CALGARY, ALBERTA--(Marketwire - Feb. 27, 2009) - Pearl Exploration and Production Ltd. ("Pearl" or the "Company") (TSX:PXX)(FIRST NORTH:PXXS) is pleased to announce its financial and operating results for the three and twelve months ended December 31, 2008.
Highlights include:
- 9% increase in 2008 daily average production volumes to 7,672 barrels per day despite selling properties that were producing 3,200 barrels per day of production during the year;
- Property dispositions of $79 million; allowing the Company to eliminate its long term debt;
- 333% increase in cash flow from operations to $72.1 million, or $0.38 per share;
- Increased our working interest to 80% at the Blackrod SAGD project and was named operator;
- Initiated two cyclic steam pilots at Onion Lake and commenced a pilot polymer flood at Mooney;
- Maintained a strong balance sheet with $6.5 million in working capital and an unused $47 million credit facility.
John Festival, new President of Pearl, commenting on the results, indicated that "2008 was an extremely volatile year for the Company. During the first nine months Pearl achieved record levels of revenues and cash flow; however, we then saw a major shift in market conditions during the fourth quarter as the recession deepened, and oil and gas prices fell quite dramatically. As a result of the downward market shift we elected to stop most of our capital programs until prices improve. Fortunately we have a strong balance sheet with no debt which will help us ride out the current low price environment."
Operations Review
Total capital expenditures in 2008 were $107.4 million. This included the drilling of 37 wells and construction of various facilities.
Mooney
Mooney is a conventional heavy oil property in northern Alberta. In 2008, Pearl produced 2,108 boe per day at Mooney. The Company has an approximate 98% working interest in this property. In 2008, Pearl drilled twelve horizontal development wells on the property. In addition, the Company initiated a pilot polymer flood at Mooney. This included converting two wells to polymer injectors and constructing injection facilities. The objective of the polymer flood is to re-pressure the reservoir which could improve production rate as well as increase overall recoveries. We are starting to see a positive response from this pilot and we will continue to monitor results over the next few months. During 2008, the Company also installed an amine facility to eliminate CO2 from the gas stream. In addition to the potential from these EOR projects there is an additional 25-50 conventional development locations to be drilled at Mooney, as well as additional resource to be delineated.
Onion Lake
Onion Lake is a core heavy oil property located in Saskatchewan near Lloydminster. During 2008, Pearl produced an average of 2,274 boe per day from 50 wells on the property. Pearl has an 87.5% to 100% working interest in 41 sections of land. Pearl initiated two single well cyclic steam stimulation ("CSS") pilots at Onion Lake in 2008.Positive results were achieved from both pilots. Each well had flow rates in excess of 200 barrels of oil per day. The second CSS cycle is expected to be completed by the end of March and the Company will use the information obtained to make a decision on commercial development of a CSS project. In addition to the potential CSS projects the Company has the potential of over 100 conventional development locations at Onion Lake.
Blackrod
Blackrod is a SAGD opportunity covering 12,800 acres (20 sections) in the Athabasca oil sands. In 2008, we increased our ownership from 30% to 65% by purchasing additional interests from our partners in the project. In early 2009, we further increased our interest to 80%. Pearl has also been designated operator of the project. We also acquired, at crown land sales, 19,840 acres (31 sections) of land adjacent to the Blackrod property. In 2009, we plan to drill 10-15 strat wells to better define the resource and to gather water source and water disposal information. In addition, in 2009, we plan to continue to advance our application for a one to three well SAGD pilot with regulatory authorities. Commencement of construction of the Blackrod pilot would not begin before 2010.
San Miguel
San Miguel is a heavy oil prospect in Texas. We undertook two steam pilots on the property during 2008.The first, the Saner pilot utilized the Fractured Assisted Steam Technology with horizontal wells and vertical wells. The second pilot was a single well pair SAGD test. In 2009, for economic and technical reasons, Pearl and its partner elected to shutdown both pilots. No further work is planned at San Miguel in the near future.
Production Volumes
Pearl's crude oil and natural gas production volumes increased by 9% in 2008, averaging 7,672 boe per day compared with an average of 7,029 boe for the 15 months ended December 31, 2007. The increase is primarily attributable to the continued development of the Onion Lake and Mooney fields.
Production in 2008 was impacted by the sale of oil and gas properties during the second quarter. At the time of the sale, the properties sold were producing approximately 3,200 boe per day. As a result of the property sale, production in the second half of the year was lower than the average for the year. Fourth quarter production averaged 6,198 boe per day.
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Year 15 months
Three months ended ended ended
December 31, December 31,
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Production 2008 2007 2008 2007
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Oil and NGL's (bbl/day)
Onion Lake 2,220 1,879 2,217 1,168
Mooney 1,595 2,069 1,674 1,674
Salt Lake 380 264 389 261
Ear Lake 366 309 360 424
Other 391 3,198 1,542 1,783
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4,952 7,719 6,182 5,310
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Natural gas (mcf/day)
Mooney 2,761 2,198 2,605 1,764
Long Coulee 1,972 2,682 2,233 3,275
Salt Lake 1,078 677 794 1,960
Other 1,667 5,177 3,310 3,310
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7,478 10,734 8,942 10,309
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Total Production (boe/d) 6,198 9,507 7,672 7,029
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Oil and Gas Reserves
The following tables summarize the Company's oil and gas reserves as at December 31, 2008. The reserve report was prepared by DeGolyer and MacNaughton Canada Limited ("DeGolyer"). The 2008 reserves have decreased from 2007. In Canada, as a result of the slowdown in activities and the uncertainty of when these activities will re-commence, reserves booked in the past for development activities and enhanced oil recovery programs (such as waterfloods) were removed from the reserve base. Reserves from these activities will be recognized as we undertake the development work in the future. The decrease in US reserves was based on a review of technical results of 2008 activities, primarily at San Miguel and Fiddler Creek.
The complete list of schedules required under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities will be included in our filing of the Annual Information Form.
Summary of Oil and Gas Reserves - Forecasted Prices and Costs
Canada United States Total
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(Company
interest, Natural Oil & Natural Oil & Natural
before Oil & NGL Gas NGL Gas NGL Gas
royalties) Reserves Reserves Reserves Reserves Reserves Reserves
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(Mbbls) (MMcf) (Mbbls) (MMcf) (Mbbls) (MMcf)
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Proved
developed
producing 4,078 7,887 4 49 4,082 7,936
Proved
developed
non-producing 1,299 1,771 - - 1,299 1,771
Proved
undeveloped 3,378 579 - - 3,378 579
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Total proved 8,755 10,237 4 49 8,759 10,286
Probable 14,055 10,757 3 29 14,058 10,786
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Total proved
plus probable 22,810 20,994 7 78 22,817 21,072
Possible 85,543 10,014 - - 85,543 10,014
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2008 total 108,353 31,008 7 78 108,360 31,086
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boe's may be misleading, particularly if used in isolation. In accordance
with NI 51-101, a boe conversion ratio of 6 Mcf: 1barrel is based on an
energy equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead.
Net Present Value of Reserves - Forecasted Prices and Costs
Net Present Values of Before Tax Future Net Revenue
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Discounted at
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0% 5% 10% 15% 20%
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($000's)
Proved
Developed producing 120,846 105,089 93,719 85,032 78,147
Developed
non-producing 38,513 30,182 24,462 20,378 17,356
Undeveloped 89,718 60,271 42,083 30,185 22,049
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Total proved 249,077 195,542 160,264 135,595 117,552
Probable 490,288 305,957 207,200 149,012 112,091
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Total proved plus
probable 739,365 501,499 367,464 284,607 229,643
Possible 3,126,931 1,188,108 542,140 285,732 167,804
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Total 3,866,296 1,689,607 909,604 570,339 397,447
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Net Present Values of After Tax Future Net Revenue
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Discounted at
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0% 5% 10% 15% 20%
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($000's)
Proved
Developed producing 120,846 105,089 93,719 85,032 78,147
Developed
non-producing 38,513 30,182 24,462 20,378 17,356
Undeveloped 89,718 60,271 42,083 30,185 22,049
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Total proved 249,077 195,542 160,264 135,595 117,552
Probable 411,378 266,309 185,862 136,883 104,885
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Total proved plus
probable 660,455 461,851 346,126 272,478 222,437
Possible 2,314,443 864,793 385,635 197,779 112,838
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Total 2,974,898 1,326,644 731,761 470,257 335,275
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Notes:
Columns may not add due to rounding
The pricing assumptions used in the DeGolyer evaluation are summarized
below.
Pricing Assumptions - Forecast Prices and Costs
WTI Edmonton Hardisty
Cushing Par Price Bow River Alberta
40 degrees 40 degrees 25 degrees AECO-C Inflation Exchange
Year API API API Spot rate rate
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(US$/bbl) (CDN$/bbl) (CDN$/bbl) (CDN$/MMBtu) (%/yr) (US$/Cdn$)
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2009 57.00 69.10 51.83 7.31 0.0 0.82
2010 69.53 81.35 61.01 7.99 3.0 0.85
2011 76.38 84.39 63.29 8.09 3.0 0.90
2012 86.99 96.16 73.57 8.47 2.5 0.90
2013 94.74 104.76 81.19 8.67 2.5 0.90
Escalation rate of 2.5% thereafter
Notes:
(1) The pricing assumptions were provided by DeGolyer.
(2) None of the Company's future production is subject to a fixed or
contractually committed price.
Reconciliation of Changes in Reserves
The following table summarizes the changes in the Company's share of oil and natural gas reserves (Company's interest before deducting royalties) from December 31, 2007 to December 31, 2008.
Oil & NGL's (Mbbls)
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Proved Plus
Probable
Proved Plus Plus
Proved Probable Probable Possible Possible
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Balance, Dec 31, 2007 19,819 27,041 46,860 142,831 189,691
Production (2,257) - (2,257) - (2,257)
Discoveries - - - - -
Extensions 381 82 463 - 463
Technical Revisions (5,269) (2,223) (7,492) (31,395) (38,887)
Dispositions (2,472) (2,135) (4,607) (324) (4,931)
Economic Factors (1443) (8,708) (10,151) (25,569) (35,720)
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Balance, Dec 31, 2008 8,758 14,058 22,816 85,543 108,359
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Natural Gas (MMcf)
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Proved Plus
Probable
Proved Plus Plus
Proved Probable Probable Possible Possible
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Balance, Dec 31, 2007 16,537 10,280 26,817 4,528 31,345
Production (3,264) - (3,264) (3,264)
Discoveries - - - -
Extensions 43 8 51 51
Technical Revisions (770) 1,737 967 5,753 6,720
Dispositions (2,572) (1,353) (3,925) (333) (4,258)
Economic Factors 312 114 426 66 492
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Balance, Dec 31, 2008 10,286 10,786 21,072 10,014 31,086
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Financial Results
Annual Financial Information
As at and for the period ended
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12 months 15 months 12 months
ended ended ended
December 31 December 31 September 30
($000s except per share amounts) 2008 2007 2006
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Total revenue 183,536 128,524 3,635
Cash flow from operations(1) 72,120 21,646 (1,247)
Per share - basic 0.38 0.17 (0.03)
Per share - diluted 0.38 0.17 (0.03)
Loss from continuing operations and
net loss (78,862) (227,206) (8,953)
Per share - basic (0.42) (1.73) (0.23)
Per share - diluted (0.42) (1.73) (0.23)
Capital expenditures 107,367 229,247 44,632
Total assets 472,143 575,865 129,067
Working capital 6,451 (34,152) (3,757)
Long-term debt - - 4,976
Cash dividends - - -
Common shares outstanding (000s) 189,242 189,242 51,913
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Quarterly Financial Information
2008
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Q1 Q2 Q3 Q4 Total
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Production (boe/day) 10,503 8,246 5,776 6,198 7,672
Average wellhead price ($/boe) 60.50 79.74 85.02 36.28 65.36
Revenues ($000s) 57,830 59,839 45,180 20,687 183,536
Net earnings ($000s) (3,790) 6,688 1,926 (83,686)(2) (78,862)
Per share - basic ($) (0.02) 0.04 0.01 (0.44) (0.42)
Per share - diluted ($) (0.02) 0.04 0.01 (0.44) (0.42)
Cash flow from operations
($000s) (1) 19,452 28,023 21,021 3,624 72,120
Per share - basic ($) 0.10 0.15 0.11 0.02 0.38
Per share - diluted ($) 0.10 0.15 0.11 0.02 0.38
Capital expenditures ($000s) 17,512 17,605 39,480 32,770 107,367
Weighted average shares
outstanding (000s) 189,242 189,242 189,242 189,242 189,242
(1) Cash flow from operations before working capital changes and cash flow
per share do not have standardized meanings prescribed by Canadian
Generally Accepted Accounting Principles ("GAAP") and therefore may
not be comparable to similar measures used by other companies. Cash
flow from operations before working capital changes includes all cash
flow from operating activities and is calculated before changes in
non-cash working capital. Cash flow from operations before working
capital changes is reconciled with net loss on the Consolidated
Statement of Cash. Management uses these non-GAAP measurements for its
own performance measures and to provide its shareholders and investors
with a measurement of the Company's efficiency and its ability to fund
a portion of its growth expenditures.
(2) Includes a $57 million writedown of oil and gas properties in the US.
2008 Financial Results
Please note that Pearl changed its year-end in 2007 from September 30 to December 31 so the comparative amounts are for the 15 month period ending December 31, 2007.
In 2008, WTI prices were strong for most of the year with WTI oil averaging US$99.65/bbl compared with US$72.31/bbl in 2007. The increase is attributable to increased worldwide demand combined with tight supplies. Late in the year, as a result of the global recession, demand for oil dropped, resulting in a dramatic decrease in WTI prices. During the fourth quarter of 2008 WTI averaged US$58.73/bbl. Pearl predominately produces heavy oil. Throughout 2008, the WTI/Western Canada Select ("WCS') differential was narrower than 2007. In 2008, the WCS reference price averaged 78% of the WTI price, compared with 68% of the WTI price in 2007.
Overall, oil and gas revenues increased 43% in 2008 to $183.5 million compared with $128.5 million in 2007. The increase is attributable to a 9% increase in boe sales volumes and a 63% increase in the average sales price.
Netbacks (per boe)
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15 months
Three months ended Year ended Ended
December 31, December 31,
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2008 2007 2008 2007
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Revenue $ 36.28 $ 40.30 $ 65.36 $ 40.01
Royalties 7.62 8.95 16.11 8.87
Transportation 1.36 0.95 1.30 1.11
Production costs 18.06 16.96 17.77 15.73
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Field netback $ 9.24 $ 13.44 $ 30.18 $ 14.30
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Production costs on a per boe basis averaged $17.77 for the current year which is an increase over the prior fifteen month period average of $15.73. The increase in per unit operating costs for the period is principally due to an increase in fluid hauling, fuel and electricity costs. These costs are related to the WTI price which has increased significantly in 2008. Production costs were also impacted by inflationary pressure due to high demand for services, especially during the first nine months of the year.
General and administrative costs decreased from $19.1 million in 2007 to $15 million in 2008. 2007 is based on a 15 month period and if annualized it is comparable to the 2008 amount.
DD&A expense was $85.4 million or $30.41 per boe for the current year in comparison to $92.6 million or $28.83 per boe for the prior fifteen month period. The higher rate in 2008 is a result of a reduction in proved reserves as detailed in the Company's 2008 reserve report. In addition, as a result of a reduction in oil and gas reserves, the Company was required to take a ceiling test write-down of $57.4 million on its US properties in 2008.
The Company incurred a net loss of $78.9 million or $0.42 per share for the year ended December 31, 2008 compared to a loss of $227.2 million or $1.73 per share for the fifteen months ended December 31, 2007. The net loss for the year is principally a result of the high depletion cost of $85.3 million and a write-down of the US oil and gas assets of $57.4 million.
At December 31, 2008, Pearl was debt-free and had a working capital surplus of $6.5 million.
Fourth Quarter 2008 Results
Crude oil prices decreased by 50% in the fourth quarter 2008 from the third quarter, with WTI oil averaging US$58.73 per barrel. Heavy oil prices dropped more sharply from the third quarter. The Bow River Heavy oil price differential averaged US$17.65 per barrel in the fourth quarter compared to US$16.52 per barrel in the third quarter. The decrease in commodity prices is attributable to the worldwide economic downturn, which has resulted in lower demand for commodities.
The decrease in heavy oil prices during the fourth quarter is also attributable to seasonal fluctuations in heavy oil demand and additional supplies of heavy oil being on the market due to increased production. As a result of these factors Pearl's average wellhead oil price dropped from $95.85 per barrel in the third quarter to $33.73 per barrel in the fourth quarter of 2008.
Pearl sold an average of 6,198 boe of oil per day during the fourth quarter, an increase of 7% over third-quarter levels. The increased sales volumes are attributable to continued development at Mooney and Ear Lake. Production revenues were $20.7 million in the fourth quarter of 2008 compared to $45.2 million in the third quarter, due to the decrease in wellhead prices. Operating costs were comparable to the third quarter, averaging $18.06 per barrel. Cash flow from operations and net earnings(loss) in the fourth quarter were $3.6 million and ($83.7) million, respectively, compared to $21.0 million and $1.9 million, respectively in the third quarter. The reduced cash flow in the fourth quarter of 2008 was due to the decrease in heavy oil prices. The significant net loss in the fourth quarter of 2008 was due to the decrease in revenues and an increase in depletion due to the downward revision of proved reserves on the reserve estimate as at December 31, 2008 and a $57.4 million writedown of the US oil and gas assets due to a ceiling test impairment.
Capital expenditures in the fourth quarter of 2008 were $32.8 million, 19% lower than in the third quarter. The decrease reflects the Company's decision to suspend its capital programs due to deteriorating economic conditions and low oil prices in the fourth quarter.
Annual Meeting
The Company's Annual and Special Meeting of Shareholders is scheduled for 10:00 AM on Wednesday, May 6, 2009 in the Viking Room of the Calgary Petroleum Club at 319 - 5th Avenue S.W., Calgary, Alberta.
Additional information on Pearl is available on the Company's website at www.pearleandp.com.
Pearl's Certified Advisor on First North is E. Ohman J:or Fondkommission AB.
Forward-looking statements: This document contains statements about expected or anticipated future events and financial results that are forward-looking in nature and as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, the regulatory process and actions, technical issues, new legislation, competitive and general economic factors and conditions, the uncertainties resulting from potential delays or changes in plans, the occurrence of unexpected events, and the Company's capability to execute and implement its future plans. Actual results may differ materially from those projected by management. For such statements, we claim the safe harbour for forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995.
(1) "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
(2) "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
(3) "Possible" reserves are those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.
(4) "Developed" reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (e.g. when compared to the cost of drilling a well) to put the reserves on production.
(5) "Developed Producing" reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.
(6) "Developed Non-Producing" reserves are those reserves that either have not been on production, or have previously been on production, but are shut in, and the date of resumption of production is unknown.
(7) "Undeveloped" reserves are those reserves expected to be recovered from know accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned.
(8) The Net Present Value (NPV) based on D&M Forecast Pricing and costs, before taxes, discounted at 10%. The estimated NPV does not necessarily represent the fair market value of our reserves.
