Painted Pony Petroleum Ltd. (TSX VENTURE:PPY.A) (TSX VENTURE:PPY.B) ("Painted
Pony" or the "Company") is pleased to report the financial results for the year
ended December 31, 2008. The Company achieved the following during 2008:
- crossing the 1,000 boe/d benchmark in September, to average 1,173 boe/d in the
fourth quarter;
- aggregating 147,877 net acres in Saskatchewan and British Columbia, with
undeveloped land independently valued at $58.4 million;
- growing proved and probable reserves 688%, to 4,360 mboe; and
- exiting 2008 with positive working capital of $11.8 million and undrawn
available credit facilities of $22 million.
Targeting the Bakken in Saskatchewan
Painted Pony's initial focus was to extend the boundaries of the Bakken field
surrounding the towns of Stoughton and Viewfield. In 2008, the Company drilled
48 (20.3 net) wells in Saskatchewan, primarily Bakken wells in the Kisbey,
Midale and Weyburn areas. By the end of 2008, Painted Pony had accumulated
54,000 net acres of developed and undeveloped land, of which 98% were
undeveloped. Fourth quarter sales in Saskatchewan increased to 620 bbls/d of
light oil.
Within the Bakken play, technology has continued to evolve. Resource plays
justify experimenting with new approaches, then applying successes to subsequent
operations. Painted Pony recently drilled two shortened horizontal wells at a
100% working interest. The wellbores are approximately half the length of
conventional horizontal Bakken wells, but have the same number of fracture
treatments, thereby "down-spacing" the fractures. The Company believes there are
multiple advantages to this new technique. Most importantly, with the fracture
treatments closer together, a higher percentage of the reservoir is stimulated;
it is believed this will result in higher recovery factors. To date there has
been no discernable difference in production performance using this new
technique. Shorter wells also cost less to drill, reduce the need for pooling of
mineral rights, and could effectively double the number of viable locations.
As commodity prices declined in the second half of 2008, Painted Pony revised
its drilling program to minimize risk and optimize cash flow. The Company
drilled its first "down-spaced" well, resulting in three full-length wells per
half section of land, rather than two. The well is on production and is showing
no signs of interference. The Company has also focused on drilling on
unencumbered crown lands which enjoy reduced royalties. As oil prices stabilize,
Painted Pony will resume exploratory drilling to further extend the Bakken
field. Meanwhile, capital costs are improving as industry activity has
decreased; since mid-year 2008, rig utilization and demand for services has
dropped, which has resulted in a material reduction in costs.
Targeting Conventional and Unconventional Gas in British Columbia
In March of 2008, the Company acquired a multi-zone, gas producing asset in
Northeast British Columbia. The Company subsequently participated in the
successful drilling of two (1.0 net) vertical wells and the recompletion of one
(1.0 net) well, all targeting the Bluesky zone. At the end of 2008, Painted Pony
had accumulated 93,900 net developed and undeveloped acres of land (79%
undeveloped) in Northeast British Columbia. In the fourth quarter of 2008, sales
averaged 553 boe/d, weighted 96% gas and 4% natural gas liquids.
Unconventional Gas - Montney
The Triassic Montney formation is an areally-extensive, dolomitic siltstone and
shale resource play that has been developed to the south and east of the
Company's Blair/Cameron properties. Industry competitors are now drilling wells
targeting the Montney on lands directly offsetting Company lands. The Company
currently has over 60,000 net acres of land with Montney rights. In the
Blair/Cameron area, the Montney zone is sweet, over-pressured and gas-charged.
Painted Pony entered into two farm-out agreements with an active Montney
exploration company in order to evaluate its Montney potential with minimal
capital exposure. The partner has committed to drill at minimum four wells; the
first two wells began drilling late in 2008 and early in 2009.
Unconventional Gas - Buckinghorse/Fort St. John Group Shale
The Buckinghorse formation is an organic-rich, Cretaceous-aged shale up to 800
meters thick. The zone is over-pressured, gas-charged and shallow, found between
400 and 1,200 meters in depth. The Company holds over 70,000 net acres of land
on the trend, and while the commerciality of the resource has not been
established, the resource potential is significant.
In the fourth quarter of 2008, Painted Pony participated in the experimental
re-completion of two vertical wells in the Blair area. Both wells were completed
throughout the Buckinghorse formation and have been placed on production at
modest rates. Continued experimental drilling and completion techniques are
planned for the remainder of 2009.
The Steady Climb Continues
Since commencing operations less than two years ago, Painted Pony has focused on
three resource-style plays. Driven by a financially conservative mandate, the
Company will continue to balance a scaled-back development drilling program
until commodity markets improve.
Readers are invited to visit the Company's updated presentation dated April 6,
2009 on our website at www.paintedpony.ca.
Financial and Operating Highlights
2008 2007 % change
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Financial
Petroleum and natural gas revenue
(before royalties) $ 20,634,939 $ 782,843 2,536
Funds flow from operations (1) $ 12,757,791 $ 602,956 2,016
Per share - basic and diluted(2) $ 0.38 $ 0.07 443
Cash flow from operating activities (1)$ 13,599,073 $ 166,548 8,065
Net earnings $ 5,453,146 $ 157,448 3,363
Per share - basic and diluted(2) $ 0.16 $ 0.02 700
Capital expenditures, including
ARC(4), net $ 72,714,077 $ 6,147,396 1,083
Net working capital $ 11,834,615 $ 16,250,793 (27)
Total assets $ 97,193,946 $ 26,194,023 271
Shares outstanding
Class A 28,222,700 15,282,700 85
Class B 1,173,600 1,173,600 -
Operational
Daily sales volumes
Oil sales (bbls/d) 386 25 1,444
Natural gas liquids (bbls/d) 17 - -
Natural gas (mcf/d) 2,149 - -
Total (boe/d) 761 25 2,944
Realized prices
Oil ($/bbl) $ 94.50 $ 85.46 11
Gas ($/mcf) $ 8.59 - -
Field operating netbacks
Oil - S.E. Saskatchewan operations
($/bbl) $ 65.89 $ 62.06 6
Gas & liquids - N.E. B.C. operations
($/boe) $ 26.41 - -
Company combined ($/boe) $ 46.45 $ 62.06 (25)
Net developed & undeveloped land
S.E. Saskatchewan (acres) 54,010 6,605 718
N.E. B.C. (acres) 93,867 - -
Total (acres) 147,877 6,605 2,139
Total proved and probable reserves
(mboe, 6:1) 4,360.2 553.0 688
Wells drilled(3)
Gross 50 6 733
Net 21.33 2.41 785
Net success rate 86% 100% -
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1. This table contains the term "funds flow from operations", which should
not be considered an alternative to, or more meaningful than "cash flow
from operating activities" as determined in accordance with Canadian
generally accepted accounting principles ("GAAP") as an indicator of the
Company's performance. Therefore reference to funds flow from operations
or cash flow from operations per share (basic and diluted) may not be
comparable with the calculation of similar measures for other entities.
Management uses funds flow from operations to analyze operating
performance and leverage and considers funds flow from operations to be a
key measure as it demonstrates the Company's ability to generate the cash
necessary to fund future capital investment. The reconciliation between
funds flow from operations and cash flow from operating activities can be
found in "Management's Discussion and Analysis". Funds flow from
operations per share is calculated using the basic and diluted weighted
average number of shares for the period after the deemed conversion of
the Class B shares to Class A shares.
2. Class B shares are converted into Class A shares at $10 divided by the
greater of $1.00 and the Current Trading Price, defined as being the
weighted average trading price per share of Class A shares for the last
30 consecutive trading days.
3. "Gross and net wells drilled" in 2008 excludes a salt water disposal
well, and includes a stratigraphic well. "Net wells drilled" refers to
net revenue interest. "Net success rate" in 2008 excludes a
stratigraphic well. Gross and net wells drilled in 2008 exclude 2
(1.0 net) gas wells drilled between acquisition effective and close date.
4. Asset retirement costs.
Advisory
This news release contains certain forward-looking statements, which include
assumptions with respect to (i) drilling success; (ii) production; and (iii)
future capital expenditures; and (iv) cash flow from operating activities. The
reader is cautioned that assumptions used in the preparation of such information
may prove to be incorrect.
With respect to forward-looking statements contained in this document, Painted
Pony has made a number of assumptions. The key assumptions underlying the
aforementioned forward-looking statements include assumptions that: (i)
commodity prices will be volatile throughout 2009 and, overall, lower than 2008
prices; (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 levels in 2009 are
expected to show modest growth from fourth quarter production rates; (v) Painted
Pony has sufficient financial resources with which to conduct the capital
program; and (vi) the continuation of the current tax and regulatory regime will
remain substantially unchanged. Certain or all of the forgoing assumptions may
prove to be untrue.
Certain information regarding Painted Pony set forth in this document, including
management's assessment of Painted Pony's future plans and operations, number,
type and timing of wells to be drilled, the planning and development of certain
prospects, production estimates, and expected production growth 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, the
impact of general economic conditions, industry conditions, volatility of
commodity prices, currency fluctuations, environmental risks, competition, the
lack of availability of qualified personnel or management, 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, stock market volatility, 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, stock market
volatility and market valuations of companies with respect to announced
transactions and the final valuations thereof, and obtaining required approvals
of regulatory authorities. 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 Corporation will derive therefrom. Readers are cautioned
that the foregoing list of factors is not exhaustive. All subsequent
forward-looking statements, whether written or oral, attributable to the
Corporation or persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements.
Additional information on these and other factors that could affect Painted
Pony's operations and financial results are included in reports on file with
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.
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.
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