Category: Uncategorized
- Published: 29 November -0001
News Release: Earns $1.5 Million in First Quarter
Purcell Energy Ltd. reports earnings of $1.5 million in the first quarter of 2003, an increase of 262 percent over the same period in 2002. The company's first quarter results reflect strong crude oil and natural gas prices, but do not include the results of recent successful drilling activity in Fort Liard, NWT. Through the first quarter, a high-impact development well (2K-29) was directionally drilled at Fort Liard from the same surface location as Purcell's K-29 well to a target 1.5 kilometres to the northwest. The 2K-29 well is already on production at 25 million cubic feet of raw gas per day. Purcell has turned the corner on the challenges the company faced over the past year managing its natural gas production from Fort Liard. Active development is under way, production levels from the project are increasing and, in early 2003, independent engineers confirmed the reserves. Purcell expects to see production growth on a quarter-over-quarter basis for the remainder of 2003. Current production is 4,200 boe per day.
Highlights of Q1
Three months to March 31 PercentConstrained Fort Liard natural gas volumes and operational delays at Rainbow, Alberta affected company production in the first quarter. In addition, many of Purcell's exploration assets throughout northeast British Columbia and Alberta are at relatively early stages and are not currently contributing to production. Exploration drilling at Ootla in northeast British Columbia was unsuccessful and the project is being re-evaluated. Also, a Slave Point test at Silver in northeast B.C. was not successful, although shallower gas zones are prospective and will be evaluated next winter.
2003 2002 Change
---------------------------------
FINANCIAL ($000, except where
indicated)
Petroleum and natural gas sales 12,225 7,434 64
Revenues, net 8,290 6,712 24
Production expenses 1,921 1,739 10
Per unit ($/boe) 6.39 4.12 55
G&A expenses 637 573 11
Per unit ($/boe) 2.12 1.36 56
Cash flow 5,083 4,087 24
Per share - basic ($) 0.183 0.153 20
Per share - diluted ($) 0.181 0.150 21
Net income 1,494 412 263
Per share - basic ($) 0.054 0.015 260
Per share - diluted ($) 0.053 0.015 253
Capital expenditures, net 13,798 9,924 39
Bank debt and working capital
deficiency 42,859 26,960 59
Subordinate debenture 5,000 - -
Common shares outstanding (000)
Weighted average - basic 27,721 26,746 4
Weighted average - diluted 28,151 27,324 3
OPERATIONS
Production
Gas (mmcf/d) 15.59 24.36 -36
Crude oil and liquids (bbls/d) 742 628 18
Equivalent (boe/d) 3,340 4,689 -29
Commodity prices (wellhead) (1)
Natural gas ($/mcf) 5.00 2.65 89
Oil and liquids ($/bbl) 44.43 29.02 53
$/boe 33.22 27.03 23
Netback ($/boe)
Operating 21.19 11.78 80
Cash flow 16.91 9.69 75
(1) Commodity prices are net of hedges and transportation costs
Progress in Key Project Areas
Purcell has a range of high quality exploration projects in various stages of development with many expected to progress through 2003 capital investment.
The Fort Liard 2K-29 development well (24 percent interest) was drilled directionally to 3,599 meters into the producing Nahanni formation from the original K-29 well site in record time and 20 percent below budgeted costs. The initial production rate for 2K-29 is 25 mmcf per day and the well is capable of higher rates. The operator is planning further upgrades to the K-29 facilities in the third quarter. The success of 2K-29 supports Purcell's view that the gas pool requires further drilling to optimize production and reserves recovery.
The 2K-29 well is part of a development plan that includes additional water-handling infrastructure constructed this past winter. These improvements will more than double the current water-handling capacity, enabling gas production to be increased from the two wells on the south structure (M-25 and F-25A).
Exploration efforts, including interpreting proprietary seismic, are positioning the company to participate in the next land sale in the greater Fort Liard region. The April 17, 2003 signing of an Interim Resource Development Agreement between the Deh Cho First Nation and the federal government may lead to land sales as early as the first quarter of 2004.
At Tenaka, B.C., Purcell negotiated a farmout and joint venture agreement during the first quarter of 2003 with Anadarko Canada Corporation covering approximately 50 percent of Purcell's landholdings. Over the past two years Purcell has assembled an average 63 percent interest in approximately 42,000 acres of land immediately west of the Adsett Slave Point gas field. 2D seismic data interpreted by Purcell has identified multiple Slave Point prospects. Pursuant to the Anadarko joint venture, a 120 square kilometer 3D seismic program was conducted in the first quarter. Purcell is paying 25 percent of the $4 million cost of the program. Anadarko has the option to elect to drill a Slave Point test on the joint venture lands next winter, with Purcell having the right to participate for 25 percent. In the event a well is drilled and Purcell participates, Purcell will retain a 37.4 percent working interest in the joint venture lands. Under the agreement, gas produced from the joint venture lands will be processed through Anadarko's existing Adsett infrastructure. A well drilled this winter immediately adjacent to the joint venture lands was tested at 7.5 mmcf of gas per day and is on production.
At Umbach (Buick Creek), B.C., recent land purchases by the company and more 3D seismic shot in the first quarter of 2003 will lead to a second Slave Point test well in July 2003. Purcell has a 25 percent interest in about 17,000 acres. An earning well drilled in September 2003 encountered shallower potential gas zones that the company expects to pursue in the area.
Purcell's ongoing exploration and development drilling program for the remainder of 2003 includes wells targeting gas at Pembina, Columbia, Obed and Rainbow in Alberta, wells targeting oil at Griffin, Weyburn and Minton, and reworking a horizontal well on the company's Weyburn oil property.
Drilling results in the first quarter include six successful natural gas exploration wells at an average 17.5 percent working interest and three successful natural gas development wells (10 percent interest) at Ells/Birch Tar. Another successful oil exploration well, at 16.5 percent interest, was completed at Shekilie, B.C.
Management's Discussion and Analysis
Revenue, Commodity Prices and Sales Contracts
Petroleum and natural gas sales were up 64 percent to $12.2 million in the first quarter of 2003 compared with 2002 due to higher average product prices received at the wellhead offset by lower production. Crude oil and liquids prices were up 53 percent to $44.43 per barrel and natural gas prices increased 149 percent to $6.60 per mcf in the first quarter of 2003 compared with 2002. In the first quarter of 2003, all of the company's production was sold into the spot market, however, a financial costless-collar contract with a $6.00 per mcf AECO ceiling price lowered average natural gas prices received at the wellhead by 24 percent to $5.00 per mcf. Approximately 10.4 million cubic feet per day of gas production or about 35 percent of the company's expected boe production for the remainder of 2003 is hedged at an average floor price of CAD$4.71 per mcf and a ceiling price of $6.40 per mcf.
Natural gas transportation costs increased by 74 percent to $1.03 per mcf in the first quarter compared with 2002 as a result of lower production volumes at Fort Liard and firm transportation contracts. This reduced average natural gas prices received at the wellhead in the first quarter by seven percent compared with 2002. Transportation costs are expected to decline per unit as production at Fort Liard increases as a result of the development activities.
Production
Production bottomed in the first quarter at an average of 3,340 boe per day. Although some of Purcell's project areas have increased in production year over year, the largest impact on production was the reduced rates at Fort Liard. This project area will resume higher production levels as a result of the new 2K-29 well that was drilled in the first quarter, and the increased water handling capability.
Production from the Rainbow area has been constrained due to operational problems at a third party natural gas processing facility. Current wells at Rainbow are capable of producing up to 600 boe per day net to Purcell. Net production in the first quarter was 150 boe per day. Solutions to resolve this facility constraint are being considered by the company in cooperation with the plant operator.
Expenses
Royalty expense increased by 145 percent to $1.9 million and increased by 244 percent to $6.29 per boe in the first quarter as a result of higher commodity prices and higher post-payout royalty rates at Fort Liard. Royalty rates in Alberta and Saskatchewan generally increase as commodity prices increase. The Fort Liard production has attracted higher frontier crown royalty rates since reaching payout of capital costs in March 2002.
Production costs increased by 55 percent to $6.39 per boe in the first quarter as a result of lower Fort Liard production volumes and facility disruptions at Rainbow, Alberta. Operating costs per unit of production are expected to decline through the balance of 2003 to average around $5.60 per boe for 2003 due to increasing production at Fort Liard as productive capability is restored and increased volumes at Rainbow.
General and administrative (G&A) expenses increased by 56 percent per unit of production to $2.12 per boe in the third quarter as a result of lower production volumes. Purcell expects G&A expenses to decline to around $1.70 per boe average for 2003 as production volumes increase during the balance of the year.
Interest expenses increased by 131 percent to $487,817 in the first quarter, a change that reflects higher outstanding bank debt levels, moderately higher prime lending rates and the subordinate debenture issued in October 2002. The higher debt levels are due to capital costs incurred during the fall and winter drilling season.
Depletion costs declined by eight percent to $3.1 million in the first quarter as a result of a 29 percent decline in equivalent production offset by an increase in finding and development costs. Due to the high-impact, exploration nature of Purcell's drilling program in the first quarter, the company managed a drilling success rate of 30 percent calculated on a net well basis.
Taxes
The company is not currently taxable except for federal large corporations tax and provincial capital taxes. Based on corporate forecasts, the company expects to pay corporate income taxes on income earned in 2004. Tax pools currently amount to approximately $66 million.
Netbacks
For the first quarter of 2003, Purcell's operating netbacks averaged $21.19 while cash flow netbacks averaged $16.91, 80 percent and 75 percent higher, respectively, than the first quarter of 2002. This increase is a result of higher commodity prices offset by increased expenses on a per boe basis.
Capital Resources and Liquidity
Purcell invested $13.8 million during the first quarter and is expected to invest another $13.2 million during the last three quarters of 2003. A significant portion of the first quarter spending reflects investment of $2.6 million at Fort Liard and $6.6 million in northeast British Columbia including purchases of land and seismic as well as drilling activity in a number of winter-access-only areas. As a result of increasing production, the company expects cash flow to exceed capital expenditures in the next three quarters, leading to declining bank debt.
Purcell's first quarter investment was funded 36 percent by cash flow, 21 percent by the issue of one million common shares at $2.90 per share, and the balance by debt and working capital. At March 31, 2003 the company's long-term debt and working capital deficiency totalled $47.9 million. The company's bank is in the process of completing the annual review of the credit facility.
On May 21, 2003, Purcell had 27.9 million shares outstanding (31.4 million fully diluted).
Outlook
Purcell is optimistic about its prospects for the rest of 2003 as it executes it growth plan and takes advantage of solid commodity prices, buoyed by continued oil production constraints in Venezuela, OPEC oil supply discipline and the pressing need in North America to increase natural gas storage levels.
Purcell plans capital expenditures of $27 million in 2003. The company's focus for the remainder of 2003 is to return Fort Liard to its productive capability while moving exploration prospects forward and further developing producing properties.
Purcell anticipates growth in production on a quarter-over-quarter basis for the remainder of 2003 with an exit production rate of more than 5,500 boe/d. Production growth will come from Fort Liard where production is ramping up during the second quarter, from additional production that has been drilled and is awaiting tie-in and from development wells at Weyburn and Griffin in Saskatchewan.
This news release contains forward-looking statements with respect to Purcell. These statements involve risks and uncertainties that could cause actual results to differ materially from forecasts. These risks and uncertainties include commodity prices, well production rates, drilling success, timing, and the successful implementation of the company's business strategy.
FOR FURTHER INFORMATION PLEASE CONTACT: Purcell Energy Ltd. Jan M. Alston President & C.E.O. (403) 269-5803 (403) 264-1336 (FAX) Website: www.purcellenergy.com
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