Pace Reports Continued Oil Growth and Record Production During the First Quarter of 2012
May 08 2012 - 8:45PM
Marketwired Canada
Pace Oil & Gas Ltd. ("Pace" or the "Company") (TSX:PCE) is pleased to provide an
update of its operations and its financial results for the three months ended
March 31, 2012.
HIGHLIGHTS
In Q1 2012 Pace continued its transition to an oil weighted producer, increasing
oil production and oil weighting. Oil and NGL production increased 23% from Q1
2011 and averaged approximately 7,200 bbls/d (95% oil, 5% NGL) compared to 5,868
bbls/d in Q1 2011. Pace has increased its oil and liquids weighting to
approximately 50% of production from 34% in Q2 2010 when the Company was formed.
Total production increased to a record of 14,557 boe/d (on a 6:1 conversion)
with oil increasing 22% and natural gas production declining 11% from the same
period last year.
OPERATIONS
Pace's capital program for the winter of 2012 focused on its oil opportunities
in Southern and Northwest Alberta along with further developing its waterflood
projects at Dixonville and Southern Alberta. During the first quarter, the
Company drilled 10 (9.4 net) oil wells and completed 14 (11.1 net) wells and
placed 11 (8.8 net) wells on stream.
In Southern Alberta oil and liquids production increased 27% year over year
averaging approximately 2,300 bbls/d in Q1 2012. During the quarter, the Company
drilled 6 (5.4 net) oil wells including 1 net vertical oil well and completed 8
(6.5 net) oil wells. During the quarter a total of the 5 gross wells came on
production with average 30 day initial production rates of approximately 120
boe/d (80 bbls/d oil) per well.
The Company also initiated a waterflood project in Southern Alberta and
converted 6 producing wells into injectors and installed 90% of the additional
required infrastructure. Water injection on this pool will start in May 2012. In
addition, Pace has identified a number of candidates for alkaline, surfactant,
polymer ("ASP") floods on Pace's existing oil pools and is developing an
implementation scenario.
The Company is increasingly optimistic about its opportunities in Southern
Alberta where it has more than 300,000 net acres of land. The Company has an
inventory of more than 75 locations and expects this inventory to increase with
additional developments on its land. The average drilling, completion, equipping
cost of the five Q1 2012 horizontal wells decreased 10% from 2011 to $1.8
million and is an early indication of the targeted drilling and completion cost
reductions. The Company has identified further initiatives to reduce drilling,
completion and equipping costs by more than 25% with expanded development. These
initiatives will not only increase the rate of return on existing projects but
will expand the Company's commercial inventory. Pace has extensive knowledge of
the many play types in Southern Alberta and is able to develop and grow its
prospect inventory through the successful deployment of horizontal drilling and
advanced completion technologies as well as identify exploitation and
enhancement opportunities on its large inventory of legacy oil pools. Pace's
Southern Alberta oil program continues to deliver strong economic returns and
generates ongoing oil growth.
In Northwest Alberta the Company continues to enhance and refine its existing
light oil production (approximately 1,000 bbls/d) while focusing on efficiencies
and cost reduction related to its low decline natural gas production base. At
Haro the Company has a large contingent oil resource play with estimated 1.16
billion barrels of assigned Discovered Petroleum Initially-In-Place and is in
the early stages of its evaluation. Haro is an area of seasonal access currently
restricted to approximately 90 days each winter. Following last year's results
our go forward strategy is to limit capital and test completion methods to
determine the best practices to economically develop this large resource. This
winter the Company completed its second winter of operations drilling 4 (4.0
net) horizontal Pekisko wells and completing 3 (3.0 net) wells. Pace holds over
95 sections of land and this winter's program was spread across approximately
40km and was directed at land preservation and testing various completion
techniques. The drilling program maintains most of the Company's lands in the
Haro area for another five years. During the quarter the Company employed a more
modest and methodical completion program evaluating two different completion
techniques. The first completion technique using a solvent and acid wash was
performed open hole on two of the wells. Results of solvent tests had varying
inflow and the Company concluded the wells require cemented liners and hydraulic
fracture treatments to selectively stimulate portions of the laterals. This work
will be performed in the winter of 2013.
The third well was completed using a multi-stage slickwater frac and was put on
restricted test flowback production mid-March for a three week period. This well
produced at oil rates of 50 - 100 bbls/d (average of approximately 60 bbls/d of
oil) with oil cuts increasing to 40% during clean-up. Unfortunately, in early
April the Company ceased all testing operations and shut- in all its Haro South
oil production (approximately 100-150 bbls/d) after identifying premature
corrosion of its 8" group line. Production will remain shut- in until the line
can be accessed and repaired in late 2012.
As mentioned Pace is in the early stages in identifying the techniques and
processes to unlock this resource and the Company is encouraged with the
knowledge gained during the winter's activities in Haro. The 02-36-101-5W6 well
continued to produce along the Company's type curve and the Company estimates
that this well will produce approximately 150 mbbl of oil over its life. As the
Company continues to de-risk this large resource all-weather roads can be built
to provide year round access.
The Company's Dixonville property with its large Montney "C" oil pool continues
to show strong waterflood response and increased production. In Q1 2012
production for the area averaged over 3,200 bbl/d of oil and more than 3,600
boe/d. During Q1 2012, 6 producing wells were converted to water injectors with
additional capital incurred to complete 80% of the additional water injection
system. In 2012 the Company will convert an additional 11 wells to water
injectors that will be completed late in Q2 or early Q3 2012. Once this work is
completed pressure maintenance will be in place over the entire pool. As part of
our program of operating cost reduction and execution efficiency the Company
will also look to optimize this field by reducing workover, power and
maintenance costs and increasing up-time. This large oil pool has significant
upside to the Company as the 188 mmbbl oil pool currently has remaining proved
reserves of 16.2 mmbbl and is booked at less than 12% recovery. Pace is also in
the early stages of work to review potential for ASP application as an enhanced
recovery scheme for this pool. Enhanced recovery schemes have additional
potential to increase production and add low cost reserves for many years to
come at Dixonville.
In Red Earth, numerous area operators have highlighted the significant light oil
resource potential of the Slave Point. Pace is well positioned with over 30,000
net acres of Slave Point rights that can be pursued over the next winter's
program. Pace will continue to monitor industry activity as it establishes area
best practices and surrounding activity helps de-risk Pace lands. From our
previous successful programs in the Granite Wash and Keg River, Pace has created
a significant operating platform from which the Slave Point oil can be
efficiently developed.
Financial Highlights:
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Financial
(000s, except per share amounts) Q1 2012 Q1 2011 Q4 2011
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Funds from operations $ 14,727 $ 24,599 $ 26,159
Per share- Basic 0.31 0.52 0.55
Per share- Diluted 0.31 0.52 0.55
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Net income (loss) $ (4,986) $ 1,687 $ 454
Per share- Basic (0.11) 0.04 0.01
Per share- Diluted (0.11) 0.04 0.01
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Total capital expenditures $ 41,696 $ 45,732 $ 44,129
Net acquisitions (dispositions) - (2,000) 23
Net debt 212,873 173,245 186,129
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Operations
Average daily production
Oil & NGLs (bbls/d) 7,192 5,868 6,965
Natural gas (mcf/d) 44,190 49,640 43,442
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Combined (boe/d) 14,557 14,141 14,205
% Oil & NGLs 49% 41% 49%
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($/boe)
Sales price $ 47.82 $ 45.22 $ 53.04
Royalties (12.51) (9.26) (13.01)
Operating expenses (16.11) (13.51) (13.84)
Transportation expenses (2.11) (1.68) (2.01)
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Operating netback $ 17.09 $ 20.77 $ 24.18
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In Q1 2011 operating costs were higher than normal as Pace recorded one-time
prior period charges on non-operated properties of $1.06 per boe for settlements
of processing fees, 13th month adjustments, and maintenance charges. In addition
adverse weather and road conditions at Haro increased road maintenance costs and
chemical and power costs budgeted for the entire calendar year were incurred in
the first quarter. Normalizing these expenses out of the remaining portion of
the year, Pace expects annual operating costs to be between $13.75 and
$14.50/boe for calendar year 2012.
OUTLOOK
At Pace, we were early to identify the changes taking place in the natural gas
markets and made an aggressive move to transition to an oil weighted producer.
Over the past two years we have directed over 90% of our capital to oil
opportunities and have transitioned from a gas weighted producer (65% gas on a
6:1 basis) to approximately 50% oil and NGL weighted with 85% of our sales
coming from oil. In addition we have built a large oil exploitation inventory
and a large oil resource play inventory with the scale and flexibility to pace
development through commodity price volatility.
Through the past two years we have been successful in increasing our oil
production, our oil reserves and our oil weighted cash flows. Pace has
strategically built and will continue to build an abundance of development and
exploitation oil opportunities on its large land base. Despite the current
weakness in gas prices, we have a solid cash flow base and are well positioned
for continued growth from our large inventory of oil prospects on our high
quality asset base. With the successful results of our program supported by the
low decline production base and our large and long-term inventory of oil
development opportunities we have a clear path to continued oil growth and
adding value.
Our capital program is designed to be flexible and we generally target our
capital spending to approximate our cash flow. With the widening of oil
differentials, our Haro oil volumes being shut-in until late 2012 and continued
weak gas prices we are anticipating lower cash flow. Consistent with our stated
direction we have adjusted the capital program for the year and expect total
capital expenditures to be approximately $85 million for 2012. Despite reduced
capital and shut in volumes, we expect year over year oil growth of
approximately 15% with oil and liquids production to average 7,000 to 7,300
bbls/d in 2012 and are forecasting gas production to average 41 mmcf/d to 44
mmcf/d.
Pace has been focused in its plan and successful in its execution to build a top
tier oil weighted real-growth company with a solid asset base and a clear path
of continued growth and success.
CONFERENCE CALL
Pace will host a conference call to discuss Q1 2012 financial results. The
conference call will take place on Wednesday, May 9, 2012 at 09:00 a.m. Mountain
Time (11:00 a.m. Eastern Time).
To access and /or participate in the conference call dial 1-877-407-0782
(Toll-Free Canada/USA) or dial: 1-201-689-8567 (International). Participants are
advised to dial into the call five minutes prior to the starting time to
register. To access and listen to the simultaneous webcast by internet, enter in
your web browser: http://www.investorcalendar.com/IC/CEPage.asp?ID=168440
A replay of the conference call will be available for a limited time by dialing
1-877-660-6853. The replay passcode is Account # 286 Conference ID # 383898. In
addition, the webcast will be archived on Pace's website at www.paceoil.ca for a
limited time.
Pace Oil & Gas Ltd. is a Calgary, Alberta based intermediate sized oil-weighted
company with a large portfolio of near term oil resource opportunities in the
Western Canadian Sedimentary Basin. Pace has a growing oil production base in
the Peace River Arch area with its large Montney pool at Dixonville, its Slave
Point light oil resource play at Red Earth and in Southern Alberta, is
successfully developing and exploiting a large inventory of identified Mannville
channels. In Northwest Alberta, the Company is in the early stages of exploring
a large Pekisko oil resource play. Pace has a large land inventory of over
800,000 net acres and a large 3-D seismic database to identify drilling
opportunities and uses the newest proven technologies in horizontal drilling,
multi-stage completions, and enhanced oil recovery processes to grow its
production and reserve base.
Pace's common shares trade under the symbol PCE on the TSX and PACEF on the OTC.
ADVISORY
Natural gas is converted to barrels of oil equivalent ("boe") at a ratio of six
thousand cubic feet to one barrel of oil. Boe's may be misleading, particularly
if used in isolation.
FORWARD-LOOKING STATEMENTS
Certain statements contained within this press release constitute
forward-looking statements. These statements relate to future events or our
future performance. All statements other than statements of historical fact may
be forward-looking statements. The use of any of the words "targeting",
"continue", "until", "forecast", "estimate", "expect", "may", "will", "project",
"should", "believe" and similar expressions are intended to identify
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in such forward-looking statements. In
particular, statements relating to "reserves" or "resources" are deemed to be
forward-looking statements, as they involve the implied assessment, based on
certain estimates and assumptions that the resources and reserves described can
be profitably produced in the future. In addition, this press release contains
forward-looking statements with respect to: (i) production volumes and
expectations regarding the timing of when additional production volumes will be
brought on stream; (ii) Pace's drilling plans and the results therefrom
including expectations regarding well completions and the start-up of new wells;
(iii) future development and exploration activities and the timing thereof; (iv)
Pace's plans for the development of its proven and probable undeveloped
reserves. With respect to the forward-looking statements contained in this press
release, Pace has made assumptions regarding:
-- prevailing commodity prices and exchange rates;
-- availability of labour and drilling equipment;
future operating expenses including processing and gathering fees;
-- timing and amount of capital expenditures;
government regulation in the areas of taxation, royalty rates and
environmental protection;
-- production of new and existing wells and the timing of new wells coming
on-stream; and
-- the performance characteristics of oil and natural gas properties.
Although Pace believes that the expectations and assumptions on which the
forward-looking statements are based are reasonable, undue reliance should not
be placed on the forward-looking statements because Pace can give no assurance
that they will prove to be correct. Since forward-looking statements address
future events and conditions, by their very nature they involve inherent risks
and uncertainties. These statements speak only as of the date of this press
release or as of the date specified in the documents incorporated by reference
into this press release, as the case may be. Actual results could differ
materially from those currently anticipated due to a number of factors and
risks. These include, but are not limited to:
-- volatility in market prices for oil and natural gas, and in exchange
rates;
-- liabilities inherent in oil and natural gas operations and limitations
on insurance;
-- changes or fluctuations in production levels;
-- stock market volatility and market valuation of our stock;
-- uncertainties associated with estimating oil and natural gas reserves;
-- competition for, among other things, capital, acquisitions of reserves,
undeveloped lands and skilled personnel;
-- incorrect assessments of the value of acquisitions and exploration and
development programs;
-- geological, technical, drilling, production and processing problems;
-- changes in legislation including changes in tax laws, royalty rates and
incentive programs relating to the oil and natural gas industry; and
other factors which are included under "Risk Factors" in Pace's Annual
Information Form on file with the Canadian securities regulatory authorities and
may be accessed through the SEDAR website (www.sedar.com). Readers are cautioned
that the foregoing lists of factors are not exhaustive. The forward-looking
statements contained in this press release are expressly qualified by this
cautionary statement. The forward-looking statements contained in this document
speak only as of the date of this document and Pace does not assume any
obligation to publicly update or revise them to reflect new events or
circumstances, except as may be required pursuant to applicable securities laws.
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