Petrobank Announces 2012 Reserves and Resources and Year-End 2012 Financial and
CALGARY, ALBERTA -- (Marketwire) -- 03/07/13 -- Petrobank Energy and
Resources Ltd. (TSX:PBG) announces the results of our reserves and
resources evaluation for the year ended December 31, 2012 conducted
by McDaniel and Associates Consultants Ltd. ("McDaniel") and Sproule
Associates Ltd. ("Sproule") and our 2012 fourth quarter and year-end
financial and operating results.
Petrobank was incorporated as 1708589 Alberta Ltd. on October 24,
2012 for the purpose of a corporate reorganization by way of Plan of
Arrangement (the "Arrangement") with PetroBakken Energy Ltd.
("PetroBakken") and the previous Petrobank Energy and Resources Ltd.
("Old Petrobank") which existed until it was amalgamated with
PetroBakken as part of the Arrangement. The purpose of the
Arrangement was to distribute Old Petrobank's majority ownership in
PetroBakken to the Old Petrobank shareholders, effective December 31,
2012. 1708589 Alberta Ltd. was renamed Petrobank Energy and Resources
Ltd. ("Petrobank" or the "Company") in conjunction with the
Arrangement. With the Arrangement completed, we no longer report
PetroBakken's reserves or financial information. PetroBakken released
their 2012 reserves information on February 21, 2013. The
consolidated financial statements as at and for the years ended
December 31, 2012 and 2011 represent the operations of the assets and
liabilities transferred to the Company pursuant to the Arrangement,
which previously comprised the 'Petrobank Standalone' operating
segment (also referred to as 'HBU" (Heavy Oil Business Unit) and
Corporate') in our historic financial disclosure. In the opinion of
management, these consolidated financial statements reflect all
adjustments necessary to present a fair statement of the financial
position and the results of operations in accordance with
International Financial Reporting Standards ("IFRS"), however, they
may not reflect Petrobank's financial position, results of operations
and cash flows had the Company been operating in its current
structure during the reporting periods presented in these
consolidated financial statements. The historic financial results of
Old Petrobank are reflected in PetroBakken's financial statements.
PetroBakken expects to announce their year-end 2012 financial and
operating results next week.
This news release includes forward-looking statements and information
within the meaning of applicable securities laws. Readers are advised
to review "Forward-Looking Information and Statements" at the
conclusion of this news release. A full copy of our Year-end and
Fourth Quarter 2012 Financial Statements and Management's Discussion
and Analysis ("MD&A") have been filed on our website at
www.petrobank.com and under our profile on SEDAR at www.sedar.com.
Comparisons presented in this press release are the fourth quarter of
2012 compared to the fourth quarter of 2011 and annual comparisons
are 2012 to 2011, unless otherwise noted. The comparative 2011
figures were previously included in Old Petrobank's MD&A for the year
ended December 31, 2011 as the 'HBU and Corporate' operating segment.
All financial figures are audited and in Canadian dollars ($) unless
-- THAI(R) proved plus probable plus possible ("3P") reserves at our
Kerrobert project were reduced to 5.4 million barrels from 8.5 million
barrels at the end of 2011. THAI(R) proved plus probable ("2P") reserves
at our Kerrobert THAI(R) project were reduced to zero from 3.6 million
barrels at the end of 2011. These revisions are due to 2012 production
from the project not sustaining economic production rates assumed by
McDaniel in its year end 2011 report. The Exploitable Oil Initially in
Place ("EOIIP") at our Kerrobert THAI(R) project lands remained
unchanged at 18.7 million barrels (see "Exploitable Oil/Bitumen
Initially in Place").
-- In addition to our THAI(R) project, McDaniel also evaluated our North
Kerrobert and Luseland properties ("Kerrobert Trend Lands"), recognizing
best estimate contingent resources of 20.6 million barrels (see
"Resources and Contingent Resources") and EOIIP of 48.8 million barrels.
Together with the Kerrobert THAI(R) project lands, EOIIP associated with
our Saskatchewan assets totalled 67.5 million barrels.
-- Sproule conducted an evaluation of our assets at Dawson, assigning
initial proved reserves of 0.7 million barrels, 2P reserves of 1.2
million barrels and 3P reserves of 1.7 million barrels. These reserves
were based on cold production from horizontal wells.
-- Sproule assigned best estimate contingent resources of 58.3 million
barrels at Dawson and Exploitable Bitumen Initially in Place (see
"Exploitable Oil/Bitumen Initially in Place") of 436.2 million barrels
based on cyclic steam stimulation, up from 33.2 million barrels of
Exploitable Bitumen Initially in Place assigned by McDaniel in 2011,
primarily as a result of the evaluation of additional lands outside our
proposed Dawson THAI(R) project area.
Q4 and Year-End 2012 Financial and Operating Review
-- We completed a corporate reorganization on December 31, 2012 that saw
Old Petrobank shareholders effectively receive Old Petrobank's
proportionate interest in its PetroBakken shareholdings while
maintaining their interest in the remaining Petrobank assets. Petrobank
shareholders received 1.1051 PetroBakken shares and one Petrobank share
for each Old Petrobank share held at December 31, 2012. Petrobank
continued operations as a well capitalized junior heavy oil exploration
and production company leveraging unique patented technology.
-- We entered 2013 with over $90 million of positive working capital,
including over $100 million of cash, cash equivalents and marketable
securities with no debt.
-- Average production at our Kerrobert THAI(R) project increased to 307
barrels of oil per day ("bopd") in Q4 2012 compared to 305 bopd in Q3
2012 and 41 bopd in Q4 2011. Kerrobert THAI(R) production averaged 261
bopd in 2012.
-- Petrobank reported a net loss of $119.8 million in 2012 ($1.23 per
share) compared to $129.5 million in 2011 ($1.33 per share), primarily
as a result of an increase in impairment expense from $65.9 million to
$185.9 million offset by a deferred income tax recovery in 2012 compared
to a deferred income tax expense in 2011.
-- Petrobank reported expenditures on exploration assets of $41.3 million
in 2012 compared to $166.9 million in 2011. The decrease was primarily
related to the elimination of expenditures on our May River property
(along with our Conklin demonstration project) as a result of the
disposition of the property in February 2012 and the completion of our
Kerrobert expansion development capital in late 2011, offset by an
increase in capitalized pre-commercial operating costs at our Kerrobert
project from a full year of operations.
-- Concurrent with the completion of the Arrangement, we recognized a non-
cash accounting impairment related to our Kerrobert THAI(R) project and
our patents and other intangible assets of $185.9 million, reflecting
assessed value in use at December 31, 2012. We remain focused on
increasing the value of our THAI(R) related assets through the
commercialization of our Kerrobert THAI(R) project, while continuing
conservatively steward our capital resources and maximize the future
potential of our other assets.
CORPORATE RESERVES AND RESOURCES SUMMARY
The following tables summarize our 2012 year-end reserves and
resources by project area, as well as a comparison of 2011 and 2012
year-end total Company reserves and resources. For 2012, reserves and
resources were evaluated by McDaniel for the Kerrobert THAI(R)
project and Kerrobert Trend Lands and by Sproule for the Dawson
assets. For our year-end 2011 report, all reserve and resource
assessments were conducted by McDaniel.
Company Interest(1) Reserves and Resources
Kerrobert Trend Total Total
THAI(R) Lands Dawson Company Company(7) Change
Total Proved - - 0.7 0.7 - 0.7
Proved + Probable
(2P) - - 1.2 1.2 3.6 (2.4)
Proved + Probable +
Possible (3P) (3) 5.4 - 1.7 7.1(6) 8.5(6) (1.4)
Resources(4) - 20.6 58.3 78.9 - 78.9
Place(5) 18.7 48.8 436.2(8) 503.7(8) 80.7(8) 423.0(8)
(1) "Company Interest" reserves, which represent the Company's working
interest share and royalty interest share of reserves before deduction
of the Company's royalty obligations.
(2) "MMbbls" means million barrels.
(3) Possible reserves are those additional reserves that are less certain to
be recovered than probable reserves. There is a 10% probability that the
quantities actually recovered will equal or exceed the sum of proved
plus probable plus possible reserves. Stand-alone possible reserves have
been assigned to our Kerrobert THAI(R) project as a result of current
uneconomic production rates associated with the project. It is our
intention to develop such reserves by continuing to operate the project
with a view to increasing production to commercial rates.
(4) Contingent resources are those quantities of petroleum estimated, as of
a given date, to be potentially recoverable from known accumulations
using established technology or technology under development, but which
are not currently considered to be commercially recoverable due to one
or more contingencies. See "Resources and Contingent Resources".
(5) Represents exploitable oil initially in place at the Kerrobert THAI(R)
project and Kerrobert Trend Lands and exploitable bitumen initially in
place at Dawson. Exploitable oil or bitumen initially in place is the
estimated discovered volume of oil or bitumen, as applicable, from known
accumulations, before any production has been removed, which is
contained in a subsurface stratigraphic interval that meets or exceeds
certain reservoir characteristics considered necessary for the
application of known recovery technologies. The difference between
exploitable oil initially in place and 3P reserves at the Kerrobert
THAI(R) project is comprised of approximately 145,000 barrels of
production, with the remainder being considered unrecoverable. The
difference between exploitable oil or bitumen initially in place and
contingent resources or reserves on the remaining properties is
(6) This volume is an arithmetic sum of multiple estimates of proved +
probable + possible reserves, which statistical principles indicate may
be misleading as to volumes actually recovered. Readers should give
attention to the estimates of individual classes of proved, probable and
possible reserves, and appreciate the differing probabilities of
recovery associated with each class, as explained herein and in our
annual information form.
(7) Does not include May River (sold February 2012) or PetroBakken
(distributed to Petrobank shareholders December 2012).
(8) For 2012, exploitable bitumen initially in place at Dawson includes
Sproule's assessment of resources associated with all of our lands at
Dawson. For 2011, exploitable bitumen initially in place at Dawson
includes only resources associated with our initial proposed THAI(R)
Net Present Value, Before Tax, Forecast Prices ($ millions)(1)
THAI(R) Trend Lands Dawson Total Company
Total Proved - - $4.0 $4.0
Proved + Probable (2P) - - $7.9 $7.9
Proved + Probable +
Possible (3P) $63.0 - $12.6 $75.6
Contingent Resources - $71.3 $69.1 $140.4
Net Present Value, After Tax, Forecast Prices ($ millions)(1)
THAI(R) Trend Lands Dawson Total Company
Total Proved - - $2.3 $2.3
Proved + Probable (2P) - - $5.1 $5.1
Proved + Probable +
Possible (3P) $45.8 - $8.5 $54.3
Contingent Resources - $39.6 $23.9 $63.5
(1) Kerrobert and Kerrobert Trend Lands based on McDaniel forecast heavy oil
netback prices. Dawson based on Sproule forecast heavy oil netback
prices. Interest expenses and corporate overhead were not included. Net
present values are discounted at 10%. T
he net present values do not
represent the fair market value of the reserves and/or resources.
Petrobank first received independent recognition of THAI(R) reserves
at our Kerrobert project for year-end 2010. The Kerrobert THAI(R)
project was operational with all 12 production wells capable of
production in September 2011 and has since experienced
quarter-over-quarter production growth. However, at the end of 2012,
production was not meeting the performance criteria assumed by
McDaniel in its year end 2011 report, resulting in a revision of 2P
reserves for the project to zero. We anticipate that 1P and 2P
reserves will be assignable to the project when sustainable
commercial production rates are reached. McDaniel also reduced its
estimate of peak production rates, leading to a 36% reduction in 3P
McDaniel has assigned best estimate contingent resources and EOIIP on
our Kerrobert Trend Lands of 20.6 million barrels and 48.8 million
barrels, respectively. Including EOIIP associated with the Kerrobert
THAI(R) project, total EOIIP of all the Company's Saskatchewan heavy
oil properties was 67.5 million barrels.
Petrobank engaged Sproule to evaluate our Dawson lands in 2012. Based
on conventional cold production in our THAI(R) project area, Sproule
assigned 0.7 million barrels, 1.2 million barrels and 1.7 million
barrels of 1P, 2P and 3P reserves, respectively. Sproule also
provided a resource evaluation of our Bluesky channel and
Bluesky/Gething non-channel lands. Based on Sproule's experience with
other operators near our Dawson lands, they assigned 58.3 million
barrels of best estimate contingent resource and exploitable bitumen
initially in place of 436.2 million barrels based on cyclic steam
stimulation, significantly higher than the 33.2 million barrels
assigned by McDaniel in 2011 when our non-channel lands were not
Kerrobert THAI(R) Project, Kerrobert Trend Lands and Kerrobert
Conventional Cold Production Initiative
Fourth quarter 2012 production averaged 307 barrels of oil per day
("bopd"), a small increase from Q3 2012 production of 305 bopd and an
increase from 41 bopd in the fourth quarter of 2011. January 2013
production was 236 bopd based on field estimates.
At our Kerrobert THAI(R) project, our operating focus is to continue
to reduce costs and to significantly increase air injection. With
increased injection, we will generate more heat in the reservoir and
therefore mobilize more oil. This process began in the fourth quarter
of 2012 and will continue through 2013. We began by increasing air
injection on two wells, and we are now increasing air on a full-field
basis. As the wells have different operational characteristics, our
operating procedure involves evaluating individual well performance
to assess increasing air injection rates. Since beginning this
process we have increased the field air injection rate to 20% of
design capacity and we now have all wells involved in the operating
Early in 2013, we experienced frequent interventions into our KP-12
production well due to a build-up of fines that impacted downhole
pump performance. We have recently shut-in this well to evaluate a
We continue to evaluate our Kerrobert Trend Lands, where we have
completed three vertical stratigraphic wells and a large 3D seismic
program. The stratigraphic wells and 3D seismic data contributed to
the increase in the EOIIP assigned by McDaniel to the Kerrobert Trend
Lands. We also completed a 4D seismic update at our Kerrobert THAI(R)
Petrobank currently has five conventional cold production wells
operating on our Kerrobert Trend Lands. These wells are not yet
producing at material oil rates.
Dawson Demonstration Project
At Dawson, we commenced cold production operations from both
horizontal THAI(R) production wells in late 2012 and the wells
produced at a combined rate of 20 bopd in the first two months of
2013. These wells will continue to produce conventional heavy oil,
and assist in pre-conditioning the reservoir until such time as we
commence the start-up of the approved THAI(R) demonstration project.
In early 2013, we purchased 46 sections of land in a Saskatchewan
Crown land sale for approximately $2 million. These lands further
enhance our inventory of opportunities for new THAI(R) projects and
conventional heavy oil resources. We now own approximately 81
sections of land in Saskatchewan and 31 sections of land at Dawson,
LIQUIDITY AND CAPITAL RESOURCES
On completion of the Arrangement with PetroBakken at the end of 2012,
Petrobank began 2013 as a well financed junior heavy oil company
leveraging our heavy oil asset base and patented technology. We ended
2012 with positive working capital of $91 million, including $103
million of cash and marketable securities, and no third party debt.
We expect to fund our 2013 expenditures with cash on hand and sales
revenue from production.
Our current capital resources are expected to be more than adequate
for our planned 2013 expenditures while providing financial
flexibility to pursue future THAI(R) developments and acquisition
opportunities. In early 2013, we invested approximately $40 million
of cash which is not expected to be used during 2013 in shares and
debt securities of PetroBakken. The primary reason for this
investment was to earn a reasonable return on capital in a company
with an asset base, business plan and management team that was well
known to Petrobank at the time of the investment. These securities
were purchased for investment purposes and may be sold at any time.
In addition to the PetroBakken shares received under PetroBakken's
dividend reinvestment plan in January from the December 2012
dividend, we now hold approximately $48 million of PetroBakken shares
and debt securities based on historical cost. A committee of
Petrobank executives and directors who are independent of PetroBakken
has been formed, which approved the initial investment in PetroBakken
and is authorized to direct the timing of any future acquisitions or
dispositions of PetroBakken securities.
SUMMARY OF FINANCIAL RESULTS
The following table provides a summary of Petrobank's financial
results for the three months and year ending December 31, 2012 and
2011. Audited consolidated financial statements with MD&A will be
available on the Company's website at www.petrobank.com and on the
SEDAR website at www.sedar.com.
Three months ended Years ended
December 31, December 31,
where noted) 2012 2011 Change 2012 2011 Change
Net loss 155,830 59,482 162% 119,846 129,516 (7%)
Per share -
($)(1) 1.60 0.61 162% 1.23 1.33 (8%)
assets 9,746 27,710 (65%) 41,281 166,856 (75%)
Total assets 165,803 440,564 (62%) 165,803 440,564 (62%)
end of period
(000s)(1) 97,597 97,597 - 97,597 9
(1) Since Petrobank's shares were issued pursuant to the Arrangement, the
per share amounts and shares outstanding for all periods are based on
the number of shares outstanding on December 31, 2012.
INVESTOR CONFERENCE CALL
Management of Petrobank plans to hold a conference call for
investors, financial analysts, media and any interested persons on
Friday, March 8, 2013 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern
Time) to discuss Petrobank's year-end and fourth quarter 2012
financial and operating results. The investor conference call details
are as follows:
Live call dial-in numbers: 416-340-2217 / 866-696-5910
Replay dial-in numbers: 905-694-9451 / 800-408-3053
Replay pass code: 8987176
The live audio webcast link is:
is also available on our website at:
Petrobank Energy and Resources Ltd. is a Calgary-based oil and
natural gas exploration and production company with operations in
western Canada. Petrobank is applying its patented THAI(R) heavy oil
recovery process in the field. THAI(R) is an evolutionary in-situ
combustion technology for the recovery of bitumen and heavy oil.
THAI(R) and CAPRI(R) are registered trademarks of Archon Technologies
Ltd., a wholly-owned subsidiary of Petrobank Energy and Resources
Ltd., for specialized methods for recovery of oil from subterranean
formations through in-situ combustion techniques and methodologies
with or without upgrading catalysts. Used under license by Petrobank
Energy and Resources Ltd.
The determination of oil and natural gas reserves involves the
preparation of estimates that have an inherent degree of associated
uncertainty. Categories of proved, probable and possible reserves
have been established to reflect the level of these uncertainties and
to provide an indication of the probability of recovery. The
estimation and classification of reserves requires the application of
professional judgment combined with geological and engineering
knowledge to assess whether or not specific reserves classification
criteria have been satisfied. Knowledge of concepts including
uncertainty and risk, probability and statistics, and deterministic
and probabilistic estimation methods is required to properly use and
apply reserves definitions.
The recovery and reserve estimates of oil reserves provided herein
are estimates only. Actual reserves may be greater than or less than
the estimates provided herein.
The reserve data provided in this news release presents only a
portion of the disclosure required under NI 51-101. All of the
required information will be contained in our AIF, which will be
filed on SEDAR on or before March 31, 2013.
Possible Reserves: Possible reserves are those additional reserves
that are less certain to be recovered than probable reserves. There
is a 10% probability that the quantities actually recovered will
equal or exceed the sum of proved plus probable plus possible
Resources and Contingent Resources: In this press release, Petrobank
has disclosed estimated volumes of "contingent resources".
"Resources" are oil and gas volumes that are estimated to have
originally existed in the earth's crust as naturally occurring
accumulations but are not capable of being classified as "reserves".
"Contingent resources" are those quantities of petroleum estimated,
as of a given date, to be potentially recoverable from known
accumulations using established technology or technology under
development, but which are not currently considered to be
commercially recoverable due to one or more contingencies.
Contingencies at both Dawson and on the Kerrobert Trend lands include
current uncertainties around the specific scope and timing of the
development of the projects; lack of regulatory approvals;
uncertainty regarding marketing plans for production from the subject
area; and need for improved estimation of project costs. Contingent
resources do not constitute, and should not be confused with,
reserves. There is no certainty that it will be commercially viable
to produce any portion of the contingent resources on the Kerrobert
Trend or Dawson lands.
Exploitable Oil/Bitumen Initially In Place: Exploitable Oil/Bitumen
Initially in Place is the estimated discovered volume of oil or
bitumen, as applicable, from known accumulations, before any
production has been removed, which is contained in a subsurface
stratigraphic interval that meets or exceeds certain reservoir
characteristics considered necessary for the application of known
recovery technologies. Examples of such reservoir characteristics
include continuous net pay, porosity, and mass bitumen content.
Exploitable Oil/Bitumen Initially in Place are resources that does
not constitute, and should not be confused with, reserves. There is
no certainty that it will be commercially viable to produce any
portion of the resource.
Net Present Values (NPV): Estimated values of future net revenue
disclosed in this press release do not necessarily represent fair
Forward-Looking Statements: Certain information provided in this
press release constitutes forward-looking statements. Specifically,
this press release contains forward-looking statements relating to
financial results, results from operations, the timing of certain
projects, and anticipated sources of available financing.
Forward-looking statements are necessarily based on a number of
assumptions and judgments, including but not limited to, assumptions
relating to the outlook for commodity and capital markets, the
success of future resource evaluation and development activities, the
successful application of our technology, the performance of
producing wells and reservoirs, well development and operating
performance, general economic conditions, weather and the regulatory
and legal environment. 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; weather conditions and access to our
properties; fluctuations in oil prices; the results of exploration
and development drilling, recompletions and related activities;
timing and rig availability; outcome of exploration contract
negotiations; fluctuation in foreign currency exchange rates; the
uncertainty of reserve estimates; changes in environmental and other
regulations; uncertainties associated with the regulatory review and
approval process in respect to our projects; risks associated with
the application of early stage technology; 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 Petrobank that
actual results achieved during the forecast period will be the same
in whole or in part as those forecasted. Except as may be required by
applicable securities laws, Petrobank 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
Petrobank Energy and Resources Ltd.
John D. Wright
Chairman and Chief Executive Officer
Petrobank Energy and Resources Ltd.
Chris J. Bloomer
Senior Vice President and Chief Operating Officer, Heavy Oil
Petrobank Energy and Resources Ltd.
Vice President Finance and Chie
f Financial Officer
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