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BlackPearl Announces Third Quarter 2015 Financial and Operating Results

by ahnationtalk on November 11, 2015676 Views

Press Release

CALGARY, ALBERTA–(Nov. 10, 2015) – BlackPearl Resources Inc. (“BlackPearl” or the “Company”) (TSX:PXX)(OMX:PXXS) is pleased to announce its financial and operating results for the three and nine months ended September 30, 2015.

Highlights include:

  • At Onion Lake, we began producing oil in September from our thermal EOR project. Production is ramping-up and is currently in excess of 3,000 barrels of oil per day. Phase one of the project has a design capacity of 6,000 barrels of oil per day which we expect to achieve in the first half of 2016;
  • At Blackrod, the pilot results from the second SAGD well pair continue to be positive; in Q3 2015 the well produced 552 barrels of oil per day with a steam oil ratio of 2.7;
  • As a result of our cost reduction initiatives, we have reduced our operating and transportation costs, on a barrel of oil equivalent (boe) basis, by over 20% in 2015 compared to 2014;
  • Oil and gas revenues in Q3 2015 were $20.8 million and funds flow from operations was $10.2 million. Year to date we have generated revenues of $74 million and funds from operations of $38 million;
  • The decline in crude oil prices in 2015 were partially offset by realized gains on crude oil hedging contracts. In Q3 we realized gains of $8 million and year to date we have realized gains of $27 million;
  • Capital spending was $8 million in Q3 2015 and $67 million for the first nine months of the year. Over 90% was spent on the thermal project at Onion Lake. We have reduced capital spending in other core areas due to low oil prices and our desire to maintain a strong financial position;
  • Existing credit facilities were $150 million, with $97 million drawn as at September 30, 2015. The Company had net debt (bank debt less working capital) of $89 million at the end of Q3 2015;
  • Production averaged 7,478 barrels of oil equivalent (boe) per day in the third quarter, a 19% decrease compared to Q3 2014 volumes. The decrease is attributed to shutting-in various high cost wells, no drilling activity in 2015 and the fact that the Onion Lake thermal project only started producing oil late in the quarter. Current production is in excess of 9,500 barrels of oil per day as a result of the continued ramp-up of thermal production at Onion Lake.

John Festival, President of BlackPearl commenting on Q3 2015 activities stated that, “It was a challenging quarter for heavy oil producers as oil prices retreated back to the mid $40’s and heavy oil differentials widened. Our objective in this price environment is to remain financially disciplined and limit our capital spending to only our very best projects that are profitable with low oil prices. For us, this is the Onion Lake thermal project. We are very proud of the achievements that have occurred at Onion Lake in 2015. Firstly, we completed the project on time and within budget in the second quarter. The installed costs of around $35,000 per flowing barrel will be among the best in class in terms of capital efficiency. Then, we successfully commissioned the steam generation facilities and initiated steam injection in May. In the third quarter we reached a new milestone with the project when we achieved first oil production in September. Today, production from the project is over 3,000 barrels of oil per day and we anticipate reaching our target of 6,000 barrels of oil per day in the first half of 2016. Onion Lake thermal will become our lowest cost production. In the meantime, production from our other areas has declined due to limited sustaining capital but we felt it was particularly important to manage our balance sheet with these low oil prices. When oil prices recover we expect to put this production back online.”

Financial and Operating Highlights
Three months ended Nine months ended
September 30, September 30,
2015 2014 2015 2014
Daily production / sales volumes
Oil (bbl/d) 7,115 8,744 7,514 8,798
Natural gas (mcf/d) 2,178 3,024 2,495 2,222
Combined (boe/d) (1) 7,478 9,248 7,930 9,168
Product pricing ($) (before the effects of hedging transactions)
Crude oil – per bbl 35.02 75.89 38.15 76.89
Natural gas – per mcf 2.88 3.97 2.69 4.49
Combined – per boe (1) 34.05 72.90 36.90 74.84
Netback ($/boe) (1) (2)
Oil and gas sales 34.05 72.90 36.90 74.84
Realized gain (loss) on risk management contracts 12.99 (0.58 ) 13.47 (1.65 )
Royalties 6.48 12.73 6.25 14.18
Transportation 0.97 2.06 1.09 2.03
Operating costs 20.04 26.05 20.84 25.28
19.55 31.48 22.19 31.70
($000’s, except per share amounts)
Oil and gas revenue – gross 20,814 58,818 73,641 180,547
Net income (loss) for the period 5,402 7,013 (15,621 ) 10,571
Per share, basic and diluted 0.01 0.02 (0.05 ) 0.03
Funds flow from operations(3) 10,156 23,809 38,064 70,007
Capital expenditures 7,870 80,262 66,843 177,666
Working capital deficiency (surplus) (4) (8,254 ) 29,543 (8,254 ) 29,543
Bank debt (4) 97,000 97,000
Net Debt (5) 88,746 29,543 88,746 29,543
Shares outstanding, end of period 335,638,226 335,638,226 335,638,226 335,638,226
(1) Boe amounts are based on a conversion ratio of 6 mcf of gas to 1 barrel of oil. Boe’s may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
(2) Netback is a non-GAAP measure that does not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies.
(3) Funds flow from operations is a non-GAAP measure that represents cash flow from operating activities before decommissioning costs incurred and changes in non-cash working capital related to operations. Funds flow from operations does not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies.
(4) Working capital excludes current portion of bank debt of $15 million.
(5) Net debt is a non-GAAP measure.

Property Review

Onion Lake

We completed construction of phase one of the Onion Lake thermal project during the second quarter and commenced steam injection in late May. After approximately three months of injecting steam and warming the reservoir we started converting the producer wells over to oil production. We converted the first well pad of seven producer wells in late August and started to bring the second well pad of six wells on production in October. No major issues with the wells or the facilities have been encountered during the start-up.

During the month of September the thermal project produced approximately 800 barrels of oil per day and is currently producing in excess of 3,000 barrels of oil per day. We expect production to continue to ramp-up and reach design production capacity of 6,000 barrels of oil per day in the first half of 2016.


At Blackrod, the second SAGD pilot well pair continues to perform well. During the third quarter, production averaged 552 barrels of oil per day with a steam oil ratio of 2.7. The well has cumulatively produced in excess of 200,000 barrels of oil. The successful results from our two well pair pilot reinforces our confidence that the SAGD process works well and the Blackrod lease is ready for commercial development.

In August, the original pilot well pair at Blackrod required maintenance capital and we elected to defer incurring these costs and shut the well pair in. We have gathered sufficient valuable technical information from operating this well over the last four years that it is unlikely we will put the well back on production until we initiate commercial operations at Blackrod.

There have been no new updates this quarter regarding the status of our 80,000 barrel per day commercial development application at Blackrod. Although the application process has been much slower than we expected there have been no major roadblocks as we move towards approval. We anticipate receiving regulatory approval later this year or early next year.


Our primary focus at Mooney has been on our cost reduction initiatives in the field. As a result of these measures we have been able to reduce operating costs in the field from over $3 million a month to approximately $2 million per month. The reduction in operating costs is primarily due to a slowing of chemical injection rates in certain areas of the reservoir, reduced service rates and lower staff levels. We are continuing with design plans for the expansion of the ASP flood to the phase two lands but we are unlikely to proceed with this expansion until WTI oil prices increase above US$55 per barrel.


Oil and gas production averaged 7,478 barrels of oil equivalent per day in the third quarter of 2015, a 19% decrease compared with the third quarter of 2014. The decrease in oil production reflects natural production declines, no new drilling activity in 2015, reduced workover activity, as well as, the Company’s decision to shut-in various high cost conventional wells at Onion Lake due to low oil prices.

Average Daily Sales Volume
Three months ended Nine months ended
September 30, September 30,
(boe/day) 2015 2014 2015 2014
Onion Lake – conventional 3,285 4,203 3,621 4,132
Onion Lake – thermal 251 85
Mooney 2,192 3,429 2,523 3,547
John Lake 967 1,025 1,000 1,053
Blackrod 583 478 534 332
Other 200 113 167 104
7,478 9,248 7,930 9,168

Financial Results

Oil and gas revenues in Q3 2015 were $20.8 million, a decrease of 65% compared to the third quarter of 2014. The decrease in revenues is attributable to a 53% decrease in our average sales price and a 19% decrease in production volumes.

Our realized oil price (before the effects of risk management activities) in Q3 2015 was $35.02 per barrel compared to $75.89 per barrel in Q3 2014. The decrease in our realized wellhead price reflects significantly lower WTI reference oil prices in Q3 2015 compared with Q3 2014 (US$46.43/bbl vs US$97.17/bbl), partially offset by tighter heavy oil differentials (US$13.39/bbl vs US$20.24/bbl) and a significantly weaker Canadian dollar relative to the US dollar ($0.764 vs $0.918).

We have entered into various oil hedges to mitigate some of the negative impact of the low oil price environment in 2015. During the first nine months of 2015 we realized a gain of $27 million from our oil hedging program, which was the equivalent of adding $13.47 per barrel to our wellhead price. The following summarizes the hedging contracts we currently have outstanding:

Volume Term Reference Strike Price Option Traded
Oil 1,000 bbls/d October 1, 2015 to CDN$ WCS CDN$ 64.45/bbl Swap
December 31, 2015
Oil 1,000 bbls/d October 1, 2015 to CDN$ WCS CDN$ 61.00/bbl Swap
December 31, 2015
Oil 1,000 bbls/d October 1, 2015 to CDN$ WCS CDN$ 62.25/bbl Swap
December 31, 2015
Oil 1,000 bbls/d October 1, 2015 to CDN$ WCS CDN$ 72.00/bbl Swap
December 31, 2015
Oil 1,000 bbls/d January 1, 2016 to CDN$ WTI CDN$ 70.65/bbl Swap
December 31, 2016
Oil 1,000 bbls/d January 1, 2016 to CDN$ WTI CDN$ 67.00/bbl Swap
December 31, 2016
Oil 1,000 bbls/d January 1, 2016 to CDN$ WTI CDN$ 67.10/bbl Swap
December 31, 2016
Oil 1,000 bbls/d January 1, 2016 to USD$ WTI USD$ 65.00/bbl Sold Call
December 31, 2016
Oil 1,000 bbls/d January 1, 2016 to USD$ WTI USD$ 65.00/bbl Sold Call
December 31, 2016
Oil 1,000 bbls/d January 1, 2016 to CDN$ WTI CDN$ 80.00/bbl Sold Call
December 31, 2016 Swaption(1)
Oil 1,000 bbls/d January 1, 2017 to USD$ WTI USD$ 60.00/bbl Sold Call
December 31, 2017
(1) The Company sold a European call option to a counterparty whereby the counterparty can elect on December 31, 2015 to exercise the option to enter into the oil swap.

Operating costs in Q3 2014 were $12.2 million, or $20.04 per boe, a 42% decrease from Q3 2014. The decrease in operating costs in 2015 is attributable to decreased production volumes as well as our continuing efforts to reduce and optimize operating costs in all our producing areas.

Reduced revenue, partially offset by lower royalties, transportation costs and operating costs resulted in a 57% decrease in funds flow from operations in Q3 2015 to $10.2 million compared to $23.8 million for the same period in 2014.

Bank debt as at September 30, 2015 was $97 million. Net debt (bank debt less working capital) was $89 million). The total credit facilities available to the Company are currently $150 million. The lenders next review of these facilities will be completed by November 30, 2015.

The 2015 third quarter report to shareholders, including the financial statements, management’s discussion and analysis and notes to the financial statements are available on the Company’s website ( or SEDAR (


Our plans for the remainder of 2015 are relatively unchanged from our Q2 and Q1 2015 guidance update. We are still planning to spend $70 to $75 million ($67 million spent as of September 30, 2015) on capital projects in 2015 with the major focus being the construction of the first phase of the Onion Lake thermal EOR project which was completed during the second quarter. Planned expansion of the ASP flood at Mooney and conventional heavy oil drilling at Onion Lake and John Lake have been deferred due to the current low oil price environment and our desire to maintain a strong balance sheet.

The capital program to September 30, 2015 has largely been funded by funds flow from operations and advances under the credit facilities. Fourth quarter 2015 capital expenditures, which are planned to be between $5 and $8 million, are expected to be funded from funds flow from operations. Funds flow for the year is expected to be between $45 and $50 million, up from our Q2 guidance of $40 to $45 million and year- end 2015 debt levels are anticipated to be between $95 and $100 million, down from our Q2 guidance of $100 to $105 million. The increase in funds flow from operations and lower year-end debt levels reflects higher realized risk management gains and lower operating costs as a result of the cost reduction initiatives we undertook during the first nine months of the year. We anticipate oil and gas production to average between 8,000 and 8,500 boe/d in 2015, which is in line with our previous quarterly updates.

Non-GAAP Measures

Throughout this news release, the Company uses terms “funds flow from operations”, “netback” and “net debt”. These terms do not have standardized meanings as prescribed by GAAP and, therefore, may not be comparable with the calculation of similar measures presented by other issuers. These terms are used by the Company to analyze operating performance, leverage and liquidity and to provide shareholders and investors with additional information to measure the Company’s performance and efficiency and its ability to fund a portion of its future activities and to service any long-term debt. “Funds flow from operations” represents cash flow from operating activities (the closest GAAP measure) expressed before decommissioning costs incurred and changes in non-cash working capital. “Netback” is calculated as oil and gas revenues less royalties, production costs, transportation costs and realized gains/losses on risk management contracts, divided by total production for the period on a boe basis. “Net debt” represents long term debt less working capital.

Forward-looking Statements

This release contains certain forward-looking statements and forward-looking information (collectively referred to as “forward-looking statements”) within the meaning of applicable Canadian securities laws. All statements other than statements of historic fact are forward-looking statements. Forward-looking statements are typically identified by such words as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” or similar words suggesting future events or future performance.

In particular, but without limiting the foregoing, this report contains forward-looking statements pertaining to our business plans and strategies; expectation of reaching peak production rates of 6,000 barrels of oil per day at our Onion Lake thermal EOR project in the first half of 2016; the expectation that thermal production at Onion Lake will be our lowest cost production; the expected timing to receive regulatory approval for our commercial development application at Blackrod; the expectation of expanding the Mooney ASP flood when oil prices reach US$60 a barrel and all information included in the “Guidance” section of this release.

The forward-looking statements in this document reflect certain assumptions and expectations by management. The key assumptions that have been made in connection with these forward-looking statements include the continuation of current or, where applicable, assumed industry conditions, the continuation of existing tax, royalty and regulatory regimes, commodity price and cost assumptions, the continued availability of cash flow or financing on acceptable terms to fund the Company’s capital programs, the accuracy of the estimate of the Company’s reserves and resource volumes and that BlackPearl will conduct its operations in a manner consistent with past operations. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their very nature, forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those contained in forward-looking statements. These factors include, but are not limited to, risks associated with fluctuations in market prices for crude oil, natural gas and diluent; risks related to the exploration, development and production of crude oil, natural gas and NGLs reserves; general economic, market and business conditions; substantial capital requirements; uncertainties inherent in estimating quantities of reserves and resources; extent of, and cost of compliance with, government laws and regulations and the effect of changes in such laws and regulations from time to time; the need to obtain regulatory approvals on projects before development commences; environmental risks and hazards and the cost of compliance with environmental regulations; aboriginal claims; inherent risks and hazards with operations such as fire, explosion, blowouts, mechanical or pipe failure, cratering, oil spills, vandalism and other dangerous conditions; potential cost overruns; variations in foreign exchange rates; diluent supply shortages; competition for capital, equipment, new leases, pipeline capacity and skilled personnel; uncertainties inherent in the SAGD bitumen and ASP recovery processes; credit risks associated with counterparties; the failure of the Company or the holder of licenses, leases and permits to meet requirements of such licenses, leases and permits; reliance on third parties for pipelines and other infrastructure; changes in royalty regimes; failure to accurately estimate abandonment and reclamation costs; inaccurate estimates and assumptions by management; effectiveness of internal controls; the potential lack of available drilling equipment and other restrictions; failure to obtain or keep key personnel; title deficiencies with the Company’s assets; geo-political risks; risks that the Company does not have adequate insurance coverage; risk of litigation and risks arising from future acquisition activities. Further information regarding these risk factors and others may be found under “Risk Factors” in the Annual Information Form.

Undue reliance should not be placed on these forward-looking statements. Readers are cautioned that the actual results achieved will vary from the information provided herein and the variations could be material. Readers are also cautioned that the foregoing list of assumptions, risks and factors is not exhaustive. Consequently, there is no assurance by the Company that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements. Furthermore, the forward-looking statements contained in this document are made as of the date hereof, and the Company does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

The information in this release is subject to the disclosure requirements of BlackPearl Resources Inc. under the Swedish Securities Market Act and/or the Swedish Financial Instruments Trading Act. This information was publicly communicated on November 10, 2015 at 4:30 p.m. Mountain Time.


BlackPearl Resources Inc.
John Festival
President and Chief Executive Officer
(403) 215-8313BlackPearl Resources Inc.
Don Cook
Chief Financial Officer
(403) 215-8313


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