During the third quarter of 2010, Painted Pony Petroleum Ltd. (TSX
VENTURE:PPY.A)(TSX VENTURE:PPY.B) ("Painted Pony" or the "Company") continued to
enjoy financial and operational success. Quarterly results include the
following:
-- Generated funds flow from operations of $9.1 million ($0.18 per diluted
share), up 12.5% on a per share basis over the second quarter of 2010
and 50% on a per share basis over the third quarter of 2009.
-- Grew daily production to average 3,080 boe/d (weighted 57% oil and
liquids and 43% gas) for the quarter, up 22% over the second quarter of
2010, and 86% over the comparable quarter in 2009. This is a 45% growth
of production on a per share basis over the third quarter of 2009.
-- Exited the third quarter of 2010 with positive working capital of $22.5
million and no debt.
-- Drilled 16 (11.9 net) wells at a 94% net success rate, including 1 (0.2
net) well drilled under farm-out.
-- Realized third quarter 2010 field netbacks of $54.56 per bbl for oil, on
sales prices averaging $75.94 per bbl.
-- Added acreage in both Saskatchewan and British Columbia, bringing total
land held to 192,097 net acres.
-- Increased proved plus probable Montney reserves to 17.9 million boe from
the Company's 0.1 million boe booked as at December 31, 2009, following
a resource evaluation by GLJ Petroleum Consultants Ltd. ("GLJ")
effective September 30, 2010.
-- GLJ's best estimate of Discovered Petroleum Initially in Place ("DPIIP")
was 3.65 trillion cubic feet ("tcf") of Montney gas net to the Company.
-- GLJ determined the total Net Present Value ("NPV"), discounted at 10%,
of Proved plus Probable reserves and Contingent Resources effective
September 30, 2010 was $519.9 million (112.7 million boe).
To date in the fourth quarter, the Company has accomplished several additional
milestones, including:
-- Established commerciality of the Middle Montney on the Cameron/Kobes
block with a 20% working interest horizontal well which produced at a
restricted rate of 6.0 million cubic feet per day ("mmcf/d") at 1,424
psi, and as high as 8.2 mmcf/d.
-- Drilled a discovery horizontal Bakken well on farm-in lands in the Flat
Lake, Saskatchewan area which tested 208 bbls/d and earned 6,000 net
acres of land.
-- Put in place a $65 million demand revolving facility.
-- Acquired 5.25 net sections of land contiguous to the Company's existing
lands in the core production area of Midale, Saskatchewan.
-- Purchased light oil assets producing 90 boe/d and approximately 2,950
net acres in the Hastings and Ingoldsby areas of Saskatchewan.
OPERATIONAL ACTIVITIES
The second half of 2010 saw the beginning of a new era of growth for Painted
Pony in both southeast Saskatchewan and northeast British Columbia.
SOUTHEAST SASKATCHEWAN
In the third quarter, Painted Pony drilled 12 (9.9 net) horizontal and one (0.75
net) vertical well targeting light oil. The Company drilled 10 (9.2 net) Bakken
successful horizontal wells in the Midale and Huntoon areas. In addition to
ongoing development drilling in core areas, the Company is exploring and
continuing to expand into new areas. In the Weyburn area, one (0.37 net)
horizontal oil well was drilled and in the Flat Lake area, one (0.35 net)
horizontal well was drilled. In the Wapella area one (0.75 net) vertical
exploration well was drilled. A farm-in agreement was executed in the second
quarter of the year in the Flat Lake area on approximately 17,100 (6,000 net
after earning) acres of crown lands targeting Bakken oil. In the third quarter,
the Company satisfied the earning provisions of the agreement with the drilling
and subsequent completion of a Bakken discovery well (35% working interest),
which flowed at an average restricted rate of 208 bbls/d for a 24 hour period
following five days of continuous testing. To date in the fourth quarter,
Painted Pony has drilled four (2.0 net) horizontal Bakken wells in the Huntoon
areas, in various stages of completion.
In the Huntoon and Midale areas, the installation of a battery and gathering
system was completed in the first half of the year. A second area battery and
gathering system is currently under construction, with completion anticipated
before the end of this year. In the Huntoon area, solution gas and liquids
conservation commenced at the end of August with the battery being tied into an
existing third-party gas plant; the balance of the wells in the area are
expected to be tied-in before the end of this year.
In October, the Company acquired Mississippian oil assets for $10.6 million,
primarily in the Hastings and Ingoldsby areas (nearby to Painted Pony's existing
operations) from a private company. With production of approximately 90 boe/d
and a land base of 2,950 net acres (47% undeveloped), these mostly operated and
high working interest assets enhance the Company's low-risk development drilling
inventory.
In November, Painted Pony acquired 3,349 net acres (5.25 sections) of 100%
working interest lands with Bakken rights for $1.8 million. These Crown lands
are contiguous to Painted Pony's Midale core producing area and are expected to
add significant development opportunities and synergies with the Company's
existing infrastructure.
NORTHEAST BRITISH COLUMBIA
In the third quarter, Painted Pony drilled one (0.2 net) well targeting the
Middle Montney formation in the Cameron/Kobes area under the rolling option
phase of a farm-out agreement. The Kobes a-A10-J/94-B-09 well flowed in-line at
restricted rates between 6.0 and 8.2 mmcf/d during an extended test period and
is the first Middle Montney horizontal well in the region. The Middle Montney is
considered an important new target on the Company's entire Montney land base. In
addition, the Company drilled two (1.0 net) wells targeting Buckinghorse shale
gas during the quarter. The wells targeting the Buckinghorse shale are expected
to be fracture stimulated in the first half of 2011.
A reserves and resource assessment of Painted Pony's Montney assets in northeast
British Columbia was prepared by GLJ effective September 30, 2010. Approximately
40% of the Company's Montney acreage was evaluated as part of the DPIIP and
Contingent Resource study. The DPIIP was estimated at 3.65 tcf of gas, net to
the Company. GLJ's best estimate of Montney Contingent Resources on the lands
evaluated is 568.5 bcfge, or 94.8 million boe. The estimated NPV (discounted at
10%) of the Contingent Resources is $421.6 million. The assessment also
increased Painted Pony's Montney proved plus probable reserves to 17.9 million
barrels of oil equivalent ("boe") with an estimated NPV (discounted at 10%) of
$98.3 million.
In the Cameron/Kobes area, the installation of additional facilities is expected
to be completed in the fourth quarter of this year. At Kobes, a 15 mmcf/d
capacity production facility was placed on stream in the third quarter of 2010,
and at Gundy, a compression and dehydration facility with a 25 mmcf/d capacity
is expected to be operational in December 2010.
Painted Pony's Montney assets have become an exciting part of the Company's
future. Given an advantageous location with prolific productivity, exceptional
infrastructure, valuable liquids content, provincial royalty incentives,
all-season access and sweet gas, the economics of this program are believed to
be among the best of all Montney areas.
PRODUCTION
Daily production grew to average 3,080 boe/d in the third quarter, up 86% over
the third quarter of 2009, and 22% over the second quarter of 2010. Daily oil
sales in the third quarter of 2010 averaged 1,687 bbls/d, an increase of 11%
compared to the second quarter of 2010. Third quarter gas sales averaged 7,961
mcf/d, an increase of 37% compared to the second quarter 2010 sales of 5,826
mcf/d. Condensate and NGL's contributed 66 boe/d in the third quarter.
LAND
At September 30, 2010, the Company had an inventory of 192,097 net acres of
land, consisting of 64,434 net acres (101 net sections) in Saskatchewan and
127,663 net acres (199 net sections) in British Columbia. During the fourth
quarter to-date, the Company has added 19 net sections of land in Saskatchewan,
bringing total inventory to 120 net sections.
FINANCIAL RESOURCES
Painted Pony's focus on conservative fiscal management continues. In August
2010, the Company issued 6.8 million Class A shares at $6.48 per share, raising
$44.1 million before costs. By September 30, 2010, Painted Pony had a positive
working capital position of $22.5 million and no debt. In November 2010, a $65
million demand revolving operating credit facility replaced the previous $46
million demand revolving and $10 million acquisition/development credit
facilities.
OUTLOOK
In the balance of 2010, the Company plans to drill up to 7 (4.7 net) horizontal
oil wells in Saskatchewan. In British Columbia, Painted Pony plans to operate
the drilling of 3 (1.3 net) Montney gas wells on the Blair/Town lands. Drilling
is continuing under the terms of a joint venture agreement in the Cameron/Kobes
area, with a minimum of 2 (0.4 net) wells drilled in the fourth quarter.
In 2011, Painted Pony will focus on continuing to generate incremental value
through identification and exploitation of opportunities on its resource plays
The Company has set a capital budget of $95 million for the year, which will be
reviewed, and potentially revised, on a quarter by quarter basis. In the first
quarter, planned operations provide for expenditures of approximately $40
million with the drilling of 13 (9.9 net) wells. Of these, 10 (6.9 net) wells
are planned for Saskatchewan and 3 (3.0 net) wells are scheduled for British
Columbia. Drilling under the terms of the joint venture agreement in
Cameron/Kobes could see up to 5 (1.0) net wells drilled in 2011.
With both light oil, and sweet gas which is economic even at current gas prices,
the Company has the opportunity to show significant production growth. Further
de-risking of its land base will continue in both core areas of northeast
British Columbia and southeast Saskatchewan in 2011.
INVESTOR RELATIONS
Interested parties are invited to visit the Company's website on Friday,
November 26, 2010 to view an updated presentation.
Painted Pony's Class A Shares and Class B Shares trade on the TSX Venture
Exchange under the symbols "PPY.A" and "PPY.B", respectively. For further
information, please see www.paintedpony.ca or contact:
Patrick R. Ward Joan E. Dunne
President & CEO Vice President, Finance & CFO
PAINTED PONY PETROLEUM LTD.
300, 602 - 12 Ave SW
Calgary, AB T2R 1J3
Phone: (403) 475-0440 Fax: (403) 238-1487
Financial and Operational Highlights
(unaudited)
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Three months ended Nine months ended
September 30, September 30,
2010 2009 2010 2009
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Financial (000's except per share and shares outstanding)
Petroleum and natural
gas revenue (before
royalties) $ 14,764 $ 7,834 $ 41,662 $ 17,283
Funds flow from
operations(1) $ 9,072 $ 4,513 $ 25,885 $ 8,229
Per share - basic(2) $ 0.19 $ 0.12 $ 0.55 $ 0.25
Per share - diluted(2) $ 0.18 $ 0.12 $ 0.54 $ 0.25
Cash flow from operating
activities $ 7,648 $ 4,273 $ 25,177 $ 6,303
Net earnings (loss) $ (510) $ (2,046) $ 521 $ (5,609)
Per share - basic
and diluted(2) $ (0.01) $ (0.05) $ 0.01 $ (0.17)
Capital expenditures(3) $ 20,769 $ 26,630 $ 88,160 $ 39,011
Net working capital $ 22,454 $ 1,096 $ 22,454 $ 1,096
Total assets $218,282 $112,861 $218,282 $112,861
Shares outstanding
Class A 50,975,700 35,237,700 50,975,700 35,237,700
Class B 1,173,600 1,173,600 1,173,600 1,173,600
Operational
Daily sales volumes
Oil (bbls/d) 1,687 1,008 1,643 713
Condensate (bbls/d) 28 24 26 24
NGL's (bbls/d) 38 20 26 15
Gas (mcf/d) 7,961 3,617 5,720 3,881
Total (boe/d) 3,080 1,655 2,648 1,399
Realized prices
Oil (/bbl) $ 75.94 $ 71.18 $ 76.92 $ 64.78
Gas (/mcf) $ 3.65 $ 3.20 $ 4.09 $ 3.99
Field operating netbacks(4)
Oil (/bbl) $ 54.56 $ 51.08 $ 55.28 $ 43.87
Gas & NGL's (/boe) $ 11.23 $ 6.44 $ 12.13 $ 7.35
Company combined (/boe) $ 34.97 $ 33.63 $ 38.90 $ 25.95
Wells drilled(5)
Gross 15 7 34 12
Net 11.7 6.3 27.4 10.8
Net success rate 94% 95% 94% 97%
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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. Funds flow from operations and funds flow from
operations per share (basic and diluted) do not have any standardized
meaning prescribed by GAAP and 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 and to repay debt. The reconciliation
between funds flow from operations and cash flow from operating
activities can be found in the Company's "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, and
after the deemed conversion of the Class B shares to Class A shares,
consistent with the calculations of earnings per share.
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 the weighted
average trading price of the Class A shares for the last 30 consecutive
trading days.
3. Including Asset Retirement Costs and capitalized Stock-Based
Compensation.
4. Calculated on a per unit basis as oil, gas and natural gas liquids
revenues less royalties, transportation and operating costs.
5. Does not include wells drilled under farmout agreements.
The information contained herein is for information purposes only and is not an
invitation to purchase securities listed on TSX Venture Exchange and/or Toronto
Stock Exchange. TMX Group Inc. and its affiliates do not endorse or recommend
any securities referenced. Neither TMX Group Inc. nor its affiliated companies
represents, warrants or guarantees the accuracy or the completeness of the
information. You should not rely on the information contained herein for any
trading, business or financial purposes. TMX Group Inc. and its affiliates
assume no liability for any errors or inaccuracies herein or any use or reliance
upon this information.
Painted Pony Petroleum Ltd. was recognized as a TSX Venture 50(R) company in
2010. TSX Venture 50 is a trade-mark of TSX Inc. and is used under license.
Advisory
This news release contains certain forward-looking statements, which are based
on numerous assumptions including but not limited to (i) drilling success; (ii)
production; (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 2010; (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 rates in the fourth quarter of 2010 are expected to
show growth from the third quarter of 2010; (v) Painted Pony will have
sufficient financial resources with which to conduct the capital program; and
(vi) the current tax and regulatory regime will remain substantially unchanged.
Certain or all of the foregoing 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, perceived risk and timing of wells to be drilled, the planning and
development of certain prospects, production estimates, treatment under
governmental regulatory regimes 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,
volatility of commodity prices, environmental risks, 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, delays resulting from our 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, and stock market volatility and market valuations of
companies with respect to announced transactions and the final valuations
thereof. 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 Company
will derive therefrom. All subsequent forward-looking statements, whether
written or oral, attributable to the Company 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.
Special Note Regarding Disclosure of Reserves or Resources
"Contingent Resources" is defined in the Canadian Oil and Gas Evaluation
Handbook as those quantities of petroleum estimated, as of a given date, to be
potentially recoverable from known accumulations using established technology or
technology under development, but which are not currently considered to be
commercially recoverable due to one or more contingencies. Contingencies may
include factors such as economic, legal, environmental, political, and
regulatory matters, or a lack of markets. It is also appropriate to classify as
contingent resources the estimated discovered recoverable quantities associated
with a project in the early evaluation stage. Contingent Resources are further
classified in accordance with the level of certainty associated with the
estimates and may be subclassified based on project maturity and/or
characterized by their economic status.
"Discovered Petroleum Initially-In-Place" or "DPIIP" (equivalent to discovered
resources) is defined in the Canadian Oil and Gas Evaluation Handbook as that
quantity of petroleum that is estimated, as of a given date, to be contained in
known accumulations prior to production. The recoverable portion of discovered
petroleum initially-in-place includes production, reserves, and contingent
resources; the remainder is unrecoverable.
The most significant positive and negative factors with respect to the
Contingent Resource and DPIIP estimates relate to the fact that the field is
currently at an early evaluation/delineation stage. The evaluated Montney
formation is interpreted to be areally extensive in this region, however well
control is limited. Both gas-in-place and productivity may be higher or lower
than current estimates. Additional drilling and testing are required to confirm
volumetric estimates and reservoir productivity for the Contingent Resources to
be reclassified as reserves.
The Contingent Resources estimates, including the corresponding estimates of
before tax present value, and the DPIIP estimates are estimates only and the
actual results may be greater than or less than the estimates provided herein.
There is no certainty that it will be commercially viable or technically
feasible to produce any portion of the resources.
It should not be assumed that the undiscounted and discounted net present values
represent the fair market value of the reserves. The estimates of resources,
reserves or net present values for individual properties may not reflect the
same confidence level as estimates of resources, reserves or net present values
for all properties, due to the effects of aggregation.
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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