EARNINGS / Pan East Petroleum Announces Quarterly Results
TSE SYMBOL: PEC
MAY 20, 1998
CALGARY, ALBERTA--Pan East announces operating and financial
results for the quarter ended March 31, 1998, and updates activity
and outlook for the second half of 1998
Pan East presents its results for the first quarter of 1998. The
focus of the Company was on expanding the exploration program and
increasing production by tying in 1997 discoveries. The first
three months of the year was the most active drilling period in
the Company's history and by late April 1998, production reached
40 MMcfe/d, a level which was 60 percent higher than the exit rate
at the end of 1997.
Capital Program
Pan East started 1998 with working capital of $14.8 million and
$25 million of undrawn bank lines. This enabled the Company to
expand its capital program. Capital expenditures in the first
quarter ended March 31, 1998 totaled $12.8 million. Pan East
participated in the drilling of 12 (4.6 net) wells resulting in 8
(3.2 net) gas wells, 2 (0.7 net) oil wells and 2 (0.7 net)
abandoned wells. The drilling of 2 (0.6 net) additional wells
commenced in the first quarter and reached total depth and were
cased in the second quarter. These 14 wells range in depth from
1,550 meters (5,100 feet) to 5,200 meters (17,000 feet) with Pan
East operating eight of the wells. At no cost to the Company, two
additional gas wells were drilled on Pan East lands in which the
Company retained an 18 percent working interest in one well and a
convertible gross overriding royalty in the other well.
Production
On a gas equivalent basis, production averaged 25.2 MMcfe/d in the
first quarter of 1998, 25 percent lower than the 33.6 MMcfe/d
recorded in the comparable first quarter of 1997. This reflects
natural decline in existing wells, primarily at Berland River.
Berland River represents approximately 37 percent of current
production as compared to 77 percent of production in the first
quarter of 1997. In late April 1998, production reached 40
MMcfe/d as new production from Sunchild, Karr and Midwinter was
connected to markets. Commodity prices in the first quarter of
1998 averaged $1.60 per Mcfe as compared to $1.53 per Mcfe in the
comparable quarter of 1997. Gas prices strengthened in April to
approximately $2.00 per Mcf and these higher prices are favourable
to Pan East considering 87 percent of production is natural gas.
Liquids prices, however, remain weak but the effect on total sales
is minimal.
Financial Results
Gas, liquids and sulphur revenue totaled $3.6 million in the first
quarter of 1998 as compared to $4.6 million in the comparative
period of 1997. The variance is attributable primarily to volumes
produced in the comparable periods. The impact of the production
variances is reflected in cash flows, as well, which dropped from
$2.6 million ($0.06 per share) in 1997 to $1.9 million ($0.03 per
share) in the first quarter of 1998. The Company incurred a net
loss in the first quarter of 1998 of $440,000 ($0.01 per share)
compared to a loss of $45,000 (Nil per share) in the comparable
period of 1997. The outlook for the remainder of the year is much
more positive, as higher gas prices are realized and higher
production levels are achieved.
/T/
1998 1997
---- -----
Production and Prices
Average Daily Production
Natural Gas (MMcf/d) 22.0 29.3
Liquids (Bbl/d) 191 229
Sulphur (LT/d) 134 205
Natural Gas Equivalent (MMcfe/d) 25.2 33.6
Average Product Prices
Natural Gas ($/Mcf) 1.65 1.51
Liquids ($/Bbl) 20.42 27.54
Sulphur ($/LT) 1.76 5.09
Natural Gas Equivalent ($/Mcfe) 1.60 1.53
Financial
($000 except per share amounts)
Gas, Liquids and Sulphur Revenue 3,629 4,636
Cash Flow From Operations 1,948 2,616
Per Share 0.032 0.060
Net Earnings (Loss) (440) (45)
Per Share (0.007) (0.001)
/T/
British Columbia Operations
On March 2 1998, Pan East as operator (25 percent cost interest)
spudded an exploration well in the Bullmoose/Sukunka area at
Windfall a-5-G/93-P-4. The well reached a total depth of 2,190
meters (7,180 feet) early in May. The well was directionally
drilled on a large structure and encountered 270 meters (890 feet)
of total Triassic section, approximately 200 meters (660 feet) of
which was highly fractured porous Baldonnel Formation.
Over the last two days, the 270-meter Triassic section was open
hole tested, without acid stimulation, through 4.5 inch tubing for
approximately 30 hours and recovered significant amounts of fresh
water. It appears that due to the fresh nature of these waters,
the structure has been breached and recharged from the surface
with fresh water. The Company currently is still evaluating this
well, as well, its future activity in the Bullmoose/ Sukunka area
of northeast British Columbia.
At Midwinter in northeast British Columbia, Pan East drilled three
horizontal wells in the first quarter which commenced production
in late March at a combined rate of 9 to 10 MMcf/d per day (4.5 to
5 MMcf/d net to Pan East). This production level is restricted
until capacity in the current facilities can be expanded. The
Company is currently planning next winter's drilling program of 5
to 6 wells and is in discussions to expand the facilities.
Alberta Operations
As previously announced, production commenced from a gas well in
the Sunchild/Ferrier area in February and a gas well at Karr in
the greater Kaybob area in late April. The Sunchild/Ferrier well
is flowing at 6.0 MMcfe/d (Pan East - 2.7 Mmcfe/d). The Karr well
produces at a rate of 11 MMcfe/d (Pan East - 9.9 MMcfe/d), is tied
into the Simonette gas pipeline and processed at the Kaybob South
#3 gas plant. Pan East has direct ownership in both these
facilities.
An exploratory re-entry of a 5,200 meter (17,000 feet) well at
Gregg Lake commenced in February. Completion and testing
operations recently have been concluded and the well is presently
a shut-in gas well in the Leduc formation. Pan East and its
partners are finalizing plans for a large 3D seismic program in
the area, and are reviewing production options.
Outlook for the remainder of 1998
The drilling program, to date, has resulted in participation in a
total of 15 wells. After breakup, this active drilling program
will continue with another 15 wells planned for the remainder of
1998. These wells include participation in 5 to 6 deep tests in
Pan East's principal focus area at Kaybob. The funds are in place
to finance this program which targets large accumulations of
natural gas and associated liquids.
Pan East's President and CEO, Richard A. Walls, commented "despite
the surprising and disappointing results at Bullmoose/Sukunka, the
focus of the exploration program remains unchanged and the depth
of projects is richer than any other time in the Company's
history. The overall capital program, to date, has been
successful and we look forward to continuing success in the second
half of 1998."
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