EARNINGS / Pacalta Q1 Results
PACALTA RESOURCES LTD. - REPORT TO SHAREHOLDERS
CALGARY, May 26 /CNW/ - During the first quarter of 1998, Pacalta
continued its aggressive investment program in Ecuador through its 100% owned
operating subsidiaries City Investing Company Limited and City Oriente
Limited. With two drilling rigs in full time operation the Company remained
the most active operator in Ecuador. In the first quarter we spudded 1
exploratory well and completed 4 development wells on the City Block as
potential oil producers. There have been no dry holes drilled on the Block
since we commenced operation in October 1996. We also continued our active
geophysical and geological exploration program acquiring 236 km of new 2D
seismic on Block 27.
FANNY FIELD
Development drilling highlights included the commencement of drilling on
the Fanny 20 pad, which confirms the southerly extension of the Fanny pool and
further justifies the design capacity of our Main Production Facility. Of
the 8 potential wells to be drilled on the Fanny 20 pad, 3 have been drilled
to-date, including 1 in the first quarter. Future plans for the Fanny 20 pad
include the drilling of up to three horizontal wells into the M1 zone. These
will be the first horizontal wells on the City Block and some of the first
horizontal wells in Ecuador.
Construction at the Main Production Facility continues with most of the
major civil work completed. However, due to design changes, shipping delays
and logistical problems caused by the effects of El Nino on the coastal
highways and ports of Ecuador, the projected on-stream date for the MPF has
moved to the end of August 1998. When this facility is commissioned, the
Company will have increased its total fluid handling capacity by approximately
67,000 barrels of fluid per day to more than 100,000 barrels of fluid per day.
DORINE FIELD
On the new Dorine discovery, development drilling continues to delineate
the pool. In 1998 we have to date drilled 3 of the 6 remaining development
locations on the pool. Facility construction for Dorine has proceeded
smoothly with the existing wells tied-in to one of the three trains of the
original Fanny Battery. Once the MPF has been constructed and commissioned,
the Dorine Field will have access to all the existing capacity in the original
Fanny Battery, which will be renamed the Dorine Battery. The Dorine Field is
currently ready to be placed on-stream, awaiting only the assignment of
allowables for the initial four wells on the pool and allocation of pipeline
capacity from the government of Ecuador.
EXPLORATION
On the exploration front, the Company spudded its final contractual
commitment well at Mariann 4A in March, 1998. This well resulted in a
potential new pool discovery with up to three productive horizons. The well
is currently being production tested and, if commercial, this discovery will
be tied into the existing Mariann battery.
New 2D seismic was acquired on Block 27 and in April 1998, we spudded the
first exploration well on the Block on a prospect named Tipishca 1. This
well is the first of up to 4 exploratory wells planned for the Block, all of
which will target potential multi-zone light oil prospects. In addition, we
will be shooting a 290 square kilometer 3D seismic survey on Block 27 to
further enhance our probability of success in this area.
OPERATIONS
Pacalta entered 1998 producing 13,579 BOPD from the City Block. On
January 21, 1998 our pipeline allocation in to the SOTE (Trans-Ecuadorian
Pipeline) was increased to 19,553 BOPD. Except for approximately four days of
reduced production due to the tragic leak and fire on the Pacific coast end of
the SOTE, production levels remained relatively constant to average 17,509
BOPD for the quarter. With increased production levels, the Company was also
able to realize significant efficiencies in operating costs and a reduction in
average royalty rates. In a period of reduced oil prices, these operating
efficiencies, combined with hedging gains in the futures markets allowed the
company to achieve a per-barrel netback of $6.82, versus $4.80 for the same
period last year.
On April 23, City received notice that the allocations into the SOTE had
been re-distributed and that the Company's share of the country's production
had been reduced to 17,597 BOPD. This re-distribution did not take into
account any production increase associated with the Dorine Field, which at
this time has still not been included in total production of the country. The
Company expects an increased SOTE allocation once Dorine is allowed to
commence production and once further increases from new Fanny wells and other
potential new discoveries are considered.
The lack of excess capacity in the export pipeline system out of Ecuador
continues to be the principal factor constraining the company's production
levels. Recent expansion investments on the SOTE are estimated to add
approximately 25,000 BOPD of capacity to the system with a forecast on-stream
date of June 1998. On May 14, the governments of Ecuador and Colombia
announced that they had reached an agreement to allow for increased exports of
Ecuadorian crude oil through the Colombian OTA pipeline. City has been invited
to participate in financing this expansion through pre-payment of tariffs and
we are commencing our technical analysis of the project. It is estimated that
this expansion of the OTA could increase total Ecuadorian export capacity by
up to 20,000 BOPD. Also, the recent lack of investment by PetroEcuador in the
state-operated fields has apparently led to a decline in total productive
capability. In the event that PetroEcuador is unable to meet their production
allocation into the pipeline system, the private producers should be able to
increase their production levels to meet the shortfall.
COLOMBIA
Pacalta's 100% owned subsidiary, City Colombia Ltd., has commenced a full
Environmental Impact Assessment on the Tirimani Block in the Putumayo basin,
in anticipation of the start-up of seismic and drilling activities on the
Block. Our office in Bogota is gradually being expanded to handle the
increasing levels of activity that we expect for Colombia.
FINANCIAL RESULTS
(figures in U.S. dollars, except where noted)
Pacalta's operating results continued to show improvement in the first
quarter of 1998 despite a decline in commodity prices with EBITDA increasing
to $10.4 million from $3.8 million earned in the first quarter of 1997.
However, net income reflected an adjustment in the estimate of Pacalta's
liability to PetroEcuador for the value of infrastructure in place at the time
of the extension of the participation contract. Excluding this adjustment of
$3.7 million and the related tax impact, net income increased to $4.0 million
in the first quarter of 1998 from $1.0 million in the first quarter of 1997.
Cash flow from operations of $8.5 million in the three months ended March 31,
1998 increased 217 percent over the comparative period in 1997. These
increases in operating earnings and cash flow are due to production increases
and higher operating netbacks from the City Block in Ecuador.
When Pacalta acquired its interest in the City Block in Ecuador, we
estimated our liability to reimburse PetroEcuador for the value of the
infrastructure in place to be $7.3 million. This amount was subject to change
pursuant to a valuation performed by an independent consultant. Pacalta's
management has recently received a copy of the consultant's report and has
revised the estimate of the liability to $11.0 million as a result. The
change in the estimate of the liability has been reflected in the Consolidated
Statement of Operations for the first quarter. This adjustment has been
excluded from cash flow from operations on the Consolidated Statements of Cash
Flows. Any further differences between this amount and the amount ultimately
agreed to with PetroEcuador will be reflected in the consolidated statement of
operations in the period it is determined.
Cash flow from operations and net income for the quarter ended March 31,
1998 were also impacted by interest expense relating to the $120 million of 10
3/4% senior notes issued on June 20, 1997 which did not exist in the
comparative period.
The Company sold its Canadian oil and gas properties during the third
quarter of 1997. Included in the results for the three months ended March 31,
1997 is revenue of $1.8 million and net operating income of $1.4 million
related to these properties.
Capital expenditures in the first quarter of 1998 totaled $24.7 million
compared to $13.0 million during the comparative period in 1997. Expenditures
to date in 1998 relate mainly to drilling and construction of facilities on
the City Block in Ecuador.
Capital Expenditures
(thousands of U.S. dollars)
<<
Three months ended
March 31, 1998
-------------------
Ecuador:
Drilling and workovers $ 14,037
Facilities 7,150
Seismic 1,543
Pipeline 372
Other 1,152
---------
24,254
Other 473
---------
$24,727
---------
---------
>>
For the quarter ended March 31, 1998, average oil production in Ecuador
was 17,509 BOPD compared to 6,560 BOPD in the comparative 1997 period. The
increase in Ecuador oil production is entirely due to increased production
from the City Block.
The oil netback in Ecuador, net of general and administrative expenses
and foreign exchange gains, was $6.82 per barrel for the quarter ended March
31, 1998 and $4.80 per barrel for the comparative period in 1997. Lower oil
prices were offset by an improvement in the per barrel operating and general
and administrative costs, a lower effective royalty rate and hedging gains on
oil swap contracts entered into late in 1997.
Ecuador Netback
(U.S. dollars per barrel)
(Three months ended March 31,)
<<
1998 1997
------ ------
Sales price $ 18.17 $ 23.98
Oriente differential and transportation (5.99) (5.46)
------ ------
Price at Esmeraldas 12.18 18.52
Pipeline tariff and
gravity differential (1.11) (1.08)
Hedging gains (losses) 1.42 (1.63)
------ ------
Net price 12.49 15.81
Royalties (3.39) (7.01)
Operating costs (1.46) (3.01)
General and administrative expenses (1.03) (1.23)
Foreign exchange 0.21 0.24
------ ------
Netback $ 6.82 $ 4.80
------ ------
------ ------
>>
OUTLOOK
On May 7, 1998, City Investing received notice from the President of
PetroEcuador that the Company had complied with all of its required minimum
commitments under its participation contract and therefore PetroEcuador
returned the performance guarantee of $2.2 million, which was securing the
contract. On May 8, 1998 the Company was notified by the Minister of Energy
and Mines that, based on meeting these minimum commitments and the approval of
the development plan for the Dorine Field, the City Block contract would
continue in effect with a current expiration date set for August 1, 2015.
The economic situation in Ecuador continues to worsen due to the effects
of low world oil prices and the social and infrastructure damage created by El
Nino. Important infrastructure investments continue to be delayed or bid-out
to the private sector. The Army Corps of Engineers has recently received bids
to expand the main SOTE pipeline from four international consortiums, and this
project could be awarded in the very near future. In addition, the state oil
company, PetroEcuador has been unable to make critical investments in existing
fields to increase or even maintain current production levels. Since Ecuador's
public sector is strongly dependent on oil revenues (the country's largest
source of foreign currency), there has been strong support expressed by the
government to expand private investment in the oil industry. This includes
initiatives ranging from expanding the output from private producers in their
existing blocks, to the new pipeline expansions and finally to the proposed
public licensing of 10 marginal fields currently operated by PetroEcuador. We
consider this a strong signal that increased production levels from the
private sector will be expected and encouraged.
With Ecuador's congressional and first-round presidential elections
scheduled for May 31, 1998, the Company remains optimistic that the next
government will continue the directional changes started by the current
government to invite more foreign investment into the country and to recognize
that increased oil production is the nation's best solution to it's current
financial and social crisis.
Management continues to focus on ways to immediately increase production
levels in Ecuador as well as investigating other regional and global
opportunities which meet our investment criteria. In this regard we have
qualified for the upcoming marginal field bidding round in Ecuador and the two
bidding rounds scheduled this year in Colombia. The Company continues to
pursue acquisition opportunities that we believe exhibit significant upside
for our shareholders. We also are continuing to pursue non-conventional
solutions to bring our shut-in Ecuadorian production on-stream as quickly as
possible. These solutions include in-field upgrading opportunities and the
potential barge movement of crude into the Brazilian markets.
On May 19, 1998, Pacalta commenced trading on NASDAQ in the United States
under the trading symbol PAZZF. Pacalta continues to trade on the TSE under
the trading symbol PAZ.
<<
HIGHLIGHTS
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Three months ended March 31,
1998 1997
-------------------------------------------------------------------------
Financial (U.S.$) (U.S.$)
(Thousands of US$, except where noted)
Oil and natural gas sales,
net of inventory adjustment 19,683 11,157
EBITDA (1) 10,360 3,806
Ecuador netback per barrel of oil (1) 6.82 4.80
Cash flow 8,495 2,680
Basic per share 0.16 0.06
Fully diluted per share 0.16 0.06
Net income 1,708 1,020
Basic per share 0.03 0.02
Fully diluted per share 0.03 0.02
Capital expenditures 24,727 12,964
Total assets 314,544 144,541
Long-term debt 120,000 -
Shareholders' equity 140,517 119,103
Average number of common shares
outstanding 53,464,267 48,564,102
Number of common shares outstanding
at the end of the period 53,512,623 48,577,213
Fully diluted number of common shares
at the end of the period 56,040,123 54,770,213
Operating
Ecuador crude oil production
Barrels 1,575,789 590,377
Barrels per day 17,509 6,560
Canada crude oil and natural gas production
Barrels of oil equivalent - 117,100
Barrels of oil equivalent per day - 1,301
Total Company
Barrels of oil equivalent 1,575,789 707,477
Barrels of oil equivalent per day 17,509 7,861
Average Ecuador crude oil price
at Esmeraldas ($/Bbl) 12.18 18.52
Number of oil wells drilled in Ecuador 5.0 3.0
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(1) Oil and natural gas sales net of inventory adjustment less
royalties, operating expenses and general and administrative
expenses.
CONSOLIDATED BALANCE SHEETS
(Thousands of U.S. dollars)
-------------------------------------------------------------------------
March 31, December 31,
1998 1997
-------------------------------------------------------------------------
(Unaudited)
Assets
Current assets
Cash and short-term investments $ 90,990 $ 104,900
Accounts receivable 11,390 8,132
Inventory 2,903 2,417
---------- ----------
105,283 115,449
Other assets 10,445 12,468
Deferred income taxes 1,173 605
Property, plant and equipment, net 197,643 176,158
---------- ----------
$ 314,544 $ 304,680
---------- ----------
---------- ----------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and
accrued liabilities $ 42,843 $ 38,515
Current portion of long-term liability 2,200 1,467
---------- ----------
45,043 39,982
Long-term debt 120,000 120,000
Long-term liability 8,800 5,869
Site restoration and abandonment 184 150
---------- ----------
174,027 166,001
---------- ----------
Shareholders' equity
Share capital 118,881 118,751
Retained earnings 21,636 19,928
---------- ----------
140,517 138,679
---------- ----------
$ 314,544 $ 304,680
---------- ----------
---------- ----------
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Thousands of U.S. dollars except per share amounts)
-------------------------------------------------------------------------
Three Months Ended March 31,
1998 1997
-------------------------------------------------------------------------
Revenues
Oil and natural gas sales $ 19,683 $ 12,112
Interest and other income 1,468 305
---------- ----------
21,151 12,417
---------- ----------
Expenses
Royalties 5,364 4,330
Operating 2,296 2,040
Inventory adjustment - 955
General and administrative 1,663 981
Interest expense 3,737 466
Depletion and depreciation 3,276 1,896
Change in estimate of
long-term liability 3,664 -
---------- ----------
20,000 10,668
---------- ----------
Income before taxes 1,151 1,749
Income taxes
Current 11 965
Deferred (recovery) (568) (236)
---------- ----------
(557) 729
---------- ----------
Net income $ 1,708 $ 1,020
---------- ----------
---------- ----------
Net income per share, basic $ 0.03 $ 0.02
---------- ----------
---------- ----------
Net income per share, fully diluted $ 0.03 $ 0.02
---------- ----------
---------- ----------
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Thousands of U.S. dollars except per share amounts)
-------------------------------------------------------------------------
Three Months Ended March 31,
1998 1997
-------------------------------------------------------------------------
Operations
Net income $ 1,708 1,020
Items not affecting cash:
Depletion and depreciation 3,276 1,896
Amortization of deferred financing costs 415 -
Deferred income taxes (recovery) (568) (236)
Change in estimate of long-term liability 3,664 -
---------- ----------
Cash flow from operations 8,495 2,680
Change in non-cash working capital (1,147) 2,941
---------- ----------
7,348 5,621
---------- ----------
Financing Activities
Decrease in long-term debt - (4,492)
Issue of common shares and special warrants 130 34,370
Decrease (increase) in deferred charges (115) 1,600
---------- ----------
15 31,478
---------- ----------
Investing Activities
Purchase of property, plant and equipment (24,727) (12,964)
Proceeds on disposal of property, plant
and equipment - 24
Other assets 1,723 -
Change in non-cash working capital 1,731 -
---------- ----------
(21,273) (12,940)
---------- ----------
Increase (decrease) in cash and short-term
investments (13,910) 24,159
Cash and short-term investments at
beginning of period 104,900 3,498
---------- ----------
Cash and short-term investments at end
of period $ 90,990 $ 27,657
---------- ----------
---------- ----------
Cash flow per share, basic $ 0.16 $ 0.06
---------- ----------
---------- ----------
Cash flow per share, fully diluted $ 0.16 $ 0.06
---------- ----------
---------- ----------
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The consolidated financial statements are unaudited but, in the opinion
of the Company, all normal recurring adjustments considered necessary for fair
presentation of the results of the operations for the interim period have been
made.
Cash flow per share is calculated using cash flow from operations.
Certain comparative information has been reclassified to conform with
presentation adopted in the current period.
-30-
For further information: John D. Wright, President & CEO,
011-593-2-449-246 or, M. Bruce Chernoff, Executive Vice President, (403)
266-0085 |
