Painted Pony Petroleum Ltd. ("Painted Pony" or the "Company") (TSX:PPY) is
pleased to announce the results of the Company's December 31, 2013 reserves
position and its Montney natural gas prospective and contingent resource
assessments. Highlights include:
-- a 52% increase in proved plus probable ("P+P") reserves to 1.7 trillion
cubic feet of gas equivalent ("Tcfe"), or 290.3 million barrels of oil
equivalent ("mmboe"), with a corresponding 41% increase in P+P net
present value, discounted at 10% ("NPV10") to $1.5 billion, or $16.98
per share from December 31, 2012;
-- a 123% increase in best estimate Montney contingent resources from
December 31, 2012 to 7.0 Tcfe with an associated NPV10 of $4.7 billion;
-- additional best estimate of Montney prospective resources of 7.3 Tcfe,
as at December 31, 2013;production volumes in 2013 averaged 8,693
barrels of oil equivalent per day ("boe/d"), while fourth quarter
production averaged 9,312 boe/d;
-- a recycle ratio of 2.0 times based on an unaudited field operating
netback for 2013 of $18.88/boe and finding, development and acquisition
costs ("FD&A") for P+P reserve additions of $9.55/boe including future
development costs ("FDC");
-- undeveloped land in British Columbia, Saskatchewan, and Alberta valued
at $215 million at December 31, 2013; and
-- a net asset value ("NAV") of $18.90 per share based on GLJ Petroleum
Consultants Ltd.'s ("GLJ") January 1, 2014 forecast prices and costs and
a NPV10 value of P+P reserves plus undeveloped land value less unaudited
year-end net debt of $45 million.
CRUDE OIL, NATURAL GAS AND NATURAL GAS LIQUIDS RESERVES
The reserves data of the Company set out in this press release is based upon
independent evaluations by GLJ and Sproule Associates Limited ("Sproule") in
accordance with the Canadian Oil & Gas Evaluation Handbook, each with an
effective date of December 31, 2013 as contained in the consolidated report of
GLJ dated February 14, 2014 (the "Painted Pony Reserves Report"). The tables
below summarize Painted Pony's crude oil, natural gas and natural gas liquids
("NGLs") reserves and the net present values of future net revenue attributable
to such reserves, as evaluated in the Painted Pony Reserves Report, based on
GLJ's January 1, 2014 forecast prices and costs assumptions, and may be subject
to rounding errors. GLJ evaluated the Company's reserves on its British Columbia
properties and Sproule evaluated the Company's reserves on its Saskatchewan
properties. Sproule incorporated the GLJ forecast prices and costs assumptions
in their evaluation. GLJ prepared the Painted Pony Reserves Report by
consolidating the GLJ evaluation with the Sproule evaluation using GLJ forecast
prices and costs assumptions. Painted Pony's total working interest reserves are
before royalties owned by others. The estimated future net revenues are stated
before deducting income taxes and future estimated site restoration costs, and
are reduced for estimated future abandonment costs and estimated capital for
future development associated with the reserves. It should not be assumed that
the undiscounted and discounted net present values represent the fair market
value of the reserves. The estimates of net present values for individual
properties may not reflect the same confidence level as estimates of net present
values for all properties, due to the effects of aggregation.
During the year ended December 31, 2013, Painted Pony increased its total P+P
reserves by 52% to 290.3 mmboe (1.7 Tcfe) from December 31, 2012, weighted 91%
towards natural gas, with an associated 41% increase in NPV10 to $1.5 billion,
while proved reserves and the associated NPV10 increased by 39% to 59.9 mmboe
and $0.5 billion, from December 31, 2012, respectively.
The following tables outline the Company's reserves and associated NPV's for 2013.
----------------------------------------------------------------------------
As at
Summary of Company December 31,
Reserves As at December 31, 2013 2012
Light and
Natural Gas NGLs Medium Oil Equivalent Equivalent
(mmcf) (mbbl) (mbbl) (mboe) (mboe)
----------------------------------------------------------------------------
Proved 318,478 4,192 2,607 59,878 42,978
Probable 1,272,542 16,236 2,065 230,392 148,165
----------------------------------------------------------------------------
Total proved plus
probable 1,591,020 20,428 4,672 290,270 191,143
----------------------------------------------------------------------------
See the advisories with respect to resource definitions.
----------------------------------------------------------------------------
Summary of Net Present Values of Future Net Revenue Before Income Taxes ($
millions)
----------------------------------------------------------------------------
As at December 31, 2013 As at December 31, 2012
5% 8% 10% 5% 8% 10%
----------------------------------------------------------------------------
Proved 683 546 476 483 392 345
Probable 1,993 1,324 1,025 1,327 909 720
----------------------------------------------------------------------------
Total proved plus probable 2,676 1,870 1,502 1,810 1,301 1,066
----------------------------------------------------------------------------
See the advisories with respect to resource definitions.
Painted Pony grew P+P reserves per share in 2013 by 51% based on 88.5 million
shares outstanding as at December 31, 2013. P+P reserve additions replaced 2013
production by 32 times, which averaged 8,693 boe/d (82% gas). In addition, the
Company realized a P+P reserve life index ("RLI") of 85 years and a proved RLI
of 18 years, based on fourth quarter annualized production of 9,312 boe/d (84%
gas).
The following tables summarize the change in reserves for the period from
December 31, 2012 to December 31, 2013.
----------------------------------------------------------------------------
Natural Gas NGLs Crude Oil Equivalent
Proved Reserves (MMcf) (Mbbl) (Mbbl) (Mboe)
----------------------------------------------------------------------------
December 31, 2012 217,907 3,853 2,807 42,978
Additions & Technical Revisions 116,430 534 195 20,133
Production (15,859) (195) (395) (3,233)
----------------------------------------------------------------------------
December 31, 2013 318,478 4,192 2,607 59,878
----------------------------------------------------------------------------
Proved plus Probable Reserves
----------------------------------------------------------------------------
December 31, 2012 1,012,651 17,416 4,952 191,143
Additions & Technical Revisions 594,228 3,207 115 102,361
Production (15,859) (195) (395) (3,233)
----------------------------------------------------------------------------
December 31, 2013 1,591,020 20,428 4,672 290,271
----------------------------------------------------------------------------
See the advisories with respect to resource definitions.
The FDC associated with the P+P reserves as at December 31, 2013 was $2.4
billion over a seven year period and FDC associated with proved reserves are
$0.4 billion over a four year period. The forecasted operating income associated
with the P+P reserves over this same seven year period totals $3.0 billion and
exceeds future development costs by $0.6 billion.
2013 CAPITAL PROGRAM EFFICIENCY
During 2013, Painted Pony's cash capital expenditures of $143 million, and
changes in FDC of $835 million resulted in P+P reserve additions of 102.4 mmboe
at a FD&A cost of $9.55/boe with proved reserve additions of 20.1 mmboe at a
FD&A cost of $11.50/boe. The Company's recycle ratio for 2013 was 2.0 times
based on an unaudited field operating netback for 2013 of $18.88/boe and FD&A on
P+P reserve additions of $9.55/boe.
The following table highlights the Company's capital program efficiency.
----------------------------------------------------------------------------
Capital
Program
Efficiency Proved P+P
----------------------------------------------------------------------------
FD&A Recycle F&D Recycle FD&A Recycle F&D Recycle
($/boe) Ratio ($/boe) Ratio ($/boe) Ratio ($/boe) Ratio
----------------------------------------------------------------------------
2013 $ 11.50 1.6x $ 11.49 1.6x $ 9.55 2.0x $ 9.55 2.0x
2012 $ 23.82 0.8x $ 22.59 0.8x $ 12.87 1.4x $ 14.02 1.3x
2011 $ 12.12 2.6x $ 12.42 2.5x $ 8.84 3.5x $ 8.95 3.5x
----------------------------------------------------------------------------
Three Year
Weighted
Average $ 14.84 $ 14.01 $ 9.98 $ 10.08
----------------------------------------------------------------------------
See advisories with respect to finding and development costs.
The recycle ratio is calculated by dividing the annual average field
operating netback by the FD&A for the same period.
MONTNEY NATURAL GAS RESOURCE ASSESSMENT
In addition to evaluating the Company's reserves, GLJ was engaged to prepare an
independent contingent resources and prospective resources evaluations of the
Company's properties in the Montney formation, as at December 31, 2013 using
forecast prices and costs. Additional drilling and testing are required to
confirm volumetric estimates and reservoir productivity for the contingent
resources to be reclassified as reserves. Painted Pony's total working interest
contingent resources are before royalties owned by others. The estimated future
net revenues are stated before deducting income taxes and future estimated site
restoration costs, and are reduced for estimated future abandonment costs and
estimated capital for future development associated with the contingent
resources. It should not be assumed that the undiscounted and discounted net
present values represent the fair market value of the contingent resources. The
estimates of net present values for individual properties may not reflect the
same confidence level as estimates of net present values for all properties, due
to the effects of aggregation.
Based on GLJ's evaluation, Painted Pony's estimated total petroleum
initially-in-place ("TPIIP") is 41.9 Tcf across the Company's Montney
properties. Included in the 41.9 Tcf, is discovered petroleum initially-in-place
("DPIIP") of 20.4 Tcf, and undiscovered petroleum initially-in-place ("UPIIP")
of 21.5 Tcf. The best estimate Montney contingent resource is 7.0 Tcfe, while
the best estimate of additional prospective resources on the Company's Montney
properties is 7.3 Tcfe.
The following table summarizes GLJ's estimates of Painted Pony's Montney natural
gas resources.
----------------------------------------------------------------------------
Summary of Montney Natural Gas Resourcesas at December 31,
2013 Best Estimate
----------------------------------------------------------------------------
TPIIP 41,890 Bcf
DPIIP 20,389 Bcf
UPIIP 21,475 Bcf
----------------------------------------------------------------------------
Contingent Resources 7,022 Bcfe
Additional Prospective Resources 7,317 Bcfe
----------------------------------------------------------------------------
See special note regarding disclosure of reserves and resources
Billion cubic feet ("Bcf")
Billion cubic feet of gas equivalent ("Bcfe")
----------------------------------------------------------------------------
Summary of Company Interest Montney Contingent Resources ($ millions)
----------------------------------------------------------------------------
As at December
As at December 31, 2013 31, 2012
Low Estimate Best Estimate High Estimate Best Estimate
(Bcfe) (mmboe) (Bcfe) (mmboe) (Bcfe) (mmboe) (Bcfe) (mmboe)
----------------------------------------------------------------------------
Natural Gas 4,247 708 6,526 1,088 9,602 1,600 2,980 497
Liquids 323 54 497 83 731 122 170 28
----------------------------------------------------------------------------
Total 4,570 762 7,022 1,170 10,333 1,722 3,150 525
----------------------------------------------------------------------------
See the advisories with respect to resource definitions.
----------------------------------------------------------------------------
Summary of Company Montney Contingent Resources Net Present Values of Future
Revenue Before Income Taxes($ millions)
----------------------------------------------------------------------------
As at December 31, 2013 As at December 31, 2012
----------------------------------------------------------------------------
5% 8% 10% 10%
----------------------------------------------------------------------------
Low Estimate 5,847 3,591 2,635 774
Best Estimate 10,125 6,265 4,650 1,449
High Estimate 15,589 9,554 7,085 2,217
----------------------------------------------------------------------------
See the advisories with respect to resource definitions.
UNDEVELOPED LAND
Seaton-Jordan & Associates Ltd. was engaged to evaluate Painted Pony's
undeveloped lands in British Columbia, Saskatchewan and Alberta in accordance
with NI 51-101 - Standards for Oil and Gas Disclosure. At December 31, 2013,
Painted Pony had 373 net undeveloped sections, at an average working interest of
74% valued at $215 million.
NET ASSET VALUE
Painted Pony's net asset value is estimated to be $1.7 billion, or $18.90 per
share, based on the value of the Company's P+P reserves, as set out in the
Painted Pony Reserves Report, undeveloped land, and estimated net debt at
December 31, 2013.
The following table highlights Painted Pony's estimated net asset value at
December 31, 2013.
----------------------------------------------------------------------------
Net Asset Value As at December 31, 2013
$ Millions Per Share
----------------------------------------------------------------------------
P+P NPV10 $ 1,502 $ 16.98
Undeveloped Land $ 215 $ 2.43
Less: Net Debt (unaudited) $ (45) $ (0.51)
----------------------------------------------------------------------------
Total NAV $ 1,672 $ 18.90
----------------------------------------------------------------------------
At December 31, 2013 there were 88.5 million shares outstanding.
Net debt is defined as outstanding loans and borrowings plus or minus
working capital
OPERATIONS UPDATE
In the first quarter of 2014, and to date, the Company has drilled 3 (3.0 net)
wells at the core Blair area with a further 2 (2.0 net) wells at Blair currently
drilling. In addition to wells currently drilling at Blair, 2 (2.0 net) wells
have initiated completions operations. At Townsend, Painted Pony has completed 2
(2.0 net) wells in the first quarter of 2014, which will be brought on
production in conjunction with commissioning of the Townsend gas facility.
Construction of the 25 million cubic feet per day facility remains on schedule
with completion expected at the end of the first quarter of 2014, which is
currently anticipated to result in Company production increasing to
approximately 11,500 boe/d in the second quarter of 2014.
Painted Pony is a Canadian oil and gas exploration company that trades on the
Toronto Stock Exchange under the symbol "PPY".
Neither the TSX nor its Regulation Services Provider (as that term is defined in
the policies of the TSX) accepts responsibility for the adequacy or accuracy of
this news release.
Advisory
Special Note Regarding Forward-Looking Information
This news release contains certain forward-looking statements, which are based
on numerous assumptions including but not limited to (i) drilling success; (ii)
production; (iii) future capital expenditures;(iv)accuracy of FD&A and FDC
estimates; (v) accuracy of reserves and resources estimates; and (vi) cash flows
from operating activities. In addition, and without limiting the generality of
the foregoing, the key assumptions underlying the forward-looking statements
contained herein include the following: (i) commodity prices will be volatile,
and natural gas prices will remain low, throughout 2014; (ii) capital,
undeveloped lands and skilled personnel will continue to be available at the
level Painted Pony has enjoyed to date; (iii) Painted Pony will be able to
obtain equipment in a timely manner to carry out exploration, development and
exploitation activities; (iv) production rates in 2014 are expected to show
growth from the fourth quarter of 2013; (v) Painted Pony will have sufficient
financial resources with which to conduct the capital program; and (vi) the
current tax and regulatory regime will remain substantially unchanged The reader
is cautioned that assumptions used in the preparation of such information may
prove to be incorrect.
This news release contains information, including in respect of Painted Pony's
capital program, which may constitute future oriented financial information or a
financial outlook. Such information was approved by management of Painted Pony
on March 4, 2014, and such information is included herein to provide readers
with an understanding of the Company's anticipated capital expenditures. Readers
are cautioned that the information may not be appropriate for other purposes.
Certain information regarding Painted Pony set forth in this document, including
estimates of the Company's reserves and resources, estimates of future net
revenue from the Company's reserves and resources, pricing, inflation and
exchange rates, FD&Aand future development costs may constitute forward-looking
statements under applicable securities laws and necessarily involve substantial
known and unknown risks and uncertainties. These forward-looking statements are
subject to numerous risks and uncertainties, certain of which are beyond Painted
Pony's control, including without limitation, risks associated with oil and gas
exploration, development, exploitation, production, marketing and
transportation, loss of markets, volatility of commodity prices, environmental
risks, inability to obtain drilling rigs or other services, capital expenditure
costs, including drilling, completion and facility costs, unexpected decline
rates in wells, wells not performing as expected, delays resulting from or
inability to obtain required regulatory approvals and ability to access
sufficient capital from internal and external sources, the impact of general
economic conditions in Canada, the United States and overseas, industry
conditions, changes in laws and regulations (including the adoption of new
environmental laws and regulations) and changes in how they are interpreted and
enforced, increased competition, the lack of availability of qualified personnel
or management, fluctuations in foreign exchange or interest rates, and stock
market volatility and market valuations of companies with respect to announced
transactions and the final valuations thereof. Readers are cautioned that the
foregoing list of factors is not exhaustive. Painted Pony's actual results,
performance or achievement could differ materially from those expressed in, or
implied by, these forward-looking statements and, accordingly, no assurance can
be given that any of the events anticipated by the forward-looking statements
will transpire or occur, or if any of them do so, what benefits, including the
amount of proceeds, that the Company will derive therefrom. All subsequent
forward-looking statements, whether written or oral, attributable to the Company
or persons acting on its behalf are expressly qualified in their entirety by
these cautionary statements.
This news release contains other industry benchmarks and terms, such as field
operating netbacks (calculated on a per unit basis as oil, gas and natural gas
liquids revenues less royalties and transportation and operating costs) and
finding, development and acquisition costs (calculated by dividing the capital
costs for the period, including the change in undiscounted future development
capital, by the change in the reserves, incorporating revisions and production,
for the same period), which are not recognized measures under International
Financial Reporting Standards. These measures are commonly utilized in the oil
and gas industry and are considered informative for management and stakeholders.
Painted Pony's method of calculating field operating netbacks and FD&A costs may
not be comparable to that used by other companies. Field operating netbacks
should not be viewed as an alternative to cash flow from operations or other
measures of financial performance calculated in accordance with IFRS. Per unit
field operating netbacks reflect revenues less royalties, transportation and
operating costs divided by production for the period. Painted Pony's method of
calculating field operating netbacks may not be comparable to the method used by
other companies.
Additional information on these and other factors that could affect Painted
Pony's operations and financial results are included in the Company's
Management's Discussion and Analysis for the year ended December 31, 2012, and
the Company's Annual Information Form for the year ended December 31, 2012 and
in reports which are on file with the Canadian securities regulatory authorities
and may be accessed through the SEDAR website (www.sedar.com) or Painted Pony's
website (www.paintedpony.ca).
The forward-looking statements contained in this document are made as at the
date of this news release and Painted Pony does not undertake any obligation to
update publicly or to revise any of the included forward-looking statements,
whether as a result of new information, future events or otherwise, except as
may be required by applicable securities laws.
Special Note Regarding Disclosure of Finding and Development Costs
The aggregate of the exploration and development costs incurred in the most
recent financial year and the change during that year in estimated future
development costs generally will not reflect total finding and development costs
related to reserves additions for that year.
BOEs may be misleading, particularly if used in isolation. A BOE conversion
ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
Special Note Regarding Resource Definitions
"Total Petroleum Initially-In-Place" or "TPIIP" is that quantity of petroleum
that is estimated to exist originally in naturally occurring accumulations. It
includes that quantity of petroleum that is estimated, as of a given date, to be
contained in known accumulations, prior to production, plus those estimated
quantities in accumulations yet to be discovered (equivalent to "total
resources").
"Discovered Petroleum Initially-In-Place" or "DPIIP" (equivalent to discovered
resources) is that quantity of petroleum that is estimated, as of a given date,
to be contained in known accumulations prior to production. The recoverable
portion of discovered petroleum initially in place includes production,
reserves, and contingent resources; the remainder is unrecoverable.
"Undiscovered Petroleum Initially-In-Place" or "UPIIP" (equivalent to
undiscovered resources) is that quantity of petroleum that is estimated, on a
given date, to be contained in accumulations yet to be discovered. The
recoverable portion of undiscovered petroleum initially in place is referred to
as "prospective resources," the remainder as "unrecoverable."
"Reserves" are estimated remaining quantities of oil and natural gas and related
substances anticipated to be recoverable from known accumulations, as of a given
date, based on the analysis of drilling, geological, geophysical, and
engineering data; the use of established technology; and specified economic
conditions, which are generally accepted as being reasonable. Reserves are
further classified according to the level of certainty associated with the
estimates and may be subclassified based on development and production status.
"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 may include factors such as economic, legal,
environmental, political, and regulatory matters, or a lack of markets. It is
also appropriate to classify as contingent resources the estimated discovered
recoverable quantities associated with a project in the early evaluation stage.
Contingent Resources are further classified in accordance with the level of
certainty associated with the estimates and may be subclassified based on
project maturity and/or characterized by their economic status.
The contingent resources and prospective resources estimates contained in this
press release, including the corresponding estimates of before tax present value
estimates, are estimates only and the actual results may be greater than or less
than the estimates provided herein. There is no certainty that such resources
will be commercially viable or technically feasible to produce any portion of
the resources.
"Prospective Resources" are those quantities of petroleum estimated, as of a
given date, to be potentially recoverable from undiscovered accumulations by
application of future development projects. Prospective resources have both an
associated chance of discovery and a chance of development. Prospective
Resources are further subdivided in accordance with the level of certainty
associated with recoverable estimates assuming their discovery and development
and may be subclassified based on project maturity.
Painted Pony's total working interest reserves and contingent resources are
before royalties owned by others. The estimated future net revenues are stated
before deducting income taxes and future estimated site restoration costs, and
are reduced for estimated future abandonment costs and estimated capital for
future development associated with the contingent resources. It should not be
assumed that the undiscounted and discounted net present values represent the
fair market value of the contingent resources.
Boe may be misleading, particularly if used in isolation. A boe conversion ratio
of six thousand cubic feet of natural gas ("mcf") to one barrel of oil ("bbl")
(6 mcf:1 bbl) is used as an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead. All boe conversions in this news release are derived by converting
natural gas to oil in the ratio of six mcf of gas to one barrel of oil. Given
that the value ratio based on the current price of crude oil as compared to
natural gas is significantly different from the energy equivalency of 6:1,
utilizing a conversion ratio of 6:1 may be misleading as an indication of value.
Mcfes may be misleading, particularly if used in isolation. A Mcfe conversion
ratio of 1 bbl: 6 Mcf is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
Given the value ratio based on the current price of crude oil as compared to
natural gas is significantly different from the energy equivalency of 6 Mcf: 1
bbl, utilizing a conversion ratio at 6 Mcf: 1 bbl may be misleading as an
indication of value.
Estimates of reserves for individual properties may not reflect the same
confidence level as estimates of reserves for all properties due to the effects
of aggregation.
The FD&A costs presented in this news release are used as a measure of capital
efficiency and are calculated by dividing the capital costs for the period,
including the change in undiscounted future development capital, by the change
in the reserves, incorporating revisions and production, for the same period
(eg. Total P+P (143+835)/102.4).
In calculating the amounts of finding and development and/or acquisition costs
for a year, the changes during the year in estimated FDC and in estimated
reserves and resources are based upon the evaluations of Painted Pony's reserves
and resources prepared by GLJ and Sproule effective December 31 of such year.
The aggregate of the exploration and development costs incurred in the most
recent financial year and the change during that year in estimated FDC generally
will not reflect total FD&A related to reserve and resource additions for that
year.
The RLI is calculated by dividing the reserves (in boe) in each category by the
annualized average production rate in boe/year. Painted Pony believes that the
most accurate way to evaluate the current reserve life is by dividing the P+P
reserves by the actual fourth quarter average production.
The most significant positive and negative factors with respect to the resource
estimates relate to the fact that the field is currently at an
evaluation/delineation stage. The Montney formation is aerially extensive in
this region, however well control is limited. Both resources-in-place and
productivity may be higher or lower than current estimates.
FOR FURTHER INFORMATION PLEASE CONTACT:
Painted Pony Petroleum Ltd.
Patrick R. Ward
President & CEO
(403) 475-0440
(403) 238-1487 (FAX)
Painted Pony Petroleum Ltd.
John H. Van de Pol
Vice President, Finance & CFO
(403) 475-0440
(403) 238-1487 (FAX)
www.paintedpony.ca
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