Peyto Exploration & Development Corp. press release
Pine Cliff Energy Ltd. announces fourth quarter and annual results
TSX - Toronto Stock Exchange · Natural Gas · Natural Gas Liquids · Oil · Canada
CALGARY, April 20 /CNW/ - Pine Cliff Energy Ltd. (www.pinecliffenergy.com) (TSX VENTURE:PNE) is pleased to announce its financial and operational results for the three months and fiscal year ended December 31, 2006. Much of the year's efforts were directed towards activities in South America. Staffing and becoming familiar with regulations and business philosophies in both Argentina and Chile were necessary prior to proceeding with the acquisition of properties.
These efforts are now being rewarded. In Q1, 2007, Pine Cliff's 93 percent owned subsidiary, CanAmericas Energy Ltd. ("CanAmericas"), was successful in negotiating two major farm-in arrangements in Argentina. One has been completed and the other is subject to completion of CanAmericas due diligence. The farm-ins will result in earning interests in a total of 912,810 gross acres (542,410 net acres) of exploration and exploitation lands. For more details kindly refer to "Property Discussions" of this report. Negotiations are ongoing with regard to the acquisition of additional exploration, exploitation and producing properties.
The Company is pleased with the progress that CanAmericas is making in South America. The geological potential and size of these concessions is extraordinary. A land position of this magnitude is extremely difficult to obtain and provides the potential for a large number of drill locations.
In 2007 Pine Cliff will also increase its activities in Canada. The focus will be to acquire production and to participate in more drilling.
HIGHLIGHTS 2006 2005(1)
Financial Revenue - Oil and Gas $ 661,100 $ 633,873 Funds flow from Operations(2) (424,248) 368,259 Per Share Basic (0.01) 0.01 Per Share Fully Diluted (0.01) 0.01 Net Loss (1,014,605) (329,062) Per Share Basic (0.03) (0.01) Per Share Fully Diluted (0.03) (0.01) Capital Expenditures and Acquisitions 271,926 2,097,930 Shareholders' Equity 4,239,638 5,110,407 Shares Outstanding (December 31) 36,523,041 36,420,041 Operations Oil and Liquids (barrels per day) 5 7 Average Price ($ per barrel) 63.88 62.42 Natural Gas (MCF per day) 195 175 Average Price ($ per MCF) 7.58 10.78 Total Barrels per Day (BOE per day)(3) 38 36 Reserves(4) Oil and Liquids (barrels) Proved Developed Producing (Gross) 10,200 13,300 Proved plus Probable (Gross) 13,700 21,400 Natural Gas (MCF) Proved Developed Producing (Gross) 326,000 352,000 Proved plus Probable (Gross) 440,000 568,000 Share Trading Statistics Share Prices (based on daily closing price) High $ 0.76 $ 0.61 Low $ 0.40 $ 0.42 Close $ 0.65 $ 0.55 Daily Average Trading Volume 3,754 7,535 (1) Operations commenced April 8, 2005 (2) Funds flow from operations is not a recognized measure under GAAP. Management believes that in addition to net earnings, funds flow from operations is a useful supplemental measure as it demonstrates the Company's ability to generate the cash necessary to fund future growth through capital investment. Investors are cautioned, however, that this measure should not be construed as an indication of the Company's performance. The Company's method of calculating this measure may differ from other issuers and accordingly, it may not be comparable to that used by other issuers. For these purposes, the Company defines funds flow from operations as funds provided by operations before changes in non-cash operating working capital items excluding foreign exchange loss and asset retirement expenditures. (3) BOE's are calculated using a conversion ratio of 6 MCF to 1 barrel of oil. The conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and as such may be misleading if used in isolation. (4) Gross reserves relate to the Company's ownership of reserves before royalty interests.
REVIEW OF OPERATIONS
Reserves
The Company engaged the services of Sproule Associates Limited to prepare a reserve evaluation with an effective date of December 31, 2006. The reserves are located in the Province of Alberta. The majority of the Company's production is comprised of natural gas. The Company's main gas producing area is located in the Sundance area of West Central Alberta. The gross reserve figure in the following charts represents the Company's ownership interest before royalties and the net figure is after deductions for royalties.
SUMMARY OF OIL AND GAS RESERVES AS OF DECEMBER 31, 2006 FORECAST PRICES AND COSTS
RESERVES Natural Natural Gas Gas Liquids Gross Net Gross Net RESERVE CATEGORY (MMcf) (MMcf) (Mbbl) (Mbbl) PROVED Developed Producing 326 249 10 7 TOTAL PROVED 326 249 10 7 PROBABLE 114 87 4 2 TOTAL PROVED PLUS PROBABLE 440 336 14 9
RECONCILIATION OF COMPANY GROSS RESERVES BY PRINCIPAL PRODUCT TYPE FORECAST PRICES AND COSTS
Natural Gas Gross Proved Gross Probable Gross Proved (MMcf) (MMcf) Plus Probable (MMcf) December 31, 2005 352 216 568 Technical Revisions 45 (102) (57) Production (71) - (71) December 31, 2006 326 114 440
SUMMARY OF NET PRESENT VALUES OF FUTURE NET REVENUE AS OF DECEMBER 31, 2006 FORECAST PRICES AND COSTS
NET PRESENT VALUE OF FUTURE NET REVENUE After Income Taxes Discounted at (%/year) 0 5 10 15 20 (M$) RESERVE CATEGORY PROVED Developed Producing 1,722 1,519 1,362 1,237 1,135 TOTAL PROVED 1,722 1,519 1,362 1,237 1,135 PROBABLE 483 346 258 200 161 TOTAL PROVED PLUS PROBABLE 2,205 1,865 1,620 1,437 1,296
Year Edmonton Par Alberta Gas Propane Butane Pentane Price Reference Price Plantgate (Cdn $ (Cdn $ (Cdn $ (Cdn $ (Cdn $ per barrel) per MCF) per barrel) per barrel) per barrel) 2007 74.10 7.51 43.94 55.23 75.88 2008 77.62 8.38 46.03 57.85 79.49 2009 70.25 7.55 41.66 52.36 71.94 2010 65.56 7.37 38.88 48.87 67.14 2011 61.90 7.54 36.71 46.14 63.40 2012 63.15 7.68 37.45 46.07 64.67 2013 64.42 7.79 38.21 48.02 65.98 2014 65.72 7.93 38.97 48.98 67.30 2015 67.04 8.07 39.76 49.97 68.66 2016 68.39 8.21 40.56 50.97 70.04 2017 69.76 8.35 41.38 52.00 71.45
Natural gas and liquid prices escalate at various rates thereafter.
The following cautionary statements are specifically required by NI 51-101.
It should not be assumed that the estimates of future net revenue presented in the above tables represent the fair market value of the reserves. There is no assurance that the forecast prices and costs assumptions will be attained and variances could be material. Disclosure provided herein in respect of BOE's may be misleading, particularly if used in isolation. In accordance with NI 51-101, a BOE conversion ratio of 6mcf:1bbl has been used in all cases in this disclosure. This BOE conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Estimates of reserves and future net revenues for individual properties may not reflect the same confidence level as estimates of reserves and future net revenues for all properties due to the effects of aggregation.
Land Holdings
The Company's holdings of natural gas leases and rights as of December 31, 2006 are as follows:
2006 2005 Gross Acres Net Acres Gross Acres Net Acres Alberta 7,360 2,802 7,680 2,844
Petroleum and Natural Gas Capital Expenditures
The following table summarizes petroleum and natural gas capital expenditures incurred by the Company on acquisitions, land, seismic, exploration and development drilling and production facilities for the years ended December 31:
2006 2005 Exploration and development costs $ 226,193 $ 1,089,632 Acquisitions - 999,701 Land costs - 5,490 Seismic - 2,433 Net petroleum and natural gas capital expenditures $ 226,193 $ 2,097,256
Drilling History
The following table summarizes the Company's gross and net drilling activity and success:
2006 Development Exploratory Total Gross Net Gross Net Gross Net
Natural Gas 1 0.1 - - 1 0.1 Success rate 100% 100% - - 100% 100%
2005 Development Exploratory Total Gross Net Gross Net Gross Net
Natural Gas 2 0.2 - - 2 0.2 Dry - - 1 1.0 1 1.0 Total 2 0.2 1 1.0 3 1.2 Success rate 100% 100% - - 67% 16.7%
PROPERTY DISCUSSIONS
Pine Cliff's only producing property is located in the Sundance area of West Central Alberta. The Company has a 13.7% average working interest in 5,280 acres (723 net) of Crown land in the area. There are currently 5 (0.53 net) wells producing. The wells produce from multiple zones from the Cadomin to the Belly River. Current production from the five wells is approximately 2,660 mcf/day gross, 305 mcf/day net to Pine Cliff. NGL's are produced in association with the natural gas.
There is still significant industry activity in the Sundance area. With the success of last year's drilling program the interests in non producing properties are being analyzed to determine whether there are additional prospective drilling locations. The increased activity in the area has caused bottlenecks in non-interest gathering systems and gas plants causing some of our wells to be shut-in from time to time over the last year. Increases in facility capacity and re-routing of a portion of our production have alleviated these problems at this time.
In 2006 Pine Cliff had decided to pursue oil and gas opportunities in South America. In 2007, the Company has been successful in negotiating two separate farm-in agreements to acquire an interest in 40 gross townships (912,810 acres) (net 24 townships (542,410 acres)) of land.
Canadon Ramirez Farm-In
The Company through its 93 percent owned subsidiary, CanAmericas Energy Ltd. ("CanAmericas") has earned a 49% interest in 47,940 gross acres (23,490 net acres) of an exploitation concession situated in the western part of the San Jorge Basin by committing to fund 100% of exploration costs totaling $US 5,500,000 over the next two years. The commitment includes conducting a 3D seismic program and drilling three wells in the first year at an estimated cost of $US 4,630,000. In the second year of the commitment CanAmericas is committed to spend the remainder of the $US 5,500,000 on drilling.
The acreage is bordered by several producing oil fields. Over 40 separate prospective reservoirs belonging to the Upper-Mid Cretaceous-aged Bajo Barreal and Castillo Formations, are known to exist within the farm in area at depths between 1950 - 5000 feet. Additionally, Neocomian aged source rocks within the farm in area have been proven to be oil generating and over pressured.
CanAmericas is currently conducting a 75 square mile 3D seismic survey which is to be completed by the end of May. It is the first such program to be recorded over the producing and earned areas that will permit detailed stratigraphic and structural mapping of multiple leads that were initially developed from existing 2D coverage. An agreement was made with an adjacent operator to trade seismic data providing us with data over a total of 93 square miles. This will allow CanAmericas to tie in its seismic data to seismic conducted over an existing producing oil field. A drilling rig has been contracted and drilling of three prospects is scheduled to begin by August, 2007.
San Jorge Basin Farm-In
The Company through its 93 percent owned subsidiary, CanAmericas, has negotiated exclusive rights to progressively earn a 60% interest in 864,870 gross acres (518,920 net acres) of an exploration permit situated in the north-central San Jorge basin. CanAmericas has the right to become operator of the Permit and will likely decide to do so after it has completed its due diligence.
Subject to completion of the due diligence, the exclusive rights commit CanAmericas to fund 100% of the costs to conduct an aero-magnetic and aero-gravity survey over the entire permit area, acquire 39 square miles of 3D seismic, and drill two exploration wells to earn a 30% participating interest in the entire permit. The surveys are to be completed within one year of the effective date of the agreement and the wells are to be drilled within two years of the effective date.
CanAmericas will earn an additional 30% in the entire permit by drilling two additional wells within three years of the effective date of the agreement. CanAmericas will receive 100 percent of cash flow from this property until it has recovered 100 percent of its costs for the two work programs. The estimated cost for both work programs is $US 4,620,000. After completion of the two work programs costs will be shared on a 60 percent CanAmericas and 40 percent farmor basis.
Principal reservoir objectives are multiple sands of the Upper-Mid Cretaceous Bajo Barreal and Castillo Formations which are known to exist throughout the permit at depths ranging between 1000 - 5000 feet. A producing oil field lies adjacent to the southern border of this permit and existing seismic data and well control suggests the productive trend may extend into the southern portion of this permit. Additionally, numerous oil and gas shows encountered by older wells drilled throughout the permit during the 1960's - 1980's prove that the permit contains an active hydrocarbon system.
CanAmericas will initially acquire the regional aero-gravity and aero-magnetic surveys over the entire permit and with this information, and existing well and 2D seismic coverage, will determine where to best conduct the required 3D seismic survey. The 3D coverage is expected to assist in better understanding strategraphic environments that were previously identified from existing 2D seismic coverage.
FINANCIAL AND OPERATIONAL
The Company was incorporated in the Province of Alberta on November 10, 2004 and commenced operations on April 8, 2005.
Quarterly Financial and Operational Highlights
2006 4th 3rd 2nd 1st Revenue - Oil and Gas $ 170,231 $ 90,386 $ 108,413 $ 292,070 Funds Flow from Operations(1) (51,833) (113,095) (337,020) 77,700 Per Share Basic (0.00) (0.00) (0.01) 0.00 Per Share Diluted (0.00) (0.00) (0.01) 0.00 Net Loss (209,575) (211,784) (526,107) (67,139) Per Share Basic (0.01) (0.01) (0.01) (0.00) Per Share Diluted (0.01) (0.01) (0.01) (0.00) Capital Expenditures and Acquisitions 19,227 (3,463) 124,236 131,926 Total Assets 4,494,010 4,700,305 4,892,079 5,373,147 Working Capital 2,963,513 3,030,822 3,175,577 3,625,133 Shareholder's Equity 4,239,638 4,411,915 4,589,015 5,093,951 Operations Oil and Liquids (barrels per day) 3 5 4 9 Natural Gas (MCF per day) 226 131 139 284
(1) Funds flow from operations is not a recognized measure under GAAP. Management believes that in addition to net earnings, funds flow from operations is a useful supplemental measure as it demonstrates the Company's ability to generate the cash necessary to fund future growth through capital investment. Investors are cautioned, however, that this measure should not be construed as an indication of the Company's performance. The Company's method of calculating this measure may differ from other issuers and accordingly, it may not be comparable to that used by other issuers. For these purposes, the Company defines funds flow from operations as funds provided by operations before changes in non-cash operating working capital items excluding foreign exchange loss and asset retirement expenditures.
Production
On April 8, 2005, with an effective date of January 1, 2005, the Company acquired interests in two natural gas properties for a cash payment of $999,701. The Sundance land, located in West Central Alberta was the major property acquired. Pine Cliff acquired a 13.2 percent working interest (subject to Crown royalty) in 4,320 acres in this area. There are two wells (0.308 net) on these lands that have been producing for approximately two years. Two additional multi-zone wells were drilled in 2005 (net 0.2) and a further well (0.038 net) was drilled in 2006. In 2006 production averaged 195 MCF (2005 - 175 MCF) of natural gas and five barrels (2005 - 7 barrels) of natural gas liquids per day.
During the second quarter of 2006, the operator of the gas plant, where approximately 80 percent of the Company's production is processed, performed an annual turnaround resulting in the significant reduction in production for that period. Subsequent to the completion of the turnaround, capacity restrictions resulted in the continued shut-in of the Company's production. In September the capacity restrictions were resolved and the Company's production resumed.
Pine Cliff also acquired a 100 percent interest in a 256 hectare Crown lease in the Auburndale area of East Central Alberta. The Company drilled a Devonian well for sweet natural gas during 2005. The Company tested the well and concluded that the projected production volume is not sufficient to construct a five kilometer pipeline to tie it in. The drilling and land costs were written off in 2005.
Revenue
Revenue from petroleum and natural gas sales for 2006 was $661,100 compared to $633,873 in 2005. The increase of $27,227 was due to higher production volumes offset by lower commodity prices. Average price received in 2006 for its natural gas was $7.58 (2005 - $10.78) per MCF and $63.88 (2005 - $62.42) per barrel for natural gas liquids. The Company did not have hedging agreements in either 2006 or 2005 and presently does not have any future hedging agreements.
Fourth quarter petroleum and natural gas sales increased to $170,231 from $90,386 in the third quarter. The increase is due to full production from the Sundance property as well as higher natural gas prices.
Royalties
Royalties consist of Crown royalties paid to the Province of Alberta and gross overriding royalties. In 2006 the Company recorded a net recoverable amount of $1,054 in Crown royalties compared to a Crown royalty expense of $17,464 in 2005. The operator of the Sundance property applied for and received a Crown royalty holiday in respect of the wells drilled in 2005. As customary in the industry, Crown royalties were paid on this well until the royalty holiday was granted. As a result of the Crown royalty holiday, the Company recovered in 2006 the full amount of the $17,464 paid in 2005. The royalty holiday has expired in 2006 and the Company is now paying royalties on this production.
Gross overriding royalties of $26,723 (2005 - $21,366) were recorded in 2006. There has been no significant change to the rates over the two years or quarter over quarter.
Interest Income
The Company maintains an investment account with its principal banker that pays interest at prime less 2.25 percent as long as the Company maintains a minimum balance of $1,500,000. The Company in March 2007 drew down on the outstanding cash balance to finance its seismic expenditure commitment in Argentina. Please refer to Business Prospects Section.
Production Costs
Production costs for the year ended December 31, 2006, were $132,346 (2005 - $53,449) or $9.62 (2005 - $5.41) per BOE (Q4 - $10.90 per BOE, Q3 - $9.37 per BOE). BOE's are calculated using a conversion ratio of 6 MCF to 1 barrel of oil. The conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and as such may be misleading if used in isolation. Due to capacity constraints at the gas plant, the Company is incurring increased processing fees in relation to its Sundance gas production.
General and Administrative
General and administrative expenses for 2006 were $1,043,866 (Q4 - $254,226) compared to $239,417 for 2005 and $220,442 for the third quarter of 2006. The primary reason for the increase in 2006 expenses was due to the Company incurring $621,621 in administration costs related to its activities in South America. The majority of the South American costs related to engineering and consulting fees of $408,651, travel and accommodation costs of $92,121, and legal costs of $96,559.
Pine Cliff does not have any employees at the present time but has engaged Comstate Resources Ltd. ("Comstate") a related party (see Related Party section), to provide management services and engages the services of consultants on a contract or temporary basis. Pine Cliff's subsidiary CanAmericas Energy Ltd. ("CanAmericas") has also engaged the services of two individual professionals as senior management and officers of CanAmericas.