EARNINGS / Pursuit Resources Corp. 1997 Year End Report
TSE SYMBOL: PUT
MARCH 17, 1998
CALGARY, ALBERTA--Pursuit has completed a year of substantial
growth through the acquisition of a large asset base, ongoing
development of its properties and an increased focus on
exploration. During the fourth quarter a number of projects were
brought onstream resulting in increased production and a year end
exit rate of 3,900 barrels of oil equivalent per day. Natural gas
production rates have increased to 22 million cubic feet per day
which represents approximately 60 percent of total oil equivalent
production.
/T/
HIGHLIGHTS
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Three Months Ended Year Ended
December 31, Percent December 31, Percent
1997 1996 Change 1997 1996 Change
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FINANCIAL (thousands except as noted)
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Oil and Gas Revenue $6,789 $4,014 69 $25,215 $12,228 106
Funds Flow from
Operations 3,658 1,880 95 12,202 5,453 124
Per Share ($/share) .16 .15 7 .52 .45 16
Net Earnings 649 552 17 1,788 1,292 38
Per Share ($/share) .03 .05 (40) .08 .11 (27)
Capital Expenditures 5,399 2,372 28 63,454 11,581 448
Weighted Average
Shares Outstanding
(millions) 23.5 12.2 92 23.5 12.0 96
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/T/
2.7:1 consolidation of Pursuit common shares effective January 1,
1997 has been reflected retroactively in all share and per share
figures
/T/
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OPERATING
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Production
Oil - bbls/d 1,482 775 91 1,585 759 109
Natural Gas -mmcf/d 20.5 11.0 86 18.9 9.4 100
boe/d 3,531 1,877 88 3,470 1,702 104
Prices
Oil - $/bbl $18.89 $24.59 (23) $20.46 $22.10 (7)
Natural Gas -$/mcf $2.23 $2.20 1 $1.94 $1.77 10
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Wells Drilled (net)
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Oil 6 (1.1) --- 23(12.7) 8 (3.5)
Gas 2 (1.0) --- 17(10.6) 3 (2.8)
Suspended --- --- 2 (0.9) ---
Dry 2 (2.0) 1(0.7) 9 (5.5) 2 (1.0)
--------------- ----------------
Total 10 (4.1) 1(0.7) 51(29.7) 13 (7.3)
--------------- ----------------
Success Rate
- net (percent) 51 --- 81 86
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/T/
OPERATIONS
During the fourth quarter Pursuit completed a number of projects
which provided for growth in production during that period and
which will add to production volumes in early 1998. Reported
production rates of 3,531 barrels of oil equivalent per day
represent an 88 percent increase over the fourth quarter of 1996.
Production averaged 3,750 barrels of oil equivalent per day in
December with the year end production rate reaching 3,900 barrels
equivalent per day. The majority of the production growth was
associated with natural gas projects with the result that 60
percent of Pursuit's total production is made up of natural gas.
The most significant projects undertaken during the quarter
included the tie in of the third and most productive well in the
Inga Halfway pool in British Columbia, the construction of a gas
processing facility at Princess, Alberta and the initiation of
drilling and recompletion activity in the Hoole and Desmarais
projects in northern Alberta. Production from the Inga Halfway
wells continues to meet our expectations and the drilling of the
first step out well commenced in mid-February. This well will
evaluate the deliverability associated with a horizontal
completion. Additional drilling in this area is scheduled during
the year. Production from the Princess facility commenced at the
end of January with net incremental production rates averaging 1.1
million cubic feet per day and 20 barrels of oil per day.
Northern gas project activity resulted in one new gas well, one
gas well recompletion and one oil well. The gas wells commenced
production in late February and are providing 1 million cubic feet
per day of production net to Pursuit.
Pursuit continued to add property in the Doucette portion of the
Northern gas area by acquiring an operating interest in four
sections of land including two gas wells. These wells will be
connected to the Pursuit gathering system and plant in late 1998
or early 1999 and have the potential to increase gas production
from the area by two million cubic feet per day. Several natural
gas oriented projects, including the next phase of development in
the Prairiedale, Saskatchewan Viking gas property, will continue
to increase the proportion of gas in the total Pursuit production
base.
EXPLORATION AND DEVELOPMENT
The drilling of 51 gross wells (29.7 net) in 1997 was historically
the most active drilling year for Pursuit. The drilling program
also represented a balancing of the Company's three strategies of
acquisition, production and exploration. For the first time, in
1997, a significant portion of Pursuit's capital budget was
dedicated to exploration drilling. The Company spent approximately
$5 million on land acquisition, seismic and exploration drilling
in 1997, representing approximately 30 percent of its
non-acquisition capital expenditures. The drilling program
concluded with the completion of 23 oil wells and 19 gas wells
representing an 81 percent success rate. The majority of the gas
wells were drilled in the central Alberta and western Saskatchewan
areas. Oil drilling activity was concentrated in the Lloydminster
and Kenilworth Lake areas of Alberta where several projects were
expanded and a high productivity discovery was made. Exploratory
drilling activity accounted for 10 of the wells drilled during the
year and resulted in four gas wells and one oil well.
The majority of the Company's capital program had been completed
by the end of the third quarter. Pursuit however did drill a
successful follow-up to its Belly River formation gas discovery in
the Gilby area of central Alberta during the fourth quarter. The
Gilby area is expected to be the site of additional drilling
activity in 1998. The Company also participated in projects
resulting in incremental production including two successful
horizontal wells at Bigoray (Pekisko oil) and a well at Snowfall
(Slave Point gas) in northern Alberta. While Pursuit participated
at lower interests than usual in these projects, they reflect the
continuing diversification of the Company's portfolio of
opportunities which form the basis for future growth.
RESERVES
Pursuit's oil and gas reserves increased by 60 per cent to 15.7
million barrels of oil equivalent on a proved plus probable basis
with 78 per cent of the reserves being carried in the proved
category. Natural gas reserves of 97.5 billion cubic feet
represent 62 per cent of the Company's total reserves.
/T/
Proved Probable Total
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Crude oil and liquids (mbbls) 4,308 1,608 5,916
Natural gas (mmcf) 78,445 19,034 97,479
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Barrel of oil equivalent(mboe) 12,153 3,512 15,665
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/T/
(Reserves estimated by Fekete Associates Inc.; escalated prices
and costs, probable volumes unrisked)
As a result of the high cost environment in the oil and gas
industry during the year as well a number of downward revisions
associated with the evaluation of both operated and acquired
properties, Pursuit incurred finding and development costs above
its historic averages in 1997. These costs of $9.84 per barrel of
oil equivalent on a proved reserves basis and $8.92 on a proved
plus probable basis are unacceptable and will be reduced as the
opportunities associated with the acquired properties contribute
to the growth of Pursuit commencing in 1998. Pursuit continues to
believe that its three-year average of $6.47 per equivalent barrel
of proved plus probable reserves provides a more appropriate basis
for assessing finding and development costs. The reserve revisions
which result in the high finding and development costs relate
largely to the decision to have all of Pursuit's reserves
evaluated on a basis consistent with prior corporate evaluations,
production performance and reduced forward pricing expectations.
Lower crude oil price forecasts had a particular impact on heavy
crude oil reserves. Despite the higher industry-wide costs for
services in 1997, finding costs for established reserves additions
from internally generated activity averaged $5.15 per barrel of
oil equivalent on a proved plus probable basis.
Replacement costs consider future capital required to bring
reserves onstream as well as land and seismic expenditures which
typically do not have immediate reserve impact. Reserve
replacement costs more closely match capital expenditures and
related reserve additions in the same period than do annual
finding and development costs derived from reserves evaluations.
The Company's 1997 reserve replacement cost of $7.65 per
equivalent barrel of proved and probable reserves was 21 per cent
above the three-year average of $6.30. Pursuit's acquisition of
Aztec Resources Ltd. included significant value for lands on which
no reserves have yet been booked. A number of exploratory
opportunities have already been identified on these lands and work
towards adding reserves has begun in 1998. The development work
undertaken by Pursuit during the last three years has brought
significant volumes of reserves on production reducing the
Company's average reserve life from 19.5 years in 1995 to 12.4
years in 1997 and thereby accelerating the realization of cash
flows from those reserves.
FINANCIAL
For the year ended December 31, 1997, oil and gas revenues were
$25.2 million an increase of 106 percent compared to $12.2 million
for 1996. Production increased 104 percent in 1997 to 3,470
barrels of oil equivalent per day compared to 1,702 barrels of oil
equivalent per day in 1996. Natural gas production increased 100
percent over 1996 to 18.9 million cubic feet per day in 1997 while
oil production increased 109 percent during 1997 to 1,585 barrels
per day. These results reflect the significant drilling and
development program as well as the acquisition of Aztec Resources
Ltd. at the beginning of 1997.
During the fourth quarter of 1997, the effects of Pursuit's
capital program began to be reflected in financial results. For
the fourth quarter revenues increased 69 percent to $6.8 million
compared to $4.0 million in the fourth quarter of 1996. Oil
equivalent production averaged 3,531 barrels per day for the three
months ended December 31, 1997, 88 percent higher than the same
period in 1996. Natural gas production rose 86 percent to 20.5
million cubic feet per day compared to the same quarter of 1996
while oil production increased 91 percent over the 1996 fourth
quarter to 1,482 barrels per day.
For the 1997 fiscal year, the Company's average natural gas price
was $1.94 per thousand cubic feet, a 10 percent increase over the
$1.77 for 1996. For the fourth quarter, Pursuit's natural gas
price rose one percent to average $2.23 per thousand cubic feet,
compared to $2.20 in the 1996 fourth quarter. The 1997 increase in
average realized natural gas prices is the result of several
marketing initiatives undertaken by Pursuit during the year.
Currently, in excess of 60 percent of the Company's natural gas
production is priced at U.S. market hubs which more closely
reflect North American commodity values for natural gas than do
the prices in the transportation-constrained western Canadian
market. Pursuit expects to continue to benefit on a competitive
basis from our substantial exposure to U.S. based gas pricing.
Pursuit's realized oil price for the year ended December 31, 1997
averaged $20.46 per barrel, a seven percent decrease from $22.10
for 1996. West Texas Intermediate crude oil futures on the NYMEX
exchange ("WTI") averaged $US 20.61 per barrel for 1997, a six
percent decrease from $22.00 per barrel in 1996. During the fourth
quarter of 1997, WTI prices averaged $US 19.94, down 19 percent
from $US 24.52 in 1996. The Company's average oil price decreased
to $18.89 per barrel for the fourth quarter of 1997, a 23 percent
decrease compared to $24.59 for the 1996 quarter. Prices for crude
oil have continued to decline in 1998 with heavy oil prices being
most adversely affected. Heavy crude volumes represent less than
seven percent of Pursuit's total oil equivalent production.
Funds flow from operations increased 124 percent to $12.2 million
($0.52 per share) for 1997 compared to $5.5 million ($0.45 per
share) in 1996. In the fourth quarter funds flow was $3.7 million
($0.16 per share) compared to $1.9 million ($0.15 per share) for
the 1996 quarter. The higher production and revenues described
above were partly offset by similar increases in production,
administrative and interest expenses. Non-continuing
administrative costs were incurred during the period of
integration of the Aztec property base and management systems. The
per share figures reflect 1997 increases in weighted average
common shares outstanding.
The percentage increase in royalty expense was less than the
overall increase in revenues due to a larger portion of the
properties acquired from Aztec Resources Ltd. being eligible for
the Alberta Royalty Tax Credit than had been the case on Pursuit's
historic production base. Lower average oil prices in 1997 also
resulted in decreased royalty rates on oil as such royalty rates
are price sensitive. The Company also received the benefit of
royalty free periods on certain of its properties in 1997.
Net earnings in 1997 were $1.8 million ($0.08 per share), a 38
percent increase compared to 1996. For the three months ended
December 31, 1997, net earnings were $649,000 ($0.03 per share)
compared to $552,000 ($0.05 per share) in 1996. The funds flow
increases discussed previously were offset by increased depletion
and deferred income tax charges.
Progress was made in lowering unit operating costs to an average
of $4.82 per equivalent barrel in 1997, a three percent decrease
from $4.96 per equivalent barrel in 1996. These reduced costs
combined with the realized commodity prices discussed above
yielded the Company the highest operating netbacks in its history
at $12.53 per equivalent barrel up 10 percent from 1996.
With historically low interest rates, Pursuit continues to believe
that it is appropriate to finance a portion of its capital program
through advances on its bank credit facility. While long term debt
has increased with the size of the of the Company's operations,
Pursuit's capacity to service this debt has remained relatively
constant with interest expense amounting to approximately 12
percent of cash flow in each of the past three years.
OUTLOOK
Pursuit was able to successfully merge the Aztec operations into a
single operation during 1997 and during that process a number of
highly prospective opportunities were identified on Company
acreage. A number of these opportunities include an expansion of
the Company's exploration activities. Several new drilling
opportunities have been identified in areas including West
Pembina, Provost and the Northern Gas Area of Alberta. The Company
has established a capital budget of approximately $15 million for
1998 based on current commodity prices and expected cash flow.
This capital expenditure level approximates anticipated cash flow
thus providing Pursuit the continued flexibility to react
decisively to changing business and market conditions.
The latter part of 1997 and the first quarter of 1998 have seen a
rather dramatic downturn in the price of crude oil. Some price
recovery is expected through 1998 and it appears that gas prices
will increasingly reflect average North American commodity prices.
The intense level of activity that has been seen in the industry
throughout North America and specifically in Canada may be
moderated due to high costs associated with this activity and
reduced crude oil prices. While these circumstances command fiscal
restraint, it is our view that the likely results will include
more reasonable costs for exploration and production operations.
Respectfully submitted on behalf of the Board of Directors,
D. Nolan Blades
President and CEO
Douglas R. Martin
Chairman and CFO
/T/
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(thousands except per share amounts)
Three Months Ended Year Ended
December 31 December 31
-------------------------------------
1997 1996 1997 1996
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Revenue
Oil and gas $6,789 $4,014 $25,215 $12,228
Royalties, net (498) (713) (3,239) (2,096)
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6,291 3,301 21,976 10,132
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Expenses
Production 1,646 966 6,100 3,092
Administrative 655 252 2,139 820
Interest 379 179 1,366 700
Depletion, depreciation
and amortization 2,481 917 8,916 3,212
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5,161 2,314 18,521 7,824
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Earnings before
income taxes 1,130 987 3,455 2,308
Income taxes 481 435 1,667 1,016
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Net earnings $ 649 $ 552 $1,788 $1,292
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Net earnings
per Share $ 0.03 $ 0.05 $ 0.08 $ 0.11
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(thousands except per share amounts)
Three Months Ended Year Ended
December 31 December 31
-------------------------------------
1997 1996 1997 1996
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Cash provided by (used in)
Operations
Net earnings $ 649 $ 552 $ 1,788 $ 1,292
Items not affecting cash
Depletion, depreciation
and amortization 2,481 917 8,916 3,212
Deferred income taxes 528 411 1,498 949
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Funds from operations 3,658 1,880 12,202 5,453
Change in non-cash
working capital 2,645 (615) 2,767 (1,428)
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6,303 1,265 14,969 4,025
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Financing
Share capital 1,898 999 31,992 1,011
Long-term debt (2,802) 115 16,493 6,545
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(904) 1,114 48,485 7,556
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Cash available for
investing activities 5,399 2,379 63,454 11,581
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Investments
Additions to oil and
gas properties (5,399) (2,372) (63,454) (11,581)
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(5,399) (2,372) (63,454) (11,581)
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Change in cash position --- 7 --- ---
Cash position,
beginning of period --- (7) --- ---
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Cash position,
end of period $ --- $ --- $ --- $ ---
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Funds from operations
per share $ 0.16 $ 0.15 $ 0.52 $ 0.45
CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands)
December 31 December 31
1997 1996
----------------------------
Assets
Accounts receivable $ 5,233 $ 2,730
Oil and gas properties, net 84,821 30,100
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$ 90,054 $ 32,830
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----------------------------
Liabilities and
Shareholders' Equity
Accounts payable $ 7,847 $ 2,504
Long-term debt 29,515 13,095
Deferred income
taxes and other 3,294 1,644
----------------------------
40,656 17,243
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Shareholders' Equity
Share capital 45,902 13,781
Retained earnings 3,496 1,806
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49,398 15,587
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$ 90,054 $ 32,830
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CORPORATE INFORMATION
Board of Directors
D. Nolan Blades
Gerald J. DeSorcy
Olivier de Vregille
John L. Fenniak
Gregory S. Fletcher
Dennis N. Johnson
Harvey L. Johnson
David H. Kennedy
Douglas R. Martin
Auditors
KPMG, Calgary, Alberta
Legal Counsel
Burstall Ward, Calgary, Alberta
Bankers
Royal Bank of Canada, Calgary, Alberta
Reserve Evaluation Engineers
Fekete Associates Inc., Calgary, Alberta
Officers and Key Personnel
D. Nolan Blades
President and Chief Executive Officer
Douglas R. Martin
Chairman and Chief Financial Officer
John L. Fenniak
Vice President, Business Development
Bill Ibbitson
Vice President, Operations
Chris Zinkan
Vice President, Exploration
Judy Dingwall
Controller
Kurt Miles
Vice President, Land and Contracts
Cam Sebastian
Vice President, Finance
Harley L. Winger
Secretary |
