It now appears that drilling in Peru on Block 107 may be delayed until as late as May 2009 due to a revised timetable for an approval of our drilling environmental impact assessment ("EIA") for the Ucayali license.
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Petrolifera earns $3.59-million in Q2
Petrolifera Petroleum Ltd (C:PDP)
Shares Issued 54,798,010
Last Close 8/5/2008 $6.77
Wednesday August 06 2008 - News Release
Mr. Richard Gusella reports
PETROLIFERA PETROLEUM REPORTS Q2 2008 RESULTS AND SCHEDULES CONFERENCE CALL AUGUST 7, 2008, 9:00 A.M. MT
Petrolifera Petroleum Ltd. continued to show steady progress during the second quarter and first half of 2008. Cash flow from operations before working capital changes rose for the third successive quarter, including a 13-per-cent increase in the second quarter 2008, compared with the prior quarter this year. Working capital was improved and profitability was expanded during this period as well.
Highlights are as follows:
Sales on a barrel of oil equivalent basis ("boe") rose for the third successive quarter, with second quarter 2008 levels up 15 per cent over fourth quarter 2007 levels
Crude oil and natural gas prices both increased during the second quarter 2008
Puesto Morales waterflood well underway, with measurable response beginning to materialize
Two new pool discoveries made at the PME x-1002 well ("Loma Montosa Two zone") and at the directionally-drilled PM x-1082 well, a Sierras Blancas discovery; offsets are drilling or planned
Balance sheet strengthened with $40 million bought deal equity financing completed in second quarter 2008
Long-term credit facility expanded to US$70 million and progress made on asset-backed commercial paper ("ABCP") investments
These Q2 2008 results will be subject to a Conference Call event at
9:00 a.m. MT August 7, 2008. To listen to or participate in the live
conference call please dial either (416) 644-3428 or (800) 587-1893. A replay
of the event will be available from August 7, 2008 at 11:00 a.m. MT until
August 15, 2008 at 11:59 p.m. MT. To listen to the replay please dial either
(416) 640-1917 or 877-289-8525 and enter the passcode 21278536 followed by the
pound sign.
SUMMARIZED OPERATING RESULTS
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Daily sales volumes
Crude oil and NGL -- bbl/d 7,111 6,644 6,918 8,976
Natural gas -- mcf/d 5,922 1,726 6,483 1,792
Barrels of oil equivalent -- boe/d(*) 8,098 6,932 7,999 9,274
Average selling prices
Oil and natural gas liquids -- $/bbl $ 49.90 $ 45.17 $ 46.05 $ 45.34
Natural gas -- $/mcf $ 2.38 $ 1.42 $ 2.28 $ 1.48
Barrels of oil
equivalent -- $/boe(*) $ 45.56 $ 43.65 $ 41.68 $ 44.16
(*) All references to barrels of oil equivalent (boe) are calculated on the
basis of six thousand cubic feet: one barrel (bbl). Boes may be misleading,
particularly if used in isolation. This conversion is based on an energy
equivalency conversion method primarily applicable at the burner tip and
does not represent a value equivalency at the wellhead.
Petrolifera experienced steady growth during the second quarter and first half of 2008. Sales showed solid improvement and have risen 15 per cent since the fourth quarter of 2007. Crude oil sales in the second quarter 2008 also exceeded levels achieved in the same reporting period in 2007, reinforcing the positive turnaround being experienced by the company as it completed its new facilities, initiated its pressure maintenance program and continued infill drilling programs at Puesto Morales. Second quarter sales were constrained by adverse weather during the period, resulting in plant shutdowns due to severe rainstorms which affected the operation of the water treatment plant and the company's water injection program. Normal operations have been restored.
Realized prices also showed improvement, especially during the second quarter 2008 as the impact of higher negotiated prices for crude oil to US$47 per barrel, with some retroactivity, resulted in average crude oil prices for the period of $49.90 per barrel. Also, natural gas prices continued to improve, rising to $2.38 per mcf, the highest natural gas price received in the company's history. While these prices remain well below competitive world levels, which if received would materially impact on Petrolifera's cash flow, the directional improvement is welcomed and signals continued upward pressure, in our opinion.
The company maintained an active and meaningful capital spending program during the first half of 2008, with outlays exceeding cash flow, both in Argentina and overall, with a significant seismic program underway in Peru and preparations for Colombian drilling requiring capital commitments. In Argentina, a total of 26 wells were drilled (including two wells started in 2007 and completed in 2008) during the first half of the year, with ten of these wells during the second quarter 2008. The drilling program resulted in 19 oil wells, one natural gas well, three injectors and two wells were abandoned, with one well on the Vaca Mahuida block awaiting testing as at June 30, 2008. This well was cased and subsequently suspended after negative test results. In addition to injectors drilled, another eight wells were converted to injector status, bringing to 14 the number of injectors in the waterflood. Two of these wells continue to produce crude oil from upper zones while water is being injected in lower zones within the Sierras Blancas Formation.
Recently, certain wells in the northern portion of the Puesto Morales Norte field have shown production increases of approximately 20 per cent to 30 per cent, confirming waterflood response starting to take effect in the northern pool. We remain encouraged by this and expect a more broadly based response to contribute to production growth throughout the balance of 2008 and into 2009, more than offsetting what would otherwise be normal declines for the wells in the field. As a consequence of this continuing active capital program, total indebtedness increased. However, a late second quarter 2008 equity financing, which yielded gross proceeds of $40 million and was sold on a bought deal basis, was completed to strengthen the company's overall financial condition. Accordingly, Petrolifera's working capital showed significant improvement compared with that reported at the end of the first quarter 2008, benefiting as well from our ability to reclassify a significant portion of our indebtedness to long term status. We still hold a significant investment in ABCP, which is now classified as a long-term investment. This will eventually be sold and converted to cash and a reduction of related indebtedness.
This stronger financial position is important as the company prepares to embark on higher cost drilling programs in Colombia during the second half of 2008. Simultaneously, until economic conditions warrant a stronger investment profile in Argentina, capital programs will be reduced as only one drilling rig and one service rig remain under contract to the company and key facilities are now in place and operational. At the same time, all outstanding commitments on the company's Vaca Mahuida, Puesto Guevara and Gobernador Ayalla II blocks will be fulfilled, albeit at a more measured pace than might otherwise be undertaken. Follow-up drilling on the two new pool crude oil discoveries at Puesto Morales x-1082 and Puesto Morales Este x-1002 will take priority to establish the areal extent of these recently-drilled and completed wells. Recently, the 1082 well produced at a rate of 850 bbl/d of crude oil, so we are hopeful the 1052 offset will be equally prolific and start to restore and accelerate our production growth in Argentina. As previously mentioned, this should be supplemented by ongoing production improvements from the Puesto Morales Norte field, as the company's waterflood impacts on overall productivity and sales. It will be recalled we anticipated full impact to occur sometime around the middle of 2009.
In Colombia, the company continues its preparations for drilling on the Sierra Nevada I concession at the La Pinta prospect. Original plans were to start drilling in August 2008 but delays in receiving environmental approvals and challenges in securing a suitable rig will likely now delay drilling startup into September 2008. Another operator in the area had originally promised Petrolifera use of a drilling rig, but then withdrew the offer. We believe suitable equipment has now been located and we have worked closely with ANH, the Colombian authority, to secure all the necessary accommodation with respect to contract obligations for the license.
Subsequent to the reporting period, Petrolifera converted its Turpial Technical Evaluation Agreement ("TEA") into a License Agreement covering substantially all of the acreage originally contained in the concession and is in the final stages of conversion of the Sierra Nevada II TEA into the Magdalena License. These concessions are thus firmly in Petrolifera's control with a 100 per cent interest and we are pleased with the extent and quality of acreage and opportunities associated with our Colombian exposure. A second well on the Sierra Nevada I License on the Brillante prospect will likely follow the La Pinta well, which is anticipated to take between 75 and 90 days to drill. Accordingly, shareholders will have exposure to high potential drilling in Colombia for the balance of 2008.
In Peru, our seismic program of 951 kilometers of 2D coverage on Block 107 in the Ucayali Basin was completed on July 18, 2008. Processing and interpretation is proceeding and demobilization of the crew has been initiated, with plans to move to Maranon Block 106. Based on positive results indicated on Block 107, we have entered into negotiations with Perupetro, the Peruvian state agency, for a new license covering an area contiguous with Block 107. This is anticipated to add approximately one million acres of Petrolifera's Peruvian holdings; final terms will be disclosed when the negotiations are completed. It now appears that drilling in Peru on Block 107 may be delayed until as late as May 2009 due to a revised timetable for an approval of our drilling environmental impact assessment ("EIA") for the Ucayali license. We continue to work with Perupetro and other interested parties to accelerate this process even though there is a suspension of the timetable of the license under this process. If scheduling permits, we intend to utilize the rig being arranged for our Colombian program for our first drilling in Peru in 2009 as it is helicopter-transportable.
During the second quarter 2008 and subsequent thereto, considerable effort was placed on resolving the ABCP dilemma. It will be recalled the market for this commercial paper seized up in August 2007 and efforts have been underway to resolve the loss of liquidity arising in the midst of a more global credit crisis. To that end, the company has recently agreed to a term sheet with a Canadian chartered bank whereby, subject to the issuance of new notes under the reorganization plan for ABCP, which awaits approval by the Ontario Appeal Court, Petrolifera would receive a loan facility, with an initial term of two to three years and with four to five one-year renewals, for an amount equivalent to 75 per cent of the face value of its original investment in ABCP. This facility would be secured by the notes and, in exchange, Petrolifera would withdraw its participation in litigation to retain the right to pursue further legal action against the bank. If this agreement is crystallized, Petrolifera's overall liquidity would be improved and the company would be positioned to dispose of or otherwise realize on its investment and repay any advances, with surplus proceeds added to working capital. In the interim, the company recorded a further pre-tax non-cash impairment of $2 million during the second quarter, while still retaining profitability.
The company has also recently seen its reserve-backed credit facility expanded to US$70 million, accompanied by a strengthening of the banking syndicate providing this to Petrolifera. This is important in current markets where access to credit is increasingly difficult, especially for junior companies operating in international theaters.
Subsequent to the reporting period, the company settled a dispute with the former operator of its Puesto Morales/Rinconada concession, thereby avoiding further significant legal expenses and distractions associated with this type of situation.
We were pleased to announce that on June 4, 2008 Mr. Andy Gustajtis was appointed to the Board of Directors of the company. Andy brings extensive capital market experience to the Board and has been appointed to the company's Audit, Reserves and Human Resources committees. He was associated with the early financing activity of the company and is familiar with our operations.
Difficult capital market conditions have hurt the performance of the company's shares in recent weeks. However, we believe that Petrolifera is on solid ground with a strong balance sheet, solid and growing production, new pool discoveries to be developed and high potential drilling ahead of it during the balance of this year and continuing on into 2009. We have a solid operating team and qualified explorers in our technical group. We continue to examine new venture opportunities in various jurisdictions that offer reasonably favorable terms and stable fiscal and operating regimes within which to conduct business.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Revenue
Petroleum and natural gas sales $ 33,569 $ 27,537 $ 60,683 $ 74,135
Interest and other income 53 568 106 1,092
--------- --------- --------- ---------
33,622 28,105 60,789 75,227
Royalties 4,666 3,906 8,050 9,761
--------- --------- --------- ---------
28,956 24,199 52,739 65,466
--------- --------- --------- ---------
Expenses
Operating 6,340 3,507 12,265 8,119
General and administrative 2,024 1,811 4,086 3,232
Stock-based compensation 731 1,238 3,129 4,159
Finance charges 1,303 6 2,223 29
Foreign exchange loss 1,118 3,887 1,208 4,020
Fair value impairment -- ABCP 2,002 - 3,492 -
Taxes other than income taxes 816 508 1,322 946
Depletion, depreciation and
accretion 6,388 3,438 11,057 8,834
--------- --------- --------- ---------
20,722 14,395 38,782 29,339
--------- --------- --------- ---------
Earnings before income taxes 8,234 9,804 13,957 36,127
Current income tax provision 5,182 3,863 7,842 14,021
Future income tax provision
(recovery) (538) 1,491 787 2,587
--------- --------- --------- ---------
4,644 5,354 8,629 16,608
--------- --------- --------- ---------
Net earnings $ 3,590 $ 4,450 $ 5,328 $ 19,519
Retained earnings, beginning
of period 68,171 54,783 66,433 39,714
--------- --------- --------- ---------
Retained earnings, end of period $ 71,761 $ 59,233 $ 71,761 $ 59,233
========= ========= ========= =========
Net earnings per share
Basic $ 0.07 $ 0.09 $ 0.11 $ 0.43
Diluted $ 0.07 $ 0.09 $ 0.10 $ 0.38
© 2008 Canjex Publishing Ltd. |
