not bad, good inventory of drilling locations.
cheers,
dave.
Pace Reports Q2 Results and Announces Successful Oil Drilling in New Southern Alberta Resource Play
CALGARY, ALBERTA--(Marketwire - Aug. 14, 2012) - Pace Oil & Gas Ltd. ("Pace" or the "Company") (TSX:PCE.TO - News) is pleased to provide an update of its operations and its financial results for the three and six months ended June 30, 2012.
HIGHLIGHTS
In Q2 2012 Pace continued to focus on its oil activities advancing its Southern Alberta oil drilling program and continuing work on its waterfloods in Dixonville and Southern Alberta. The company is pleased to announce successful results from its internally generated and 100% Pace owned Pekisko oil play at Matziwin. During the quarter the company successfully drilled two horizontal wells which were completed in Q3 with initial results exceeding expectations.
For the quarter production averaged 13,765 boe/d compared to 14,262 boe/d for the second quarter of 2011 with oil weighting increasing to 46% from 43%. Total oil production increased 6% from Q2 2011 and averaged 6,015 bbls/d, NGL production averaged 360 bbls/d and natural gas production averaged 44.3 mmcf/d. Funds flow from operations was $16.5 million (
.35 per share) for the quarter compared to $25.9 million (
.54 per share) for the same period in 2011, reflecting the impact of an average natural gas price of $1.90 per mcf compared to $3.87 per mcf in 2011.
OPERATIONS
Pace's capital program for 2012 has focused on its oil opportunities in Southern and Northwest Alberta along with further development of its waterflood projects at Dixonville and Southern Alberta. During the first half of the year, the Company drilled 12 (11.4 net) oil wells and completed 14 (11.2 net) wells, conducted 22 (17.8 net) injector conversions, and placed 13 (10.2 net) wells on stream.
Southern Alberta
In Southern Alberta, Pace has a large inventory of oil prospects on more than 310,000 net acres of land. This has been a focus area for the Company delivering strong growth in oil and liquids production which increased 26% year over year, averaging approximately 2,300 bbls/d for Q2 2012. In addition to our existing large inventory of Glauconite/Mannville locations the Company has been assembling land and testing a new resource play in the Matziwin area.
At Matziwin, Pace now controls over 65,000 net acres of land and is encouraged with early results from this program. There is existing conventional production from a number of vertical wells on the play and the Company successfully applied horizontal drilling and multi-stage completion techniques to establish Matziwin as a new focus area resource play. During the quarter the Company drilled 2 (2.0 net) horizontal Pekisko oil wells that were both completed in July 2012. Using a pad drilling program we experienced a 15% cost reduction with additional savings and efficiencies available to enhance the robust economics of this repeatable resource play. The first well was completed using a 20 stage slick water frac. Initial results from the well are very encouraging with the well flowing approximately 2,000 bbls of oil in 93 hours during clean up with an average oil cut of 65%. The well was placed on production on July 27th and is currently producing 240 bbls of oil per day at a 90% oil cut. The 2nd well was completed using 15 stage slick water frac and brought on in early August and is producing at 150 bbl oil per day at 65% oil cut and continuing to clean up. The results of this program are very positive and with the early success the Company estimates it has added an additional 60 - 100 locations on this play and a key component (a large repeatable oil resource play) to the Company's strengths. Pace's Southern Alberta oil program continues to deliver strong economic returns and generates ongoing oil growth in the Glauconite, Mannville Lithic, and Pekisko horizons.
At Retlaw the Company has completed its waterflood implementation on its BBB/NNN operated pool and converted 10 producing wells to water injection wells and completed a water source well. Water injection began in May 2012 with falling gas to oil ratios and rising injection pressure indicating early positive reservoir fill up is being achieved. Production is forecast to increase from current rates within the next 9 to 12 months.
Dixonville
The Company's Dixonville property with its large Montney "C" oil pool continues to show strong waterflood response. During 2012, 11 producing wells have been converted to water injectors with the final conversions in Phase 4 & 5 to be completed in Q3. Once this work is finished pressure maintenance will be in place over the entire pool. The Company continues to optimize this field and looks to reduce operating costs and increase recovery. 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 an enhanced recovery scheme for this pool. Enhanced recovery schemes have potential to increase production and add low cost reserves for many years to come at Dixonville.
Red Earth
In Red Earth, numerous area operators have highlighted the significant light oil resource potential of the Slave Point. Pace is well positioned with over 28,000 net acres of Slave Point rights. 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. Downtime associated with a third party operated facility resulted in the shut in of approximately 200 - 300 bbl/d of light oil commencing June 29th and we expect the majority of production to be back online by the end of August.
NW Alberta
Production in NW Alberta for the quarter averaged 3,200 boe/d including 559 bbls/d of liquids. During the quarter approximately 600 bbls/d and 700 mcf/d were shut in due to two separate third party outages. The first was a third party sour gas plant turnaround that was expected to last 10 days had the plant offline for most of the quarter is now online but not taking volumes at pre shut-in rates. The second outage was due to a third party pipeline integrity problem downstream of a Pace well that produces light oil and sour gas. The line repair has taken longer than initially expected and the third party operator now estimates production will be back onstream late in Q3 2012.
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. During the winter the Company drilled 4 wells to test various completion techniques and to maximize land retention. Initial flow rates from two of the wells produced in the range of our economic type curve but unfortunately after identifying premature corrosion of its 8" group gathering line the Company ceased all testing operations and shut-in all its Haro South oil production for the year until the line can be repaired early next winter. At this time the Company is pursuing joint venture funding for the property.
RAINBOW LAKE SPILL
On May 19, 2012 an oil spill was discovered at a Pace operated Rainbow Lake water disposal well. It is estimated that 800 m3 of sweet Bluesky oil was leaked from an above ground section of piping. The release occurred as a result of a hole caused by internal pit corrosion that was accelerated through stray electrical currents in the surrounding area. The source of the stray current is under investigation. Similar piping systems were shut down and checked but did not exhibit corrosion concerns. A corrosion engineering firm has been retained by Pace to perform an assessment of Pace's operating infrastructure. Pace reacted quickly to the spill and has completed a substantial amount of clean-up and continues to work collaboratively with all government agencies. Costs to date are estimated at $16.7 million and total clean-up costs are estimated at $25 million (including contingent costs for excavation around the wellhead). Pace in consultation with its advisors has determined that the incident should be covered by its insurance policies and has received confirmation from its primary insurer but has not received confirmation from all the insurance providers. The majority of the site is being bio-remediated and naturally attenuated and an excavation contingency plan for the area surrounding the well head is being developed if the need arises.
The oil leak that occurred during the quarter commanded a significant amount of resources and we responded accordingly. Pace implemented a large scale cleanup effort and we are now into the remediation efforts. At its peak the clean-up effort had more than 100 people on-site and we have now reduced that to 4. We are committed to ensuring the site is restored and our efforts are ongoing in this regard. The site will continue to be monitored until it has been completely restored.
FINANCIAL HIGHLIGHTS Financial (000s, except per share amounts) Q2 2012 Q2 2011 Q1 2012 YTD 2012 YTD 2011 ---------------------------------------------------------------------------- Funds from operations $16,485 $25,920 $14,727 $31,212 $50,519 Per share- Basic 0.35 0.54 0.31 0.66 1.06 Per share- Diluted 0.35 0.54 0.31 0.66 1.06 ---------------------------------------------------------------------------- Net income (loss) $(56,581) $9,042 $(4,986) $(61,567) $10,729 Per share- Basic (1.20) 0.19 (0.11) (1.31) 0.23 Per share- Diluted (1.20) 0.19 (0.11) (1.31) 0.22 ---------------------------------------------------------------------------- Total capital expenditures $13,688 $15,910 $41,696 $55,384 $61,642 Net acquisitions (dispositions) - - - - (2,000) Net debt 210,765 163,459 212,873 210,765 163,459 ---------------------------------------------------------------------------- Operations Average daily production Oil & NGLs (bbls/d) 6,375 6,077 7,192 6,784 5,973 Natural gas (mcf/d) 44,340 49,111 44,190 44,265 49,374 ---------------------------------------------------------------------------- Combined (boe/d) 13,765 14,262 14,557 14,162 14,202 % Oil & NGLs 46% 43% 49% 48% 42% ---------------------------------------------------------------------------- ($/boe) Sales price $40.04 $50.32 $47.82 $44.04 $47.79 Royalties (8.46) (10.87) (12.51) (10.54) (10.07) Operating expenses (15.34) (13.20) (16.11) (15.74) (13.35) Transportation expenses (2.11) (2.14) (2.11) (2.11) (1.91) ---------------------------------------------------------------------------- Operating netback $14.13 $24.11 $17.09 $15.65 $22.46 ----------------------------------------------------------------------------
OUTLOOK
Through the past two years we have been successful in increasing our oil production, our oil reserves and our oil weighted cash flows. We have built oil development, oil exploitation and now have added a repeatable oil resource opportunity at Matziwin. Despite lower commodity prices including lower oil prices from increased differentials we have a solid cash flow base and are well positioned with our large inventory of oil prospects on our high quality asset base.
We continue to experience shut-ins from third parties in Q3. While Pace operates substantially all of its production we process a portion of our production through third party operated facilities and are impacted both operationally and financially when unexpected outages or shut-ins occur. Pace expects production for the year to average between 13,500 - 14,000 boe/d (50% liquids).
The Company generally targets capital spending to approximate cash flow. With weaker than forecasted commodity prices and unforeseen shut-ins the Company is forecasting cash flow to be lower than previously anticipated and has prudently adjusted its capital program. The Company believes the successful results and the strong economics support timely development of its Matziwin resource play and budgets capital expenditures to be $70 - $80 million for 2012. We may consider pursuing alternate avenues of funding including the sale of non-core or non-strategic assets or pursuing joint-venture partnerships for certain large scale resource development opportunities. It is anticipated that funds from non-core sales will be used to reduce debt and fund the capital programs in Southern Alberta.