of shares outstanding in New PetroBakken will be the same as the number of shares outstanding in PetroBakken immediately prior to the Reorganization.

The Reorganization will not result in any changes to the business of PetroBakken or our existing Board and senior management. The Reorganization is subject to the approval of the shareholders of each of Petrobank and PetroBakken.