EARNINGS / Pacalta Resources Ltd. Third Quarter Results - Part 1
CALGARY, Nov. 23 /CNW/ -
THIRD QUARTER RESULTS
REPORT TO SHAREHOLDERS
The third quarter of 1998 continued a trend of high activity levels for
Pacalta Resources Ltd. (''Pacalta'' or ''the Company''), highlighted by the
drilling of eight wells including four exploration wells. Total allowable
production increased from 17,597 BOPD during the previous quarter to 24,189
BOPD on July 7, and increased again to 25,672 BOPD on September 3. Production
for the third quarter averaged 22,159 BOPD. Pacalta remained profitable for
the third quarter and continued to deliver improved operational results -
despite the continued decline of oil prices during the period. In addition,
Pacalta continued to strengthen its financial position when, effective
November 11, 1998, the Company expanded its revolving credit facility to
US$100 million. Finally, at the end of the third quarter, the management of
Pacalta made a strategic decision to accelerate remaining development projects
with the intention of having wells and infrastructure in place to immediately
capitalize on any and all future opportunities to deliver increased production
volumes into the currently constrained pipeline infrastructure.
DRILLING ACTIVITY
FANNY FIELD
Development drilling remained active on the Fanny 20 pad during the third
quarter. Recent activity on the pad includes the drilling of three locations
which are currently being tested. The Company commenced and recently
completed the drilling of its first horizontal well in Ecuador (Fanny
18B-24H). Initial tests in the ''M-I'' sandstone showed excellent flow rates
which encouraged the Company to accelerate plans to drill a second horizontal
well from this pad. The Company intends to commence and complete drilling and
completion operations on this second horizontal well (Fanny 18B-22H) during
the fourth quarter.
The Main Production Facility (MPF) was completed in late September.
Current production through the MPF is from the Fanny field and averages 12,500
BOPD. The MPF has the capacity to process 100,000 barrels of fluid per day
and is modularized for future expansion. This key piece of infrastructure
will provide a backbone for future production increases from the Fanny and
Dorine fields.
Upon completion of the MPF, the Company submitted a request to the
governmental regulatory body for new allowables for the five wells drilled on
the Fanny 20 pad during the first half of 1998. Once allowables are assigned
for these wells, the Company believes that the Trans-Ecuadorian (SOTE)
pipeline allocation will be revised to include this production.
DORINE FIELD
Pacalta drilled a sixth location on the Dorine field during the third
quarter, and is currently production testing this well. The Dorine field is
currently producing an average of 11,500 BOPD and production from this field
is expected to be tied into the MPF in 1999. Pacalta recently submitted a
request to the governmental regulatory body for new allowables for the six
wells drilled to date on the Dorine field. The Company has recently completed
drilling a seventh location in the Dorine field, and commenced drilling on the
eighth location in the fourth quarter of 1998.
EXPLORATION
Following the completion of the Mariann 4A-1 discovery well on the City
Block, the Company recently drilled three additional locations (Mariann 4A-2,
4A-3 and 4A-4). High quality light oil was encountered in both the ''T'' and
''U'' sandstones of the Napo formation. Initial tests in the ''T'' sandstone
showed flow rates of between 1,200 to 3,200 BOPD of 31 to 32 degree API. The
''U'' sandstone tested at an average rate of between 2,000 to 2,600 BOPD of 26
degree API from all the wells tested (Mariann 4A-1, 4A-2 and 4A-3). The
Company currently expects to drill two additional locations in the field
during the fourth quarter.
On Block 27, Pacalta commenced drilling the Tipishca 2 well in October
and plans to commence testing of this well in the first quarter of 1999. An
exploratory well was also recently drilled at Tase, a location directly west
of Tipishca. Unfortunately, the Tase 1 well results were marginal and, after
non-commercial tests, the well was abandoned.
In the Blanca region of Block 27, which is situated in the northwest
corner of the Block, the Company continued with the 3D seismic survey during
the third quarter. The Company expects to complete the survey shortly, with
prospective locations to be defined by year-end. The current exploration plan
for Block 27 involves shooting and processing the remainder of the 3D seismic
program, to be followed by and extensive exploratory drilling program in 1999
and 2000 if warranted.
OPERATIONS
Average production increased 21 percent from 18,284 barrels of oil per
day during the previous quarter to 22,159 BOPD during the third quarter. This
increase occurred as a result of receipt of allowables for the Dorine field
and a re-allocation of pipeline allocation. The Company expects a further
increase in allowables once all of the new Fanny wells (including the current
horizontal well), Mariann 4A, and the Dorine wells are included in Ecuador's
national production total.
Operating costs decreased from $1.68 in the second quarter to $1.53 in
the third quarter, primarily due to increased production levels. While the
Company's cost structure is very competitive, particularly in today's price
environment, Pacalta expects to achieve further efficiencies in operating and
overhead costs as the Company's production levels increase due to the
economies of scale associated with our fixed cost structure.
PROPOSED HEAVY OIL PIPELINE
Pacalta is engaged in discussions with four major oil companies in
Ecuador regarding the construction and financing of a new heavy oil pipeline
(OCP). Construction of the OCP, with a nominal capacity of between 150,000
and 250,000 BOPD, would effectively address the need for increased pipeline
capacity in the country. Pacalta and the four other companies expect to
present a final proposal to the Ecuadorian government in early 1999. To date,
the new government administration of Ecuador has been very supportive of this
new pipeline proposal.
COLOMBIA
During the third quarter, the Company continued its comprehensive
Environmental Impact Assessment on the Tirimani Block in Colombia. Future
plans on the Tirimani Block include either shooting a minimum of 100
kilometers of 2D seismic or drilling one exploration well in the near future.
The company continues to explore a variety of opportunities to expand its
operations in Columbia.
FINANCIAL RESULTS
(Figures in U.S. dollars, except where noted)
Pacalta generated net income and positive cash flow in the third quarter
of 1998 despite continuing weak world oil prices. Cash flow from operations
was $6.4 million in the three months ended September 30, 1998 compared to $3.2
million in the same period in 1997. Net income was $0.9 million in the third
quarter of 1998 compared to $1.0 million in the comparative period in 1997.
Year to date net income of $3.1 million was impacted by interest expense
relating to the $120 million of 10 3/4% senior notes issued on June 20, 1997.
Increases in production volumes from Pacalta's City Block in Ecuador more
than offset declines in oil prices, resulting in an increase in oil and
natural gas sales to $20.0 million in the third quarter from $16.6 million
(net of inventory adjustment) in the comparative period of 1997. For the
quarter ended September 30, 1998, average oil production in Ecuador was 22,159
BOPD compared to 12,962 BOPD in the comparative 1997 period and 18,284 BOPD in
the second quarter of 1998, an increase of 71% and 21%, respectively. The
increase in oil production is entirely due to increased production from the
City Block.
The oil netback in Ecuador was $4.78 per barrel for the quarter ended
September 30, 1998 compared to $6.57 for the comparative period in 1997 and
$5.01 in the second quarter of 1998. Lower oil prices were the main cause of
the reduced netback. Pacalta hedged 6,000 BOPD of 1998 net production at an
average price of $20.10 per barrel. These hedges were closed at a West Texas
Intermediate (''WTI'') price of $15.75 for the four-month period May through
August. The gain realized on closing these hedges was amortized over the
corresponding period of production and reflected as hedging gains in the
netback table and oil and natural gas sales in the statements of operations.
Operating costs per barrel of $1.53 in the third quarter showed a decrease
from $1.68 in the second quarter and a slight increase from $1.46 from the
third quarter of 1997. Operating costs per barrel decreased from the second
quarter due to the mostly fixed nature of these costs and the impact of higher
production volumes. Royalty costs per barrel have decreased to $2.64 in the
third quarter of 1998 from $4.25 in the comparative period. This is due to
the decline in the oil price as well as a slight decline in the average
royalty rate arising from increased production.
Ecuador Netback
(U.S. dollars per barrel)
-------------------------------------------------------------------------
Three months Nine months
ended Sept. 30, ended Sept. 30,
1998 1997 1998 1997
-------------------------------------------------------------------------
Sales price $ 14.70 $ 19.87 $ 16.03 $ 20.99
Oriente differential and
transportation (5.14) (5.43) (5.62) (5.53)
-------- -------- -------- --------
Price at Esmeraldas 9.56 14.44 10.41 15.46
Pipeline tariff and gravity
differential (1.04) (1.02) (1.08) (1.04)
Hedging gains (losses) 1.29 (0.54) 1.38 (0.90)
-------- -------- -------- --------
Net price 9.81 12.88 10.71 13.52
Royalties (2.64) (4.25) (2.88) (4.90)
Operating costs (1.53) (1.46) (1.56) (1.98)
General and administrative
expenses (0.88) (0.74) (0.95) (0.87)
Foreign exchange gain 0.02 0.14 0.14 0.10
-------- -------- -------- --------
Netback $ 4.78 $ 6.57 $ 5.46 $ 5.87
-------- -------- -------- --------
-------- -------- -------- --------
General and administrative expenses increased to $2.1 million in the
third quarter of 1998 compared to $0.9 million in the comparative period of
1997. The increase is due to a substantial increase in the infrastructure and
number of personnel in Ecuador supporting the Company's ongoing development
and exploration activities.
Depletion and depreciation expense increased in the three months ended
September 30, 1998 compared to the third quarter of 1997 due to the
significant capital expenditure program carried out to date in 1998.
Other income and expense declined significantly from prior periods due
mainly to declines in our excess cash balances and related interest income.
The deferred tax expense in the third quarter relates mainly to the
timing of revenue recognition for tax purposes in Ecuador.
The Company sold its Canadian operations during the third quarter of
1997. Included in the results for the three months ended September 30, 1997
is revenue of $1.3 million and net operating income of $0.8 million related to
these properties.
Capital expenditures for the first nine months of 1998 totaled $105.1
million compared to $72.9 million during the comparative period in 1997.
Expenditures in 1998 relate mainly to drilling and construction of facilities
on the City Block in Ecuador as well as initial drilling, road construction
and seismic on Block 27.
In the third quarter, the Company decided to increase its 1998 capital
budget to $150 million partly as a result of recent light oil discoveries and
anticipation of increased pipeline allowables. The Company has recently
approved a 1999 capital expenditure program of $60 million which will be
partly financed by the Company's new $100 million credit facility which closed
in November, 1998.
Capital Expenditures
(Thousands of U.S. dollars)
-------------------------------------------------------------------------
Three months Nine months
ended Sept. 30, ended Sept. 30,
1998 1998
-------------------------------------------------------------------------
Ecuador:
Drilling and completions $ 29,188 $ 68,454
Facilities and pipelines 7,783 23,815
Seismic 4,674 7,743
Other 2,038 3,366
-------- ---------
43,683 103,378
Other international 609 1,759
-------- ---------
$ 44,292 $ 105,137
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On September 8, 1988, Pacalta commenced a Normal Course Issuer Bid to
purchase for cancellation up to 10 percent of its outstanding shares. To
date, Pacalta has purchased 5,000 shares pursuant to the issuer bid.
OUTLOOK
Overall, the Company has positioned itself to capitalize on all
opportunities to access increased capacity on Ecuador's constrained pipeline
system. Pacalta has strategically developed the Company's well potential and
infrastructure capability in advance of many positive initiatives currently
underway in the country. In particular, Pacalta has recently entered into a
consortium with the four other oil companies in Ecuador in the interest of
evaluating, constructing and financing a new heavy oil pipeline. This project
is currently in the preliminary stages of technical and financial evaluation.
The Ecuadorian administration has also stated publicly that they are fully
supportive of the construction of a new heavy oil pipeline.
In addition, the Company is also encouraged by the Ecuadorian
government's recent public announcement that they are considering proceeding
with a project for expansion of the SOTE pipeline. An expansion of this
nature would involve adding new pumps to the SOTE and upgrading existing
valves to increase capacity.
Effective November 11, 1998, Pacalta expanded its three-year, revolving
credit facility to US $100 million with a syndicate of international banks.
This new credit facility lends further strength to Pacalta's exploration and
development efforts and reinforces the Company's belief that Ecuador will
significantly augment its status as a world oil producer. This facility gives
the Company further financial flexibility to pursue opportunities that may
arise in the future.
Finally, with this phase of the Ecuadorian development program nearing
completion, the Company has positioned itself for strong production growth
from its existing proved reserve base. Looking ahead, Pacalta is building the
base for subsequent phases of growth through exploration on the Company's
largely unexplored land base and assessing new opportunities to deliver
results to Pacalta shareholders. Pacalta is an international oil and gas
exploration, development and production company with common shares trading on
The Toronto Stock Exchange under the symbol PAZ and on NASDAQ under the symbol
PAZZF.
Several statements in this press release, including statements regarding
anticipated oil and gas production and other oil and gas operating activities,
are forward looking. These statements are identified by the use of
forward-looking words and phrases, such as: ''potentially''; ''potential'';
''accelerated production plans''; ''will''; ''which could result''; ''would
constitute''; ''views''; ''anticipates''; ''anticipated''; ''may be''; and
''expected''. These forward-looking statements are based on the Company's
current expectations. Because forward-looking statements involve risks and
uncertainties, the Company's actual results could differ materially. Among
the factors that could cause results to differ materially from current
expectations are: (i) the general political, economic and competitive
conditions in markets and counties where the Company and its subsidiaries
operate, including risks associated with changes in government leaders, energy
policies, currency fluctuations and general operations in foreign countries;
(ii) changes in the Company's and its subsidiaries' access to the pipeline
capacity, which is controlled by government agencies in the regions where the
Company and its subsidiaries operate, and pipeline disruptions and capacity
constraints; (iii) fluctuations in the prices of oil and natural gas; (iv)
inherent uncertainties in the interpretation of engineering and geologic data;
(v) operating hazards and drilling risks; and (vi) the timing and occurrence
(or non-occurrence) of transactions and events which may be subject to
circumstances beyond the Company's control. |
