Petrobank Announces 2012 Reserves and Resources and Year-End 2012 Financial and Operating Results

Thu Mar 7, 2013 11:14pm EST

* Reuters is not responsible for the content in this press release.

Marketwire

Petrobank Energy and Resources Ltd.

March 7, 2013 - 11:14:11 PM

Petrobank Announces 2012 Reserves and Resources and Year-End 2012 Financial
and Operating Results

CALGARY, ALBERTA--(Marketwire - March 7, 2013) - Petrobank Energy and
Resources Ltd. (TSX:PBG) announces the results of our reserves and resources
evaluation for the year ended December 31, 2012 conducted by McDaniel and
Associates Consultants Ltd. ("McDaniel") and Sproule Associates Ltd.
("Sproule") and our 2012 fourth quarter and year-end financial and operating
results. 

Petrobank was incorporated as 1708589 Alberta Ltd. on October 24, 2012 for the
purpose of a corporate reorganization by way of Plan of Arrangement (the
"Arrangement") with PetroBakken Energy Ltd. ("PetroBakken") and the previous
Petrobank Energy and Resources Ltd. ("Old Petrobank") which existed until it
was amalgamated with PetroBakken as part of the Arrangement. The purpose of
the Arrangement was to distribute Old Petrobank's majority ownership in
PetroBakken to the Old Petrobank shareholders, effective December 31, 2012.
1708589 Alberta Ltd. was renamed Petrobank Energy and Resources Ltd.
("Petrobank" or the "Company") in conjunction with the Arrangement. With the
Arrangement completed, we no longer report PetroBakken's reserves or financial
information. PetroBakken released their 2012 reserves information on February
21, 2013. The consolidated financial statements as at and for the years ended
December 31, 2012 and 2011 represent the operations of the assets and
liabilities transferred to the Company pursuant to the Arrangement, which
previously comprised the 'Petrobank Standalone' operating segment (also
referred to as 'HBU" (Heavy Oil Business Unit) and Corporate') in our historic
financial disclosure. In the opinion of management, these consolidated
financial statements reflect all adjustments necessary to present a fair
statement of the financial position and the results of operations in
accordance with International Financial Reporting Standards ("IFRS"), however,
they may not reflect Petrobank's financial position, results of operations and
cash flows had the Company been operating in its current structure during the
reporting periods presented in these consolidated financial statements. The
historic financial results of Old Petrobank are reflected in PetroBakken's
financial statements. PetroBakken expects to announce their year-end 2012
financial and operating results next week.

This news release includes forward-looking statements and information within
the meaning of applicable securities laws. Readers are advised to review
"Forward-Looking Information and Statements" at the conclusion of this news
release. A full copy of our Year-end and Fourth Quarter 2012 Financial
Statements and Management's Discussion and Analysis ("MD&A") have been filed
on our website at www.petrobank.com and under our profile on SEDAR at
www.sedar.com. 

Comparisons presented in this press release are the fourth quarter of 2012
compared to the fourth quarter of 2011 and annual comparisons are 2012 to
2011, unless otherwise noted. The comparative 2011 figures were previously
included in Old Petrobank's MD&A for the year ended December 31, 2011 as the
'HBU and Corporate' operating segment. All financial figures are audited and
in Canadian dollars ($) unless otherwise noted. 

OVERVIEW 

2012 Reserves



--  THAI(R) proved plus probable plus possible ("3P") reserves at our
    Kerrobert project were reduced to 5.4 million barrels from 8.5 million
    barrels at the end of 2011. THAI(R) proved plus probable ("2P") reserves
    at our Kerrobert THAI(R) project were reduced to zero from 3.6 million
    barrels at the end of 2011. These revisions are due to 2012 production
    from the project not sustaining economic production rates assumed by
    McDaniel in its year end 2011 report. The Exploitable Oil Initially in
    Place ("EOIIP") at our Kerrobert THAI(R) project lands remained
    unchanged at 18.7 million barrels (see "Exploitable Oil/Bitumen
    Initially in Place"). 
--  In addition to our THAI(R) project, McDaniel also evaluated our North
    Kerrobert and Luseland properties ("Kerrobert Trend Lands"), recognizing
    best estimate contingent resources of 20.6 million barrels (see
    "Resources and Contingent Resources") and EOIIP of 48.8 million barrels.
    Together with the Kerrobert THAI(R) project lands, EOIIP associated with
    our Saskatchewan assets totalled 67.5 million barrels. 
--  Sproule conducted an evaluation of our assets at Dawson, assigning
    initial proved reserves of 0.7 million barrels, 2P reserves of 1.2
    million barrels and 3P reserves of 1.7 million barrels. These reserves
    were based on cold production from horizontal wells.  
--  Sproule assigned best estimate contingent resources of 58.3 million
    barrels at Dawson and Exploitable Bitumen Initially in Place (see
    "Exploitable Oil/Bitumen Initially in Place") of 436.2 million barrels
    based on cyclic steam stimulation, up from 33.2 million barrels of
    Exploitable Bitumen Initially in Place assigned by McDaniel in 2011,
    primarily as a result of the evaluation of additional lands outside our
    proposed Dawson THAI(R) project area. 



Q4 and Year-End 2012 Financial and Operating Review



--  We completed a corporate reorganization on December 31, 2012 that saw
    Old Petrobank shareholders effectively receive Old Petrobank's
    proportionate interest in its PetroBakken shareholdings while
    maintaining their interest in the remaining Petrobank assets. Petrobank
    shareholders received 1.1051 PetroBakken shares and one Petrobank share
    for each Old Petrobank share held at December 31, 2012. Petrobank
    continued operations as a well capitalized junior heavy oil exploration
    and production company leveraging unique patented technology. 
--  We entered 2013 with over $90 million of positive working capital,
    including over $100 million of cash, cash equivalents and marketable
    securities with no debt. 
--  Average production at our Kerrobert THAI(R) project increased to 307
    barrels of oil per day ("bopd") in Q4 2012 compared to 305 bopd in Q3
    2012 and 41 bopd in Q4 2011. Kerrobert THAI(R) production averaged 261
    bopd in 2012. 
--  Petrobank reported a net loss of $119.8 million in 2012 ($1.23 per
    share) compared to $129.5 million in 2011 ($1.33 per share), primarily
    as a result of an increase in impairment expense from $65.9 million to
    $185.9 million offset by a deferred income tax recovery in 2012 compared
    to a deferred income tax expense in 2011. 
--  Petrobank reported expenditures on exploration assets of $41.3 million
    in 2012 compared to $166.9 million in 2011. The decrease was primarily
    related to the elimination of expenditures on our May River property
    (along with our Conklin demonstration project) as a result of the
    disposition of the property in February 2012 and the completion of our
    Kerrobert expansion development capital in late 2011, offset by an
    increase in capitalized pre-commercial operating costs at our Kerrobert
    project from a full year of operations. 
--  Concurrent with the completion of the Arrangement, we recognized a non-
    cash accounting impairment related to our Kerrobert THAI(R) project and
    our patents and other intangible assets of $185.9 million, reflecting
    assessed value in use at December 31, 2012. We remain focused on
    increasing the value of our THAI(R) related assets through the
    commercialization of our Kerrobert THAI(R) project, while continuing to
    conservatively steward our capital resources and maximize the future
    potential of our other assets.



CORPORATE RESERVES AND RESOURCES SUMMARY 

The following tables summarize our 2012 year-end reserves and resources by
project area, as well as a comparison of 2011 and 2012 year-end total Company
reserves and resources. For 2012, reserves and resources were evaluated by
McDaniel for the Kerrobert THAI(R) project and Kerrobert Trend Lands and by
Sproule for the Dawson assets. For our year-end 2011 report, all reserve and
resource assessments were conducted by McDaniel. 



Company Interest(1) Reserves and Resources                                  
(MMbbls)(2)                                                                 
                                     2012                    2011           
                               Kerrobert                                    
                     Kerrobert   Trend             Total     Total          
                      THAI(R)    Lands   Dawson   Company Company(7) Change 
Total Proved             -         -       0.7      0.7        -       0.7  
Proved + Probable                                                           
 (2P)                    -         -       1.2      1.2       3.6     (2.4) 
Proved + Probable +                                                         
 Possible (3P) (3)      5.4        -       1.7    7.1(6)    8.5(6)    (1.4) 
Best Estimate                                                               
 Contingent                                                                 
 Resources(4)            -       20.6     58.3     78.9        -      78.9  
Exploitable                                                                 
 Oil/Bitumen                                                                
 Initially in                                                               
 Place(5)              18.7      48.8   436.2(8) 503.7(8)   80.7(8) 423.0(8)
                                                                            
(1) "Company Interest" reserves, which represent the Company's working      
    interest share and royalty interest share of reserves before deduction  
    of the Company's royalty obligations.                                   
(2) "MMbbls" means million barrels.                                         
(3) Possible reserves are those additional reserves that are less certain to
    be recovered than probable reserves. There is a 10% probability that the
    quantities actually recovered will equal or exceed the sum of proved    
    plus probable plus possible reserves. Stand-alone possible reserves have
    been assigned to our Kerrobert THAI(R) project as a result of current   
    uneconomic production rates associated with the project. It is our      
    intention to develop such reserves by continuing to operate the project 
    with a view to increasing production to commercial rates.               
(4) Contingent resources are those quantities of petroleum estimated, as of 
    a given date, to be potentially recoverable from known accumulations    
    using established technology or technology under development, but which 
    are not currently considered to be commercially recoverable due to one  
    or more contingencies. See "Resources and Contingent Resources".        
(5) Represents exploitable oil initially in place at the Kerrobert THAI(R)  
    project and Kerrobert Trend Lands and exploitable bitumen initially in  
    place at Dawson. Exploitable oil or bitumen initially in place is the   
    estimated discovered volume of oil or bitumen, as applicable, from known
    accumulations, before any production has been removed, which is         
    contained in a subsurface stratigraphic interval that meets or exceeds  
    certain reservoir characteristics considered necessary for the          
    application of known recovery technologies. The difference between      
    exploitable oil initially in place and 3P reserves at the Kerrobert     
    THAI(R) project is comprised of approximately 145,000 barrels of        
    production, with the remainder being considered unrecoverable. The      
    difference between exploitable oil or bitumen initially in place and    
    contingent resources or reserves on the remaining properties is         
    considered unrecoverable.                                               
(6) This volume is an arithmetic sum of multiple estimates of proved +      
    probable + possible reserves, which statistical principles indicate may 
    be misleading as to volumes actually recovered. Readers should give     
    attention to the estimates of individual classes of proved, probable and
    possible reserves, and appreciate the differing probabilities of        
    recovery associated with each class, as explained herein and in our     
    annual information form.                                                
(7) Does not include May River (sold February 2012) or PetroBakken          
    (distributed to Petrobank shareholders December 2012).                  
(8) For 2012, exploitable bitumen initially in place at Dawson includes     
    Sproule's assessment of resources associated with all of our lands at   
    Dawson. For 2011, exploitable bitumen initially in place at Dawson      
    includes only resources associated with our initial proposed THAI(R)    
    project area.                                                           
                                                                            
Net Present Value, Before Tax, Forecast Prices ($ millions)(1)              
                          Kerrobert    Kerrobert                            
                            THAI(R)  Trend Lands       Dawson  Total Company
Total Proved                      -            -         $4.0           $4.0
Proved + Probable (2P)            -            -         $7.9           $7.9
Proved + Probable +                                                         
 Possible (3P)                $63.0            -        $12.6          $75.6
Best Estimate                                                               
 Contingent Resources             -        $71.3        $69.1         $140.4
                                                                            
Net Present Value, After Tax, Forecast Prices ($ millions)(1)               
                          Kerrobert    Kerrobert                            
                            THAI(R)  Trend Lands       Dawson  Total Company
Total Proved                      -            -         $2.3           $2.3
Proved + Probable (2P)            -            -         $5.1           $5.1
Proved + Probable +                                                         
 Possible (3P)                $45.8            -         $8.5          $54.3
Best Estimate                                                               
 Contingent Resources             -        $39.6        $23.9          $63.5
                                                                            
(1) Kerrobert and Kerrobert Trend Lands based on McDaniel forecast heavy oil
    netback prices. Dawson based on Sproule forecast heavy oil netback      
    prices. Interest expenses and corporate overhead were not included. Net 
    present values are discounted at 10%. The net present values do not     
    represent the fair market value of the reserves and/or resources.       



Petrobank first received independent recognition of THAI(R) reserves at our
Kerrobert project for year-end 2010. The Kerrobert THAI(R) project was
operational with all 12 production wells capable of production in September
2011 and has since experienced quarter-over-quarter production growth.
However, at the end of 2012, production was not meeting the performance
criteria assumed by McDaniel in its year end 2011 report, resulting in a
revision of 2P reserves for the project to zero. We anticipate that 1P and 2P
reserves will be assignable to the project when sustainable commercial
production rates are reached. McDaniel also reduced its estimate of peak
production rates, leading to a 36% reduction in 3P reserves. 

McDaniel has assigned best estimate contingent resources and EOIIP on our
Kerrobert Trend Lands of 20.6 million barrels and 48.8 million barrels,
respectively. Including EOIIP associated with the Kerrobert THAI(R) project,
total EOIIP of all the Company's Saskatchewan heavy oil properties was 67.5
million barrels. 

Petrobank engaged Sproule to evaluate our Dawson lands in 2012. Based on
conventional cold production in our THAI(R) project area, Sproule assigned 0.7
million barrels, 1.2 million barrels and 1.7 million barrels of 1P, 2P and 3P
reserves, respectively. Sproule also provided a resource evaluation of our
Bluesky channel and Bluesky/Gething non-channel lands. Based on Sproule's
experience with other operators near our Dawson lands, they assigned 58.3
million barrels of best estimate contingent resource and exploitable bitumen
initially in place of 436.2 million barrels based on cyclic steam stimulation,
significantly higher than the 33.2 million barrels assigned by McDaniel in
2011 when our non-channel lands were not assessed.

OPERATIONAL UPDATE 

Kerrobert THAI(R) Project, Kerrobert Trend Lands and Kerrobert Conventional
Cold Production Initiative 

Fourth quarter 2012 production averaged 307 barrels of oil per day ("bopd"), a
small increase from Q3 2012 production of 305 bopd and an increase from 41
bopd in the fourth quarter of 2011. January 2013 production was 236 bopd based
on field estimates. 

At our Kerrobert THAI(R) project, our operating focus is to continue to reduce
costs and to significantly increase air injection. With increased injection,
we will generate more heat in the reservoir and therefore mobilize more oil.
This process began in the fourth quarter of 2012 and will continue through
2013. We began by increasing air injection on two wells, and we are now
increasing air on a full-field basis. As the wells have different operational
characteristics, our operating procedure involves evaluating individual well
performance to assess increasing air injection rates. Since beginning this
process we have increased the field air injection rate to 20% of design
capacity and we now have all wells involved in the operating plan. 

Early in 2013, we experienced frequent interventions into our KP-12 production
well due to a build-up of fines that impacted downhole pump performance. We
have recently shut-in this well to evaluate a remediation plan. 

We continue to evaluate our Kerrobert Trend Lands, where we have completed
three vertical stratigraphic wells and a large 3D seismic program. The
stratigraphic wells and 3D seismic data contributed to the increase in the
EOIIP assigned by McDaniel to the Kerrobert Trend Lands. We also completed a
4D seismic update at our Kerrobert THAI(R) project. 

Petrobank currently has five conventional cold production wells operating on
our Kerrobert Trend Lands. These wells are not yet producing at material oil
rates.

Dawson Demonstration Project 

At Dawson, we commenced cold production operations from both horizontal
THAI(R) production wells in late 2012 and the wells produced at a combined
rate of 20 bopd in the first two months of 2013. These wells will continue to
produce conventional heavy oil, and assist in pre-conditioning the reservoir
until such time as we commence the start-up of the approved THAI(R)
demonstration project.

Land Acquisition 

In early 2013, we purchased 46 sections of land in a Saskatchewan Crown land
sale for approximately $2 million. These lands further enhance our inventory
of opportunities for new THAI(R) projects and conventional heavy oil
resources. We now own approximately 81 sections of land in Saskatchewan and 31
sections of land at Dawson, Alberta. 

LIQUIDITY AND CAPITAL RESOURCES 

On completion of the Arrangement with PetroBakken at the end of 2012,
Petrobank began 2013 as a well financed junior heavy oil company leveraging
our heavy oil asset base and patented technology. We ended 2012 with positive
working capital of $91 million, including $103 million of cash and marketable
securities, and no third party debt. We expect to fund our 2013 expenditures
with cash on hand and sales revenue from production. 

Our current capital resources are expected to be more than adequate for our
planned 2013 expenditures while providing financial flexibility to pursue
future THAI(R) developments and acquisition opportunities. In early 2013, we
invested approximately $40 million of cash which is not expected to be used
during 2013 in shares and debt securities of PetroBakken. The primary reason
for this investment was to earn a reasonable return on capital in a company
with an asset base, business plan and management team that was well known to
Petrobank at the time of the investment. These securities were purchased for
investment purposes and may be sold at any time. In addition to the
PetroBakken shares received under PetroBakken's dividend reinvestment plan in
January from the December 2012 dividend, we now hold approximately $48 million
of PetroBakken shares and debt securities based on historical cost.  A
committee of Petrobank executives and directors who are independent of
PetroBakken has been formed, which approved the initial investment in
PetroBakken and is authorized to direct the timing of any future acquisitions
or dispositions of PetroBakken securities. 

SUMMARY OF FINANCIAL RESULTS 

The following table provides a summary of Petrobank's financial results for
the three months and year ending December 31, 2012 and 2011. Audited
consolidated financial statements with MD&A will be available on the Company's
website at www.petrobank.com and on the SEDAR website at www.sedar.com.



                          Three months ended                   Years ended  
                                December 31,                  December 31,  
($000s except                                                               
 where noted)         2012      2011  Change        2012      2011  Change  
----------------------------------------------------------------------------
Net loss           155,830    59,482     162%    119,846   129,516      (7%)
  Per share -                                                               
   basic and                                                                
   diluted                                                                  
   ($)(1)             1.60      0.61     162%       1.23      1.33      (8%)
Expenditures on                                                             
 exploration                                                                
 assets              9,746    27,710     (65%)    41,281   166,856     (75%)
Total assets       165,803   440,564     (62%)   165,803   440,564     (62%)
Common share                                                                
 outstanding,                                                               
 end of period                                                              
 Basic and                                                                  
 diluted                                                                    
 (000s)(1)          97,597    97,597       -      97,597    97,597       -  
                                                                            
(1) Since Petrobank's shares were issued pursuant to the Arrangement, the   
    per share amounts and shares outstanding for all periods are based on   
    the number of shares outstanding on December 31, 2012.                  



INVESTOR CONFERENCE CALL 

Management of Petrobank plans to hold a conference call for investors,
financial analysts, media and any interested persons on Friday, March 8, 2013
at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) to discuss Petrobank's
year-end and fourth quarter 2012 financial and operating results. The investor
conference call details are as follows: 



Live call dial-in numbers:   416-340-2217 / 866-696-5910
Replay dial-in numbers:      905-694-9451 / 800-408-3053
Replay pass code:            8987176                    



The live audio webcast link is:
http://events.digitalmedia.telus.com/petrobank/030813/index.php and is also
available on our website at:
http://www.petrobank.com/investors/presentations-webcasts.

Petrobank Energy and Resources Ltd. is a Calgary-based oil and natural gas
exploration and production company with operations in western Canada.
Petrobank is applying its patented THAI(R) heavy oil recovery process in the
field. THAI(R) is an evolutionary in-situ combustion technology for the
recovery of bitumen and heavy oil. THAI(R) and CAPRI(R) are registered
trademarks of Archon Technologies Ltd., a wholly-owned subsidiary of Petrobank
Energy and Resources Ltd., for specialized methods for recovery of oil from
subterranean formations through in-situ combustion techniques and
methodologies with or without upgrading catalysts. Used under license by
Petrobank Energy and Resources Ltd.

Reserves Data

The determination of oil and natural gas reserves involves the preparation of
estimates that have an inherent degree of associated uncertainty. Categories
of proved, probable and possible reserves have been established to reflect the
level of these uncertainties and to provide an indication of the probability
of recovery. The estimation and classification of reserves requires the
application of professional judgment combined with geological and engineering
knowledge to assess whether or not specific reserves classification criteria
have been satisfied. Knowledge of concepts including uncertainty and risk,
probability and statistics, and deterministic and probabilistic estimation
methods is required to properly use and apply reserves definitions. 

The recovery and reserve estimates of oil reserves provided herein are
estimates only. Actual reserves may be greater than or less than the estimates
provided herein. 

The reserve data provided in this news release presents only a portion of the
disclosure required under NI 51-101. All of the required information will be
contained in our AIF, which will be filed on SEDAR on or before March 31,
2013.

Possible Reserves: Possible reserves are those additional reserves that are
less certain to be recovered than probable reserves. There is a 10%
probability that the quantities actually recovered will equal or exceed the
sum of proved plus probable plus possible reserves.

Resources and Contingent Resources:  In this press release, Petrobank has
disclosed estimated volumes of "contingent resources". "Resources" are oil and
gas volumes that are estimated to have originally existed in the earth's crust
as naturally occurring accumulations but are not capable of being classified
as "reserves". "Contingent resources" are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from known
accumulations using established technology or technology under development,
but which are not currently considered to be commercially recoverable due to
one or more contingencies. Contingencies at both Dawson and on the Kerrobert
Trend lands include current uncertainties around the specific scope and timing
of the development of the projects; lack of regulatory approvals; uncertainty
regarding marketing plans for production from the subject area; and need for
improved estimation of project costs. Contingent resources do not constitute,
and should not be confused with, reserves. There is no certainty that it will
be commercially viable to produce any portion of the contingent resources on
the Kerrobert Trend or Dawson lands.

Exploitable Oil/Bitumen Initially In Place: Exploitable Oil/Bitumen Initially
in Place is the estimated discovered volume of oil or bitumen, as applicable,
from known accumulations, before any production has been removed, which is
contained in a subsurface stratigraphic interval that meets or exceeds certain
reservoir characteristics considered necessary for the application of known
recovery technologies. Examples of such reservoir characteristics include
continuous net pay, porosity, and mass bitumen content. Exploitable
Oil/Bitumen Initially in Place are resources that does not constitute, and
should not be confused with, reserves. There is no certainty that it will be
commercially viable to produce any portion of the resource. 

Net Present Values (NPV): Estimated values of future net revenue disclosed in
this press release do not necessarily represent fair market values.

Forward-Looking Statements: Certain information provided in this press release
constitutes forward-looking statements. Specifically, this press release
contains forward-looking statements relating to financial results, results
from operations, the timing of certain projects, and anticipated sources of
available financing. Forward-looking statements are necessarily based on a
number of assumptions and judgments, including but not limited to, assumptions
relating to the outlook for commodity and capital markets, the success of
future resource evaluation and development activities, the successful
application of our technology, the performance of producing wells and
reservoirs, well development and operating performance, general economic
conditions, weather and the regulatory and legal environment. The reader is
cautioned that assumptions used in the preparation of such information,
although considered reasonable at the time of preparation, may prove to be
incorrect. Actual results achieved during the forecast period will vary from
the information provided herein as a result of numerous known and unknown
risks and uncertainties and other factors. You can find a discussion of those
risks and uncertainties in our Canadian securities filings. Such factors
include, but are not limited to: general economic, market and business
conditions; weather conditions and access to our properties; fluctuations in
oil prices; the results of exploration and development drilling, recompletions
and related activities; timing and rig availability; outcome of exploration
contract negotiations; fluctuation in foreign currency exchange rates; the
uncertainty of reserve estimates; changes in environmental and other
regulations; uncertainties associated with the regulatory review and approval
process in respect to our projects; risks associated with the application of
early stage technology; risks associated with oil and gas operations; and
other factors, many of which are beyond the control of the Company. There is
no representation by Petrobank that actual results achieved during the
forecast period will be the same in whole or in part as those forecasted.
Except as may be required by applicable securities laws, Petrobank assumes no
obligation to publicly update or revise any forward-looking statements made
herein or otherwise, whether as a result of new information, future events or
otherwise.

FOR FURTHER INFORMATION PLEASE CONTACT: 
Petrobank Energy and Resources Ltd.
John D. Wright
Chairman and Chief Executive Officer
403.750.4400


Petrobank Energy and Resources Ltd.
Chris J. Bloomer
Senior Vice President and Chief Operating Officer, Heavy Oil
403.750.4400


Petrobank Energy and Resources Ltd.
Peter Cheung
Vice President Finance and Chief Financial Officer
403.750.4400
ir@petrobank.com
www.petrobank.com
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