Petro-Reef Resources Ltd. (TSX VENTURE:PER), ("Petro-Reef" or the "Company") is
pleased to release its year end 2011 financial and operating results and its
December 31, 2011 reserve report.
This press release should be read in conjunction with the Company's 2011 annual
filings on Sedar.
For the twelve month period ended December 31, 2011, Petro-Reef generated cash
flow from operations of $3,150,536 ($0.05 per basic share), a decrease of 29%
compared to $4,447,326 ($0.11 per basic share) for the twelve month period ended
December 31, 2010. Lower natural gas prices and production volumes were major
factors in the cash flow decrease.
Daily production volumes decreased by 21.4% to 652 boe/d in the year ended
December 31, 2011 as compared to 829 boe/d for the same period in 2010.
The decrease in volumes was mainly due to natural gas production declines and
the shut-in of two new Detrital oils wells at Alexander (6-7-56-26W4 and
11-7-56-26W4) due to overproduction related to the gas/oil ratio. The two oil
wells did not produce for the entire fourth quarter under the ERCB penalty which
reduced daily volumes by 300 boe/day. Effective January 1, 2012 the production
restrictions were lifted and average daily production volumes increased to over
900 boe/day.
Capital expenditures for 2011 totaled $7.7 million decreasing 3% from the $7.9
million expended in 2010. Total net debt at year end was $12.8 million.
Production and operating expenses increased 13.4% to $3,318,587 for the year
ended December 31, 2011 compared to $2,925,862 for the same period ended
December 31, 2010. The increase of $392,725 is related to increases in oil
trucking and treating charges, fuel and power expenses and freehold surface
lease rentals offset by decreases in gas processing charges and repairs and
maintenance.
Production and operating expenses on a per unit of production basis increased
44.3% to $13.95 for the year ended December 31, 2011 compared to $9.67 for the
same period in 2010.
For the year ended December 31, 2011 cash flow netbacks per boe decreased by
9.9% over the same period in 2010.
Financial
Effective September 30, 2011 the Corporation renewed its credit facilities with
a Canadian Chartered Bank. Facility A is a revolving operating demand loan with
a maximum limit of $14,000,000. Facility B is a non -revolving
acquisition/development demand loan that provides an additional $6,000,000 of
financing. Interest is at prime plus 1.0% per annum for Facility A and prime
plus 1.5% per annum for Facility B. Petro-Reef has the ability to borrow by way
of Bankers Acceptances.
The Company has the ability to draw on the development loan for the drilling of
new wells subject to certain working capital ratio restrictions.
At December 31, 2011 the balance owing on Facility A was $12,511,275 (December
31, 2010 - $9,627,691). At December 31, 2011 the balance owing on Facility B was
$nil (December 31, 2010 - $nil). Net debt was $12,832,932 at December 31, 2011
as compared to $10,560,062 at December 31, 2010.
Effective February 2, 2012 the Corporation renewed its operating facilities with
a Canadian Chartered Bank. Facility A was reduced to a maximum limit of
$13,000,000. There were no other changes to the facility.
In August, 2011 Petro-Reef Resources Ltd. closed a private placement financing
of Flow -through Shares for gross proceeds of $2,391,200. Pursuant to the
offering, Petro-Reef issued 5,978,000 common shares on a flow- through basis at
a purchase price of 40 cents per common share.
Reserves
Petro-Reef's evaluation of gross proved plus probable reserves at December 31,
2011 indicated a net increase of 6% to 1,674,867 BOE from 1,579,900 BOE at
December 31, 2010, after extensions, technical revisions, discoveries,
acquisitions, economic factors, and production. After considering the production
for the period January 1 to December 31, 2011 of 237,980 BOE, the 2011 reserve
additions totalled 332,946 BOE which represents an increase of 21% over the 2010
year end reserves.
Using a 10% net present value ("NPV"), the value of proved plus probable
reserves at forecast prices and costs (before income taxes) was $32,792,300 as
compared with proved plus probable reserves of $34,741,400 as at December 31,
2010.
Petro-Reef's gross proved, probable plus possible reserves at December 31, 2011
totaled 2,521,567 BOE. Using a 10% NPV, the value of proved, probable plus
possible reserves at forecast prices and costs (before income taxes) totaled
$54,498,800. The possible reserves include four potential development locations
targeting the Detrital zone offsetting the Company's recent 09-12-56-27W4 well.
Proved plus probable reserves were comprised of 47% natural gas and 53% crude
oil and natural gas liquids (December 31, 2010 - 54% natural gas and 46% crude
oil and natural gas liquids).
Of the total proved plus probable reserves reported (using forecast prices)
Petro-Reef's reserves are 56% proved and 44% probable.
Based on proved plus probable reserves and 2011 average production volume,
Petro-Reef's reserve life index was 5.1 years (38.7 years remaining life) on a
proved plus probable basis at December 31, 2011 compared with 4.2 years (39.8
years remaining life) at the end of 2010. Petro-Reef's reserve life index (RLI)
is an indication of the number of years it would take to deplete the Company's
reserves.
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SUMMARY OF FINANCIAL AND OPERATIONAL RESULTS
Three Months Ended December 31
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$ 2011 2010 % Change
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FINANCIAL
Oil and gas revenue 2,293,360 2,634,503 -13
Realized financial instrument
gains (losses) (48,075) 451,364 -111
Cash flow from operations (34,841) 1,478,452 -102
Per share - basic 0.00 0.04 -100
Net loss (5,635,296) (1,351,334) 317
Per share- basic (0.09) (0.03) 200
Total net debt 12,832,932 10,560,062 22
Shares outstanding - end of
year 62,239,477 55,943,157 11
Capital expenditures 423,000 1,698,201 -75
Wells drilled (net)
Oil 0.00 1.79 -
Gas 0.00 0.00 -
Dry 0.00 0.00 -
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Total net wells drilled 0.00 1.79 -
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OPERATIONAL
Daily production
Oil & NGL (bbl) 182 223 -18
Natural gas (mcf) 2,559 3,796 -33
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Oil equivalent (boe @ 6:1)^ 608 856 -29
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Commodity prices ($Cdn)
Oil & NGL (bbl) 88.59 66.96 32
Natural gas (mcf) 3.45 3.61 -4
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Oil equivalent (boe @ 6:1) 40.98 33.47 22
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Operating netback ($ per boe)
Revenue 40.98 33.47 22
Royalty (3.04) (3.64) -16
Operating cost (16.29) (9.59) 70
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Operating netback per boe 21.65 20.24 7
General and administrative (18.16) (5.24) 247
Finance charges and fees (3.26) (1.95) 67
Realized financial instrument
gains (losses) (0.85) 5.73 -115
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Cash flow per Boe (0.62) 18.78 -103
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SUMMARY OF FINANCIAL AND OPERATIONAL RESULTS
Year Ended December 31
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$ 2011 2010 % Change
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FINANCIAL
Oil and gas revenue 9,744,553 9,777,127 -
Realized financial instrument
gains (losses) 344,542 996,822 -65
Cash flow from operations 3,150,536 4,447,326 -29
Per share - basic 0.05 0.11 -55
Net loss (6,515,846) (2,335,998) 179
Per share- basic (0.11) (0.06) 83
Total net debt 12,832,932 10,560,062 22
Shares outstanding - end of
year 62,239,477 55,943,157 11
Capital expenditures 7,691,000 7,920,000 -3
Wells drilled (net)
Oil 2.52 1.79 41
Gas 0.00 0.94 -
Dry 0.79 0.00 -
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Total net wells drilled 3.31 2.73 21
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OPERATIONAL
Daily production
Oil & NGL (bbl) 207 148 40
Natural gas (mcf) 2,670 4,086 -35
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Oil equivalent (boe @ 6:1)^ 652 829 -21
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Commodity prices ($Cdn)
Oil & NGL (bbl) 79.61 69.92 14
Natural gas (mcf) 3.83 4.02 -5
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Oil equivalent (boe @ 6:1) 40.96 32.31 27
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Operating netback ($ per boe)
Revenue 40.96 32.31 27
Royalty (5.59) (4.06) 38
Operating cost (13.95) (9.67) 44
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Operating netback per boe 21.42 18.58 15
General and administrative (7.57) (5.14) 47
Finance charges and fees (2.06) (2.03) 1
Realized financial instrument
gains (losses) 1.45 3.29 -56
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Cash flow per Boe 13.24 14.70 -10
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(1) "Funds from operations", "funds from operations per share", "netbacks"
and "netbacks per boe" are not defined by Generally Accepted Accounting
Principles (''GAAP") in Canada and are regarded as non-GAAP measures.
Funds from operations and funds from operations per share are calculated
as cash provided by operating activities before changes in non-cash
working capital and asset retirement expenditures. Funds from operations
is used to analyze the Company's operating performance, the ability of
the business to generate the cash flow necessary to fund future growth
through capital investment and to repay debt. Funds from operations does
not have a standardized measure prescribed by GAAP and therefore may not
be comparable with the calculations of similar measures for other
companies. The Company also presents funds from operation per share
whereby per share amounts are calculated using the weighted average
number of common shares outstanding consistent with the calculation of
net income or loss per share.
(2) The term barrels of oil equivalent ("boe") may be misleading,
particularly if used in isolation. A boe conversion ratio of six
thousand cubic feet per barrel (6 mcf/bbl) of natural gas to barrels of
oil equivalence is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead. All boe conversions in the report are
derived from converting gas to oil in the ratio mix of six thousand
cubic feet of gas to one barrel of oil.
Reserves Summary
The December 31, 2011 evaluation was prepared in accordance with National
Instrument 51-101. The reserve report reflects current proved and probable
reserves, and proved, probable and possible reserves. The December 31, 2011
report and the December 31, 2010 reports were prepared by McDaniel & Associates
Consultants Ltd.
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Reserves Gross and Net (Forecast Prices and Costs) - December 31, 2011
Light / Medium
Oil Natural Gas BOE
Gross Net Gross Net Gross Net
(Mbbl) (Mbbl) (MMcf) (MMcf) (MBOE) (MBOE)
Reserves Category
Proved
Developed Producing 331.3 278.1 2,642.9 2,293.6 771.8 660.4
Developed Non-
Producing 23.4 21.2 207.7 185.1 58.0 52.1
Undeveloped 74.1 65.2 156.4 139.6 100.2 88.5
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Total Proved 428.8 364.5 3,007.0 2,618.3 930.0 800.9
Probable 460.0 376.9 1,709.4 1,495.9 744.9 626.2
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Total Proved &
Probable 888.8 741.4 4,716.4 4,114.2 1,674.9 1,427.1
Possible 587.6 499.3 1,554.6 1,359.0 846.7 725.8
------------------------------------------------------
Total Proved, Probable
& Possible 1,476.4 1,240.7 6,271.0 5,473.2 2,521.6 2,152.9
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N1 51-101 Summary of Net Present Values of Future Net Revenue as of December
31, 2011 Forecast Prices and Costs
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0% DCF 5% DCF 10% DCF 15% DCF
Reserves Category (M$) (M$) (M$) (M$)
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Proved Developed Producing 17,898 16,7556 15,769 14,910
Developed Non-Producing 1,330 854 584 425
Undeveloped 2,717 2,419 2,166 1,949
Total Proved 21,944 20,030 18,519 17,284
Probable 25,032 18,236 14,273 11,728
Total Proved Plus Probable 46,980 38,266 32,792 29,011
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Using a ten percent (10%) NPV, the estimated value of proved plus probable
reserves at forecast prices and costs (before Income Taxes) decreased by 6% to
$32,792,300 as compared with last year's estimated value of $34,741,400. The
estimated values disclosed do not represent fair market value.
Forecast Prices Used in Estimates
McDaniel employed the following pricing, exchange rate and inflation rate
assumptions in estimating Petro-Reef reserve data as of December 31, 2011:
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Year Edmonton
Par Cromer
Price Medium Natural Gas
WTI 40 degrees 29.3 degrees AECO Gas
Crude Oil API API Prices
($US/bbl) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/MMBtu)
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Historical
2005 56.56 68.72 57.47 8.58
2006 66.23 72.80 61.25 7.16
2007 72.30 76.35 65.40 6.65
2008 99.60 102.20 93.20 8.15
2009 61.80 65.90 62.80 4.20
2010 79.50 77.50 73.80 4.15
2011 94.80 95.20 88.35 3.70
Forecast
2012 97.50 99.00 91.00 3.50
2013 97.50 99.00 91.00 4.20
2014 100.00 101.50 93.30 4.70
2015 100.80 102.30 94.10 5.10
2016 101.70 103.20 94.90 5.55
Thereafter 2.0% Escalation Rates
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Year Edmonton Edmonton Inflation Exchange
Condensate Butane Rate Rate
($Cdn/bbl) ($Cdn/bbl) (%/Yr) ($US/$Cdn)
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Historical
2005 69.63 52.58 2.1 0.83
2006 75.06 60.10 2.2 0.88
2007 77.36 63.75 2.0 0.94
2008 104.75 75.25 2.4 0.94
2009 68.15 49.25 2.0 0.88
2010 84.25 66.05 2.0 0.97
2011 104.20 75.50 2.0 1.01
Forecast
2012 106.00 76.20 2.0 0.98
2013 104.10 79.80 2.0 0.98
2014 104.60 81.80 2.0 0.98
2015 105.50 82.40 2.0 0.98
2016 106.40 83.20 2.0 0.98
Thereafter 2.0% Escalation Rates
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Reconciliation of Changes in Reserves
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Light, Medium Oil and NGL Natural Gas
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Gross Gross
Proved Proved
Gross Gross Plus Gross Gross Plus
Proved Probable Probable Proved Probable Probable
Factors (Mbbl) (Mbbl) (Mbbl) (MMcf) (MMcf) (MMcf)
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December
31, 2010 372.8 330.1 702.9 3,467.2 1,794.6 5,261.8
Extensions 107.9 271.9 379.8 163.8 609.5 773.3
Technical
Revisions 26.2 (139.0) (112.8) 450.6 (662.0) (211.4)
Economic
Factors (2.6) (3.0) (5.6) (108.0) (32.4) (140.4)
Production (75.5) - (75.5) (966.6) (0.3) (966.9)
December
31, 2011 428.8 460.0 888.8 3,007.0 1,790.4 4,716.4
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BOE
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Gross
Proved
Gross Gross Plus
Proved Probable Probable
Factors (BOE) (BOE) (BOE)
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December
31, 2010 950.7 629.2 1,579.9
Extensions 135.2 373.5 508.7
Technical
Revisions 101.2 (249.2) (148.0)
Economic
Factors (20.6) (8.4) (29.0)
Production (236.6) (0.1) (236.7)
December
31, 2011 929.9 745.0 1,674.9
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Forward-Looking Statements: All statements, other than statements of historical
fact, set forth in this news release, including without limitation, assumptions
and statements regarding reservoirs, resources and reserves, future production
rates, exploration and development results, financial results, and future plans,
operations and objectives of the Corporation are forward-looking statements that
involve substantial known and unknown risks and uncertainties. Some of these
risks and uncertainties are beyond management's control, including but not
limited to, the impact of general economic conditions, industry conditions,
fluctuation of commodity prices, fluctuation of foreign exchange rates,
environmental risks, industry competition, availability of qualified personnel
and management, availability of materials, equipment and third party services,
stock market volatility, timely and cost effective access to sufficient capital
from internal and external sources. The reader is cautioned that assumptions
used in the preparation of such information, although considered reasonable by
the Corporation at the time of preparation, may prove to be incorrect. There can
be no assurance that such statements will prove to be accurate and actual
results and future events could differ materially from those anticipated in such
statements.
Reference is made to barrels of oil equivalent (BOE). Barrels of oil equivalent
may be misleading, particularly if used in isolation. In accordance with
National Instrument 51-101, a BOE conversion ratio for natural gas of 6 Mcf: 1
bbl has been used, which 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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