Q3 ReleasedHighlights
Pan Orient Energy earns $10.61-million in third quarter
2009-11-26 08:43 ET - News Release
Mr. Jeff Chisholm reports
PAN ORIENT ENERGY CORP.: 2009 THIRD QUARTER FINANCIAL & OPERATING RESULTS AND OPERATIONS UPDATE
Pan Orient Energy Corp. has provided highlights of its 2009 third quarter consolidated financial and operating results.
The Corporation today filed its unaudited consolidated financial statements as at and for the three and nine months ended September 30, 2009 and related management's discussion and analysis with Canadian securitiesr egulatory authorities. Copies of these documents may be obtained online at www.sedar.com or the Corporation's website, www.panorient.ca.
2009 THIRD QUARTER HIGHLIGHTS
-Pan Orient has directed Thailand capital programs in 2009 to the drilling of exploration and appraisal wells to add new reserves and associated new development drilling opportunities setting the stage for growth in 2010. The main focus for the third quarter has been appraisal drilling to further define the discoveries at Bo Rang and L44-W made earlier in the year. During the first nine months of 2009 Pan Orient has reinvested $35.6 million in Thailand including drilling,significantly increased water handling capability and future drilling location land purchase and construction. Capital expenditures in Thailand have been fully funded by production in Thailand which hasgenerated $43.8 million in funds flow from operations during this period.
- The 18 wells drilled in the first nine months of 2009 have resulted in twelve producing oil wells, one well at NSE-J2 currently awaiting perforating and testing, and five wells that were not capable of production. This represents a drilling success rate of 71%. Drilling success during the first nine months of 2009 has included significant appraisal wells at NSE-E2 and NSE-H1, new volcanic field /pool oil discoveries at NSE-F1, L44-W, NSE-H3, Bo Rang "A" and Bo Rang"B", and the discovery of a new producing sandstone reservoir at NSE-J1.
Capital expenditures of $12.4 million in the third quarter included three new wells at L44W (L44-W2, L44-W3 and L44-W4) and continued well operations at Bo Rang with sidetracks at L44-V and Bo Rang-1RD. During the third quarter of 2009 independent third party resource estimates were made by Gaffney Cline and Associates (GCA) for the 2009 discoveries at the BoRang "A" and "B" structures, L44-W and NSE-F1 in L44. The results of this evaluation as at August 31, 2009 were an additional 16.9 MMbl (net) of 2C contingent resource volumes for the Bo Rang "A" and "B" andL44-W structures, and 6.1 MMbl (net) of best case prospective resource volumes for the NSE F1. The contingent resource estimates are contingent upon Government of Thailand approval of the Company's production license application for those areas. The annual independent assessment of reserve volumes at year-end will determine reserves for all properties incorporating drilling results between August 31 and December 31, 2010.
- Thailand production volumes for the third quarter of 3,648 BOPD were consistent with the previously announced guidance of 3,300 to 3,700 BOPD, but were lower than the 4,840 BOPD produced in the second quarter of 2009. Production declined during the third quarter of 2009 as production additions from new wells did not replace the production declines. This reflects the emphasis in 2009 on exploration and appraisal drilling to better define recent discoveries.Current production is approximately 3,835 bopd with an additional 300bopd, (4,135 bopd total production capacity) currently shut-in until the granting of a new production license over Bo Rang, L44-W and NSE-F1, anticipated in late December 2009. Three additional Bo Rang "B"horizontal development wells and two L53 concession exploration wells are anticipated to be drilled and tested prior to year end.
- On a year to date basis, average production for the first three quarters of 2009 was 4,875 BOPD compared with 4,263 BOPD for the fist three quarters of 2008.
- The operating results for Pan Orient in the third quarter of 2009 compared to the previous quarter reflect higher crude oil prices, lower production volumes, and foreign exchange gain recognized upon realization of the entire non-permanent portion of Pan Orient's investment in Thailand.
-- Funds flow from operations for the quarter was $11.2 million compared with $16.6 million for the second quarter of 2009 and $17.4 million for third quarter of 2008.Funds flow from operations per share (diluted) was
.23 for the third quarter of 2009 and .90 year to date. The decrease in funds flow fromoperations compared with the second quarter of 2009 is primarily the result of the lower revenue from a 25% decrease in production levels and higher income taxes in Thailand, partially offset by a 13% increasein the realized price for crude oil.
-- There was net income of$10.6 million, or .23 per share, for the three months ended September30, 2009 compared with a net loss of $5.3 million, or a loss of .12per share, for the second quarter of 2009. In the third quarter of 2009, the Company recorded a realized foreign exchange gain of $3.8million and an unrealized foreign exchange gain of $1.3 million compared with a realized foreign exchange gain of .7 million and an unrealized foreign exchange loss of $11.8 million in the second quarterof 2009.
On a year to date basis, Pan Orient reports net income of $8.1 million, or .18 per share to September 30, 2009 compared with net income of $20.9 million, or .46 per share, for the comparable period in 2008.
-- Foreign exchange is a significant factor in determining 2009 net income and will likely continue to be so in future periods because of the accounting treatment required under GAAP with regards to foreign exchange on our interests in Thailand.
A realized foreign exchange gain of $3.9 million was recorded in the third quarter of 2009 on the recovery of Pan Orient's inter-company loan portion of its investment in Thailand. The inter-company loans were primarily denominated in U.S. dollars and Thai baht, spanning a period of almost four years at varying exchange rates and resulted in an accumulated translation gain recorded on the balance sheet. This accumulated foreign currency gain related to the inter-company loans was reclassified to net earnings in the periods of settlement of the underlying loans resulting in a consequential increase to net income for the third quarter. This realized exchange gain is reported as an investing activity and is not part of operating activities or part of funds flow from operations.
Unrealized gains or losses, which are substantially all related to the translation of the Company's Thailand assets and liabilities commencing April 1, 2009 are a function of the change in the exchange rate between the Canadian dollar and Thai baht as well as the changes in the net asset balance. An unrealized foreign exchange gain of $1.3 million was recorded in the third quarter as the decline in the net assets offset the increase in the Canadian dollar.An unrealized foreign exchange loss of $11.8 million was recorded in the second quarter of 2009 because both net assets and the Canadian dollar increased during the period. The year-to-date loss of $10.5million reflects the strength of the Canadian dollar and an increase in net assets through 2009.
- For the third quarter of 2009,operations in Thailand generated $11.2 million in funds flow from operations, with transportation expenses of $2.35 per barrel, operating expenses of $5.95 per barrel, and funds flow from operations per barrel of $33.42. The WTI reference price for crude oil increased 15% during the quarter to US$67.89 per barrel from US$59.20 per barrel in the second quarter of 2009, but declined from US$117.62 in the third quarter of 2008. Operating expenses increased to $2.0 million or $5.95per barrel in the third quarter from $1.9 million or $4.24 per barrel in the second quarter of 2009 as a result of lower production levels and additional expenses for maintenance and water hauling. For the third quarter of 2009, Thailand crude oil revenue was allocated 15% to expenses for other royalties, transportation, operating, and general& administrative, 36% to the government of Thailand in the form of royalties, Special Remuneratory Benefit and Income Tax, and 49% to Pan Orient (before interest income and realized foreign exchange gain).
The Special Remuneratory Benefit as a percentage of crude oil sales was lower in the third quarter due to the level of capital investment in L44, which is a direct write-off in the calculation of SRB. For the calculation of Thailand income tax, exploratory expenses for producing concessions (including expenditures for drilling and representing 70% of capital expenditures) are fully deductible, other capital expenditures in the field (representing 24% of capital expenditures) are deducted as tax depletion based on the amount of production compared to the reserve base, and additions to the inventory of capital items (representing $1.9 million or 6% of capital expenditures) are not deductible until used in field operations. Income taxes for the third quarter increased due to a revised estimate for tax depletion. The actual amount of tax depletion for the year will be determined using the year-end reserve reports.
On a year to date basis, Thailand operations have generated $43.8 million in funds flow from operations after tax, or $32.87 per barrel. For the first three quarters of 2009,Thailand crude oil revenue was allocated 15% to expenses for other royalties, transportation, operating, and general & administrative, 28% to the government of Thailand in the form of royalties, Special Remuneratory Benefit and Income Tax, and 57% to Pan Orient (before interest income and realized foreign exchange gain).
- Capital expenditures in Indonesia were $3.5 million for the third quarter and$8.5 million for the nine months ended September 30, 2009. These expenditures were related to seismic programs being conducted in both the Citarum Production Sharing Contract area and Batu Gajah Production Sharing Contract area.
- Pan Orient continues to maintain its financial strength and flexibility. At September 30, 2009 Pan Orient had $39.8 million of working capital and deposits, and no long-term debt. For the nine months ended September 30, 2009 Pan Orient had internally generated funds flow from operations of $43.0 million, funding 97% of the $44.5 million of capital expenditures in Thailand,Indonesia and Canada. In addition, at September 30, 2009 Pan Orient had $8.8 million of equipment inventory to be utilized for future Thailand and Indonesia operations that is included in petroleum and natural gas assets on the balance sheet.