CALGARY, ALBERTA--(Marketwired - Nov. 14, 2013) - Petrominerales (TSX:PMG)(BVC:PMGC) announces 2013 third quarter financial results and an operational update.
THIRD QUARTER FINANCIAL AND OPERATING HIGHLIGHTS
- We have entered into an Arrangement Agreement with Pacific Rubiales whereby, subject to shareholder and other customary regulatory approvals, Pacific Rubiales intends to acquire all of the issued and outstanding common shares of Petrominerales in exchange for Cdn$11.00 per share and one share of ResourceCo, a newly formed company that will hold all of Petrominerales' Brazilian assets and will be funded with approximately Cdn$100 million of cash.
- We conducted a successful well test from Taya-1 in the Mirador formation that produced 2,038 barrels of oil per day ("bopd") for the remainder of the quarter.
- We continued the successful appraisal drilling on our Mantis oil field with our Mantis-7 well demonstrating that the oil pool boundary continues to extend further north than mapped. We are now planning to drill Mantis-8 and 9 in 2014.
- In October we drilled a successful follow-up well, Curito-2, which has produced from the Carbonera C7 formation at an average rate of 1,859 bopd of 34 degree API oil to-date.
- Production averaged 23,712 bopd in the quarter, a 10% increase over the prior quarter due to exploration and field extension drilling success.
- We generated funds flow from operations of $125.1 million, or $1.47 per share. Funds flow was negatively impacted by $7 million due to using production to fill the OBC pipeline in the quarter.
- Our operating netback was $63.37 per barrel, 16% higher than previous quarter due to higher oil prices and lower operating costs.
- Our oil marketing business earned $20.4 million of operating cash flow including our first semi-annual dividend of $15.4 million from our OCENSA pipeline equity investment.
- We entered into a share purchase agreement to acquire the remaining 25% interest in certain Brazil assets for Cdn.$9.0 million, and expect the transaction to close in November. After closing we will have nearly 120,000 acres in Brazil located onshore in the Reconcavo and Tucano basins.
| Financial Highlights |
Three months ended September 30, |
|
Nine months ended September 30, |
|
| ($US millions, except where noted) |
2013 |
2012 |
% change |
|
2013 |
2012 |
% change |
|
| Oil sales |
279.4 |
251.4 |
11 |
|
802.9 |
874.2 |
(8 |
) |
| Funds flow from operations(1) |
125.1 |
151.9 |
(18 |
) |
314.3 |
525.4 |
(40 |
) |
| |
Per share - basic ($) |
1.47 |
1.69 |
(13 |
) |
3.71 |
5.49 |
(32 |
) |
| |
|
- diluted ($) |
1.46 |
1.68 |
(13 |
) |
3.68 |
5.41 |
(32 |
) |
| Adjusted net income (1) |
35.3 |
36.9 |
(4 |
) |
44.3 |
155.5 |
(72 |
) |
| |
Per share - basic ($) |
0.42 |
0.41 |
2 |
|
0.52 |
1.63 |
(68 |
) |
| |
|
- diluted ($) |
0.32 |
0.41 |
(22 |
) |
0.52 |
1.48 |
(65 |
) |
| Dividends declared |
10.3 |
11.2 |
(8 |
) |
30.8 |
34.7 |
(11 |
) |
| Expenditures on PP&E and E&E(2) |
56.8 |
114.6 |
(50 |
) |
227.2 |
483.6 |
(53 |
) |
| As at, |
September 30, 2013 |
June 30, 2013 |
|
December 31, 2012 |
| Net working capital deficit(1) (2) |
18.4 |
82.7 |
|
129.9 |
| Long-term bank debt and convertible debentures(4) |
692.7 |
662.9 |
|
598.9 |
| Total assets |
2,209.3 |
2,180.4 |
|
2,124.9 |
| Common shares (000s) |
85,016 |
84,898 |
|
84,464 |
| Common shares and in-the-money dilutives (000s)(5) |
89,791 |
89,182 |
|
86,883 |
| Operating Highlights |
Three months ended September 30, |
|
Nine months ended September 30, |
|
| |
2013 |
|
2012 |
|
% change |
|
2013 |
|
2012 |
|
% change |
|
| Production (bopd) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deep Llanos |
12,300 |
|
18,101 |
|
(32 |
) |
13,002 |
|
20,868 |
|
(38 |
) |
| |
Central Llanos |
7,645 |
|
3,687 |
|
107 |
|
5,359 |
|
4,337 |
|
24 |
|
| |
Neiva |
2,186 |
|
3,187 |
|
(31 |
) |
2,502 |
|
3,453 |
|
(28 |
) |
| |
Orito |
1,558 |
|
1,359 |
|
15 |
|
1,368 |
|
1,802 |
|
(24 |
) |
| |
Heavy oil |
- |
|
- |
|
- |
|
181 |
|
23 |
|
687 |
|
| Production Colombia |
23,689 |
|
26,334 |
|
(10 |
) |
22,412 |
|
30,483 |
|
(26 |
) |
| Production Brazil |
23 |
|
- |
|
- |
|
32 |
|
- |
|
- |
|
| Total production |
23,712 |
|
26,334 |
|
(10 |
) |
22,444 |
|
30,483 |
|
(26 |
) |
| Inventory changes and other |
(1,105 |
) |
612 |
|
(281 |
) |
(607 |
) |
136 |
|
(546 |
) |
| Produced oil sales volumes |
22,607 |
|
26,946 |
|
(16 |
) |
21,837 |
|
30,619 |
|
(29 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating netback ($/bbl)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Brent benchmark price |
110.31 |
|
109.61 |
|
1 |
|
108.46 |
|
112.18 |
|
(3 |
) |
| |
Discount - Brent to Vasconia |
(4.75 |
) |
(5.81 |
) |
18 |
|
(4.66 |
) |
(4.96 |
) |
(6 |
) |
| |
Vasconia benchmark price |
105.56 |
|
103.80 |
|
2 |
|
103.80 |
|
107.22 |
|
(3 |
) |
| |
Discount Vasconia to sales price |
(4.40 |
) |
(2.39 |
) |
84 |
|
(3.01 |
) |
(3.02 |
) |
- |
|
| |
Sales price(6) |
101.16 |
|
101.41 |
|
0 |
|
100.79 |
|
104.20 |
|
(3 |
) |
| |
Transportation expenses(6) |
8.41 |
|
6.09 |
|
38 |
|
7.98 |
|
6.82 |
|
17 |
|
| |
Realized crude oil price |
92.75 |
|
95.32 |
|
(3 |
) |
92.81 |
|
97.38 |
|
(5 |
) |
| |
Royalties(6) |
12.31 |
|
14.04 |
|
(12 |
) |
13.22 |
|
12.03 |
|
10 |
|
| |
Royalties as a % of realized price |
13 |
|
15 |
|
(13 |
) |
14 |
|
12 |
|
17 |
|
| |
Production expenses(6) |
17.07 |
|
18.39 |
|
(7 |
) |
19.66 |
|
15.94 |
|
23 |
|
| Operating netback(1) |
63.37 |
|
62.89 |
|
1 |
|
59.93 |
|
69.42 |
|
(14 |
) |
| (1) |
Non-IFRS measure. See "Non-IFRS Measures" at end of this news release. |
| (2) |
Working capital includes current assets less pipeline assets available for sale of $225 million, less trade payables and other liabilities. |
| (3) |
PP&E consists of property, plant and equipment assets and E&E consists of exploration and evaluation assets from the consolidated statement of cash flow. |
| (4) |
Consists of the principal portion of the Company's 2016 and 2017 convertible debentures and amounts drawn on the reserves-based credit facility. The holders of the 2016 convertible debentures have a one-time put option right of prepayment of the debentures on February 25, 2014. |
| (5) |
Consists of the sum of common shares, deferred common shares, incentive shares, and potential shares issuable on conversion of in-the-money stock options as at the period-end. |
| (6) |
Based on sales volumes of produced oil and the produced oil segment results from the segmented information note to the financial statements. |
FINANCIAL REVIEW
Our sales volumes of produced oil of 22,607 bopd and operating netback of $63.37 per barrel resulted in funds flow from operations of $125.1 million ($1.47 per basic share) for the third quarter, a 44% increase over the preceding quarter. This change primarily relates to 8% higher world oil prices, 10% higher production and receipt of our first OCENSA dividend of $15.4 million. Funds flow from operations was impacted in the third quarter by approximately $7 million due to production used to fill the OBC pipeline and therefore not sold and lower marketing income, as we purchased less third party oil due to lower available pipeline capacity for non-Petrominerales oil.
We reported a net loss in the quarter of $11.2 million. After adjusting for non-cash derivative expenses of $46.5 million, we reported adjusted net income of $35.3 million, $0.42 per basic share. The non-cash derivative expenses relate to accounting for the call feature embedded in our convertible debentures and when our stock price increases, we record an expense.
Capital expenditures in the third quarter were $56.8 million, representing a 36% or $31.8 million decrease from the second quarter of 2013 mainly due to lower drilling activities. We drilled six fewer wells compared to the second quarter.
As we previously disclosed, we entered into an Arrangement Agreement with Pacific Rubiales whereby, subject to shareholder and other customary regulatory approvals, Pacific Rubiales intends to acquire all of the issued and outstanding common shares of Petrominerales in exchange for Cdn$11.00 per share and one share of ResourceCo, a newly formed company that will hold all of Petrominerales' existing Brazilian assets and will be funded with approximately Cdn$100 million of cash. If all necessary approvals are obtained and the conditions to the completion of the Arrangement are satisfied or waived, Petrominerales anticipates that the Arrangement will become effective on or about November 28, 2013.
OPERATIONAL REVIEW
Production
As previously disclosed, third quarter production averaged 23,712 bopd, 10% or 2,173 bopd higher than the second quarter. Production in October was consistent with the third quarter and averaged 23,625 bopd.
Central Llanos Basin (Casimena, Castor, Casanare Este, Mapache Blocks), Colombia
On our Casanare Este Block, we drilled our second appraisal well to our Curito discovery, Curito-3. The Curito-1 discovery well tested oil in four different reservoir formations, the Ubaque, Gacheta, Mirador and Carbonera C7.
We drilled Curito-3 to a depth of 8,566 feet, to-date we have logged the C7 Formation and estimate 8 feet of potential net hydrocarbon pay. We plan to log the Gacheta and Ubaque formations before ultimately production testing the well.
Deep Llanos Basin (Corcel, Guatiquia, South Block 31, Canaguaro), Colombia
In May we acquired an 87.5 percent interest in the Canaguaro Block in the Llanos Basin, subject to ANH approval. This transaction adds to our existing production and reserves and provides a large area of underexplored land adjacent to our Deep Llanos acreage. We began drilling operations November 10th on our Canaguay-2 well, an appraisal well on this Block. Following Canaguay-2, we plan to resume a multi-well exploration drilling program on our Guatiquia and Corcel blocks in the first quarter of 2014.
Llanos Basin Heavy Oil Blocks (Rio Ariari, Chiguiro Oeste), Colombia
We completed drilling operations on our second horizontal well, Mochelo Sur, at Rio Ariari. The well was successfully drilled to a vertical measured depth of 5,095 feet with a 3,004 foot horizontal leg. We estimate 95% of the horizontal section was successfully landed in the reservoir. We expect to have the well completed and on production by the end of November, subject to receiving a water injection permit.
Orito (Putumayo Basin), Colombia
As previously disclosed, we successfully completed our first horizontal well, Orito 196 Hz. To-date the well has produced an average of 94 bopd at an 86% water-cut from the Villeta Formation. We are operating this well at a lower pump frequency to monitor well performance and sand production. Provided the well continues to produce under stable operating conditions, we plan to test the well at higher pump rates. We have one additional well at Orito (Orito-150) planned in the fourth quarter.
Neiva (Upper Magdalena Basin), Colombia
On October 20th we resumed our development drilling program at Neiva and have drilled two wells, DT-169 and DT-176. We plan to drill up to three additional wells by the end of 2013.
OUTLOOK FOR THE REMAINDER OF 2013
In the fourth quarter, we plan to drill or complete drilling and evaluating up to 12 oil wells, consisting of:
- Development drilling at our Orito and Neiva blocks, drilling one more well at Orito and up to four oil wells at Neiva;
- Drilling up to four wells on our Central Llanos acreage with a second appraisal well at our Curito discovery, and follow-up wells to existing discoveries at Capybara and Pisingo;
- Drilling one more exploration well on our Deep Llanos acreage, Canaguay-2;
- Production testing Mochelo Sur, to verify the commercial potential of our Mochelo heavy oil discovery positioning ourselves to quickly develop a commercial production platform; and
- Exposure to the first of two high-impact exploration prospects to be drilled by our joint venture partner in Peru.
Pursuant to the Pacific Rubiales Arrangement, a special meeting of the Petrominerales Shareholders will be held on November 27, 2013. Petrominerales has mailed an Information Circular and Proxy Statement regarding the meeting to the Petrominerales Shareholders, which is also available for viewing electronically under Petrominerales' profile on SEDAR at www.sedar.com and which has also been posted to SIMEV in Colombia. Pursuant to the Arrangement, Pacific Rubiales will acquire all of the issued and outstanding common shares of Petrominerales and each Petrominerales Shareholder (other than a dissenting Shareholder) will receive one common share of ResourceCo, as a distribution from Petrominerales, as well as Cdn$11.00 in exchange for each Petrominerales Share held. Completion of the Arrangement is subject to certain conditions, including the approval of the Petrominerales Shareholders, the final approval of the Court of Queens' Bench of Alberta and receipt of all applicable customary regulatory approvals. If all necessary approvals are obtained and the conditions to the completion of the Arrangement are satisfied or waived, Petrominerales anticipates that the Arrangement will become effective on or about November 28, 2013.
SPECIAL SHAREHOLDERS MEETING
Shareholders are encouraged to vote their shares in advance of the upcoming shareholders meeting. The meeting will take place on November 27, 2013 at 9:00 a.m. (Mountain Time, 11:00 a.m. Eastern Time) at the Royal Room of the Metropolitan Conference Centre, 333 - 4 Avenue S.W., Calgary, Alberta.
Brazil
As set out in detail in the Information Circular, ResourceCo is a newly formed company that is currently a wholly-owned subsidiary of Petrominerales. Prior to closing of the Arrangement, C$100 million in cash (subject to adjustment, including adjustment to approximately C$91 million upon Petrominerales concluding the purchase of certain interests in Brazil for the benefit of ResourceCo) and all of Petrominerales' assets in Brazil will be transferred to ResourceCo. The C$100 million cash to be transferred to ResourceCo is in addition to Petrominerales' capital and operating budget of US$18 million respecting the Brazilian assets to be transferred to ResourceCo for the period prior to the completion of the Arrangement.
Following completion of the Arrangement, ResourceCo will be a resource company engaged in the exploration for, and the acquisition, development and production of, hydrocarbons in the Recôncavo, Tucano, Camamu- Almada and Sergipe-Alagoas basins onshore Brazil. ResourceCo's assets consist of interests in three producing fields and 12 exploration blocks comprising 120,013 gross acres onshore Brazil. ResourceCo intends to develop producing hydrocarbons by appraising and developing existing discoveries and exploring in areas considered by management to be prospective for hydrocarbon resources. ResourceCo's primary target in the Recôncavo Basin is the Gomo member of the Candeias Formation, which is both a mature source rock for the basin and contains prospective reservoir sands.
Brazilian assets consist of interests in three producing fields and 12 exploration blocks comprising 120,013 gross acres onshore Brazil. ResourceCo intends to develop producing hydrocarbons by appraising and developing existing discoveries and exploring in areas considered by management to be prospective for hydrocarbon resources.
Petrominerales Ltd. is an international oil and gas company operating in Latin America since 2002. Our high-quality land base and multi-year inventory of exploration and development opportunities in Colombia, Perú and Brazil provide long-term growth potential for years to come.
Non-IFRS Measures. This press release contains financial terms that are not considered measures under International Financial Reporting Standards ("IFRS"), such as funds flow from operations, adjusted net income, funds flow per share, adjusted net income per share, working capital deficit and operating netback. These measures are commonly utilized in the oil and gas industry and are considered informative for management and shareholders. We evaluate our performance and that of our business segments based on funds flow from operations and adjusted net income. Funds flow from operations is a non-IFRS term that represents cash generated from operating activities before changes in non-cash working capital. Adjusted net income is determined by adding back any losses or deducting any gains on the derivative liabilities and effects of the buyback of the convertible debentures (accelerated accretion and gain on settlement). Management considers funds flow from operations, funds flow per share, adjusted net income and adjusted net income per share important as they help evaluate performance and demonstrate the Company's ability to generate sufficient cash to fund future growth opportunities and repay debt. Net working capital deficit includes current assets less pipeline assets held available for sale and trade payables and other liabilities and is used to evaluate the Company's short-term financial leverage. Operating netback is determined by dividing oil revenue less royalties, transportation and production expenses by sales volume of produced oil. Management considers operating netback important as it is a measure of profitability per barrel sold and reflects the quality of production. Funds flow from operations, funds flow per share, adjusted net income, adjusted net income per share, working capital deficit and operating netback may not be comparable to those reported by other companies nor should they be viewed as an alternative to cash flow from operations, net income or other measures of financial performance calculated in accordance with IFRS.
Forward-Looking Statements and Cautionary Language. Certain information provided in this press release constitutes forward‐looking statements. Specifically, this press release contains forward‐looking statements relating to: (i) the anticipated timing of the Petrominerales shareholder meeting to approve the Arrangement, (ii) the anticipated timing of the closing of the Arrangement, and (iii) the exploration and development prospects of ResourceCo.
The forward‐looking statements are based on certain key expectations and assumptions. With respect to the anticipated timing of the Petrominerales shareholder meeting, these include expectations and assumptions concerning the time required to convene the meeting and complete and mail the related information circular. With respect to the anticipated timing of the closing of the Arrangement, these include expectations and assumptions with respect to the timely receipt of all required court, shareholder and regulatory approvals and the satisfaction of all other conditions to the closing of the Arrangement. With respect to the remaining forward-looking statements, these include expectations and assumptions concerning the availability of capital, the success of future drilling and development activities, the performance of existing wells, the testing and performance of new wells, prevailing commodity prices and economic conditions, the availability of labour and services, the ability to transport and market production, timing of completion of infrastructure and transportation projects, weather and access to drilling locations.
Although Petrominerales believes that the expectations and assumptions on which the forward-looking statements are based are reasonable at the time of preparation, undue reliance should not be placed on the forward-looking statements as Petrominerales 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. Actual results could differ materially from those currently anticipated due to a number of factors and risks. With respect to the timing of the completion of the Arrangement, these include risks that the required court, shareholder and regulatory approvals are not obtained on a timely basis, on terms acceptable to the parties or at all and risks that other conditions to the completion of the Arrangement are not satisfied. There is no guarantee that the Arrangement will close at the anticipated time or at all. With respect to the exploration and development prospects of ResourceCo, the planned exploration and development activities of ResourceCo and such factors and risks include, but are not limited to: general economic, market and business conditions; fluctuations in oil prices; the test results and performance of exploration and development drilling, recompletions and related activities; timing and rig availability; availability of transportation and offloading capacity, outcome of exploration contract negotiations; fluctuation in foreign currency exchange rates; the uncertainty of reserve estimates and estimates of the value of undeveloped land; changes in environmental and other regulations; risks associated with oil and gas operations; and other factors, many of which are beyond the control of Petrominerales. These and other risks are described further in Petrominerales' annual information form for the year ended December 31, 2012 which has been filed on SEDAR and may be reviewed under Petrominerales' profile at www.sedar.com.
The forward-looking statements contained in this press release are made as of the date hereof. Except as may be required by applicable securities laws, Petrominerales assumes no obligation to publicly update or revise any forward‐looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.
This news release shall not constitute an offer to sell or a solicitation of an offer to buy any securities and shall not constitute an offer, solicitation or sale in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful. The securities to be distributed pursuant to the Arrangement have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws. The securities to be distributed pursuant to the Arrangement will be offered and sold in the United States pursuant to the exemption from registration set forth in Section 3(a)(10) of the U.S. Securities Act and similar exemptions under applicable state securities laws.