Pace Oil & Gas Ltd. Reports Significant Increase in Oil Production, Cash Flow Per Share and Top Quartile Finding and Development Costs

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CALGARY, ALBERTA--(Marketwire - March 13, 2012) - Pace Oil & Gas Ltd. ("Pace" or the "Company") (TSX:PCE) is pleased to provide our Q4 2011 and full year 2011 corporate operating and reserves report.

HIGHLIGHTS:

2011 marked a very successful year for Pace as the Company continues to deliver on its objective to transition to an oil weighted producer. Oil and NGLs production increased 46% year over year to 6,245 bbls/d (95% oil, 5% NGLs) from 4,289 bbls/d in 2010 and in Q4 2011 liquids production increased 15% from the prior quarter to 6,965 bbls/d. Total production increased 23% year over year to 14,040 boe/d (on a 6:1 conversion) from 11,405 boe/d. For the year 2011, Pace increased it oil and liquids weighting to 44% of total production from 38% of total production in 2010 and increasing liquids revenues to 75% of total revenues compared to 63% in 2010. The oil growth was generated organically through the drill bit in all our major areas and through improved recoveries associated with our waterflood enhancements. Based on the continued growth in our oil production and our large inventory of oil opportunities, we are confident we will continue our oil weighted growth going forward, increasing cash flow and value to our shareholders.

Pace's increased oil production and its reduction in operating costs generated top tier growth in per share funds from operations. Funds from operations per share increased by 44% to $2.06/share from $1.43/share in 2010. Overall, the increase in oil production along with a strong oil price resulted in funds from operations increasing 88% to $98 million for 2011 compared to $52 million for 2010. For Q4 2011, funds from operations totalled $26 million compared to $18 million for Q4 2010 (a 44% increase).

Pace's oil focused capital program delivered excellent finding, development and acquisition costs. Pace's 2011 finding costs (including changes in future development costs - "FDC") were $16.09/boe for total proved reserves with 79% of the additions being oil and NGLs. Pace has a solid oil weighted reserve base with a high weighting of proved developed producing reserves which are 74% of total proved reserves. Pace continues to deliver industry leading finding costs while increasing its liquids weighting and controlling its FDCs. Proved future development costs of $97 million represent approximately one year's estimated cash flow while proved plus probable undeveloped reserves can be converted to producing reserves with approximately 2 years of cash flow. Pace's FDCs are comparatively low and reiterate a low corporate reserve risk portfolio.

Production Increases

Strong oil growth drives production increase

Funds from Operations Increases

Pace delivered top tier cash flow per share growth

Operating Netback Increases

Pace reduced operating costs and increased netbacks

Strong Reserves and Finding Costs

Pace grew its oil weighted reserves at a top tier finding cost

Balance Sheet and Financial Flexibility


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Financial
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
(000s, except per share amounts) Q4 2011
 
Q4 2010
 
Q3 2011
 
2011
 
2010
 
Funds from operations $ 26,159
 
$ 18,103
 
$ 21,174
 
$ 97,852
 
$ 52,358
 

 
Per share- Basic
 
0.55
 

 
0.44
 

 
0.45
 

 
2.06
 

 
1.43
 

 
Per share- Diluted
 
0.55
 

 
0.44
 

 
0.45
 

 
2.06
 

 
1.43
 
Net income (loss) $ 454
 
$ (36,681 ) $ 5,524
 
$ 16,707
 
$ (40,246 )

 
Per share- Basic
 
0.01
 

 
(0.89 )
 
0.12
 

 
0.35
 

 
(1.10 )

 
Per share- Diluted
 
0.01
 

 
(0.89 )
 
0.12
 

 
0.35
 

 
(1.10 )
Total capital expenditures $ 44,129
 
$ 19,133
 
$ 21,794
 
$ 127,565
 
$ 59,280
 
Net acquisitions (dispositions)
 
23
 

 
50,524
 

 
-
 

 
(1,977 )
 
54,997
 
Net debt
 
186,129
 

 
153,710
 

 
166,273
 

 
186,129
 

 
153,710
 
Operations
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Average daily production
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Oil & NGLs (bbls/d)
 
6,965
 

 
5,391
 

 
6,061
 

 
6,245
 

 
4,289
 

 
Natural gas (mcf/d)
 
43,442
 

 
46,184
 

 
44,981
 

 
46,772
 

 
42,691
 

 
Combined (boe/d)
 
14,205
 

 
13,089
 

 
13,558
 

 
14,040
 

 
11,405
 

 
% Oil & NGLs
 
49 %
 
41 %
 
45 %
 
44 %
 
38 %
($/boe)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Sales price $ 53.04
 
$ 42.51
 
$ 46.58
 
$ 48.84
 
$ 41.55
 
Royalties
 
(13.01 )
 
(7.38 )
 
(10.53 )
 
(10.93 )
 
(6.81 )
Operating expenses
 
(13.84 )
 
(13.81 )
 
(13.38 )
 
(13.48 )
 
(16.21 )
Transportation expenses
 
(2.01 )
 
(1.77 )
 
(2.27 )
 
(2.02 )
 
(1.83 )
Operating netback $ 24.18
 
$ 19.55
 
$ 20.40
 
$ 22.41
 
$ 16.70
 

OPERATIONS UPDATE:

In Southern Alberta, Pace has over 300,000 net acres of high working interest lands and has successfully pursued a development exploitation program of horizontal drilling to grow its oil weighted production in this area. Using 3D seismic and vertical well control, Pace has been able to drill predictable and repeatable highly economic horizontal wells. In 2011, Pace drilled a total of 17 (15.8 net) wells in this area and grew Q4 2011 oil production by 30% to approximately 2,000 bbls/d from Q4 2010. Total proved finding and development cost for Southern Alberta was $17.50 including changes in FDC.

In 2012, 35%-40% of Pace's capital program will be allocated to Southern Alberta where the company plans to drill 24 (18 net) horizontal wells. In addition to the drilling opportunities, the Company will spend approximately $5 million net to initiate a waterflood in the Retlaw BBB and NNN pools. The injector conversions will commence in Q1 2012 with water injection starting in Q2 2012. The Company expects positive waterflood response within approximately 9 months from the initial injection.

In the Peace River Arch, at Dixonville our waterflood continues to show strong results with increasing reservoir pressures and increasing oil rates. In 2012 Pace will put the remaining 1/3 of the 188 million barrel oil pool under waterflood with the conversion of 17 producing wells to water injection and upsizing bottom hole pumps as reservoir pressure responds. Continued oil production optimization is expected with Pace forecasting an exit 2012 oil rate of 3,600 bbls/d at Dixonville.

Pace continues to evaluate ASP (alkaline surfactant polymer) and related Enhanced Oil Recovery technologies for Dixonville and other operated oil pools. Expected success in these areas represents significant additional oil production and reserves for Pace.

At Red Earth, the Company has over 51,000 net acres and currently produces approximately 600 bbls/d of light oil from the Slave Point, Keg River and Granite Wash formations. Pace has a substantial operating presence in the area including waterfloods, water handling, batteries and pipelines. Over the past winter we monitored industry activity and results and participated in area land sales bringing our Slave Point and deeper mineral rights to over 32,000 net acres. Late in 2011, Pace conducted a modest step out exploratory program on expiring eastern lands. Our previously drilled horizontal well encountered a water saturated lower facies and has tested at uneconomic oil rates. However, Pace believes a significant portion of its lands are prospective for Slave Point and other Devonian potential. Pace is evaluating an increase in capital allocation to pursue the prospective Slave Point lands in the 2nd half of 2012.

In Northwest Alberta, Pace has a low decline gas production base along with large oil resource opportunities. Pace increased production to 3,825 boe/d (1,033 bbls/d oil and NGLs) from this area in Q4 2011 with oil and liquids production increasing approximately 95% from Q4 2010. At Haro, Pace has a large 22° API contingent oil resource play targeting the Pekisko formation. Pace's external reserve evaluators, McDaniel and Associates Consultants Ltd. ("McDaniel"), evaluated Pace's acreage and assigned Discovered Petroleum Initially-In-Place of 1.16 billion barrels on 95 sections. In Q1 2012, Pace is drilling 4 gross (4 net) wells and completing 3 Pekisko oil wells that will continue Pace's lands at least for another five years. This program is expected to be 10% of our 2012 budget. The Haro area is restricted to seasonal access during the winter months from January until spring break -up around the end of March. Although in the early stages, Pace is encouraged by the oil production from the limited number of producing wells in this trend and remains confident that it will be able to identify key processes to develop this large scale resource.

EXECUTIVE CHANGES:

Pace also announces that Judy Stripling, Executive Vice President and Chief Financial Officer will be retiring on April 15, 2012. Judy was a co-founder of the Company providing leadership and financial guidance throughout its transitions from Midnight Oil Exploration Ltd. to Pace. The Board of Directors and executives of Pace would like to thank Judy for her dedication and leadership which has provided a strong foundation for future growth.

The Board of Directors is pleased to announce the appointment of Chad Kalmakoff as Vice President, Finance and Chief Financial Officer upon Judy's retirement. Chad joined the management team in 2003 and assumed the role of Vice President, Finance of Pace's predecessor company in 2006. Chad has played a key role in the Company's growth from Midnight Oil Exploration Ltd. to Pace Oil & Gas Ltd. and will continue to provide strong financial leadership to the organization. Chad's appointment is part of Pace's succession plan and ensures there is a smooth transition of responsibilities.

OUTLOOK:

At Pace, we were early to identify the need to increase our oil production and have been successful in the transition to an oil weighted producer. Over the past year Pace focused on acquiring and developing oil opportunities. Through the year we have been successful in increasing our oil production, our oil reserves and our oil weighted cash flow. Despite the current weakness in gas prices, we have a solid cash flow and are well positioned for continued growth from our large inventory of oil prospects on our high quality asset base.

Pace has established a New Ventures growth team including a Geological lead with vast experience in tight Carbonate and unconventional resource identification and development. Pace has accumulated a large opportunity base and has built in the flexibility to time and target commodities to maximize returns. Whereas natural gas prices have been depressed for a number of quarters and it is estimated that they will continue to be so for the foreseeable future; Pace has strategically built and will continue to build an abundance of development and exploitation oil opportunities on its large land base.

Capital Expenditures

- 2012 capital expenditures are expected to total $100 million funded by cash flow and directed exclusively towards our oil opportunities

- The Company expects to drill 33 (27 net) wells and expand waterfloods in Dixonville and Southern Alberta

- Pace's capital for 2012 will be allocated as follows:


 
- Southern Alberta (Glauconite, Lithic, Pekisko, Waterflood
Development)
35-40%

 
Dixonville (Montney C, Waterflood Optimization) 15-20%

 
Red Earth (Slave Point) 15-20%

 
Haro South (Pekisko) ~10%

 
Land, Seismic, G&A, and Other 15-25%

Pace's budget will be directed 100% towards our large inventory of oil plays and will be financed from our cash flow strengthened by our oil hedging.

Production and Operating Guidance

This increased oil production and our focus on reducing operating costs will continue to improve netbacks and cash flow per share.

RESERVE SUMMARY:

Pace is pleased to announce that its 2011 year end independently reviewed reserves increased in all major reserve categories compared to year end 2010. This increase was primarily due to increases in light and medium oil and in natural gas liquids.

Summary of Oil and Gas Reserves - Working Interest Reserves

Reserves Category Crude Oil NGL's Natural Gas 2011 Total % of Total
 

 
(Mbbls) (Mbbls) (MMcf) (Mboe)
 

 
Proved
 

 

 

 

 

 
Developed Producing 18,456 564 82,169 32,715 47 %
Developed Non-Producing 2,498 107 18,704 5,722 8 %
Undeveloped 2,593 62 20,022 5,993 9 %
Total Proved 23,548 734 120,895 44,430 64 %
Probable 10,100 534 87,403 25,201 36 %
Total Proved Plus Probable 33,647 1,268 208,298 69,632 100 %

Finding, Development and Acquisition Costs ("FD&A")

Pace's 2011 exploration and development expenditures totalled $126.7 million.

2011 FD&A Costs - Working Interest Reserves
 

 

 
($/boe) Proved
 
Proved plus Probable

 
Exploration and development $ 16.19
 
$ 15.81
Change in FDC
 
(0.02 )
 
1.23
Exploration and development F&D $ 16.17
 
$ 17.04
Disposition Capital
 
23.26
 

 
7.46
FDC relating to acquisitions
 
-
 

 
-
Total capital
 
16.11
 

 
16.09
Change in FDC
 
(0.02 )
 
1.27
Total FD&A $ 16.09
 
$ 17.36

Net Present Value

Pace's crude oil, natural gas and natural gas liquids reserves were evaluated using McDaniel's price forecasts effective January 1, 2012 prior to provision for income taxes, interest, debt service charges and general and administrative expenses. It should not be assumed that the discounted future net production revenues estimated by McDaniel represent the fair market value of the reserves.

Net Present Value of Reserves, before income taxes

December 31, 2011 ($ 000s) 0% 5% 10% 15%
Proved Reserves
 

 

 

 

 
Developed Producing 964,567 679,250 530,440 440,966

 
Developed Non-Producing 190,205 112,242 73,668 51,922

 
Undeveloped 136,163 80,810 49,883 31,108
Total Proved 1,290,935 872,302 653,991 523,996

 
Probable 790,438 344,707 193,462 125,254
Proved plus Probable 2,081,373 1,217,009 847,454 649,250

Net Asset Value

Pace's estimated net asset value is $15.95 per basic share at December 31, 2011. The estimate is based on the present value of proved plus probable reserves discounted at 10% before income taxes and includes estimates for undeveloped lands, seismic and other assets and deducts net debt.

Net Asset Value - Forecast Pricing and Costs at December 31, 2011

 
Mboe $/Boe PV ($M)
 
$/Share
 
Proved Reserves Value at 10% BIT 44,430 14.72 653,991
 
13.85
 
Probable Reserves Value at 10% BIT 25,202 7.68 193,463
 
4.10
 
Proved plus Probable Reserves
 

 

 

 

 

 

 
Value at 10% BIT 69,632 12.17 847,454
 
17.95
 

 

 
Undeveloped Land (acres)($/acres)* 354 250 88,500
 
1.87
 
Seismic and Other Assets
 

 
2,884
 
0.06
 
Net Debt
 

 
(186,129 ) (3.94 )
NET ASSET VALUE - Basic
 

 
752,709
 
15.95
 
*Undeveloped land value is based on internal estimates.

 
Basic shares outstanding are 47,202,700. At December 31, 2011 the Company only had 982,899 dilutive options for cash proceeds of $4.7 million.

Product Pricing

The McDaniel price deck for natural gas declined significantly with the average 2012 AECO price decreasing from $4.90/MMBTU forecasted in 2011 to $3.50/MMBTU as of January 1, 2012. The average 2012 price forecast for Edmonton light crude oil is $99.00/bbl Cdn, which is up from $88.40/bbl forecasted in the McDaniel price deck on January 1, 2011.

Land Holdings

The following table sets out Pace's land holdings as at December 31, 2011.


 
Developed Undeveloped Total

 
Gross(1) Net(2) Gross(1) Net(2) Gross(1) Net(2)
Alberta 692,881 477,722 461,324 342,257 1,154,205 819,979
British Columbia 1,411 866 16,336 11,822 17,747 12,688
Total 694,292 478,588 477,660 354,079 1,171,952 832,667
Notes: (1) "Gross" refers to the total acres in which Pace has an interest.

 
(2) "Net" refers to the total acres in which Pace has an interest, multiplied by the percentage working interest therein owned by Pace.

Independent Reserve Evaluation

The reserve data is based on an independent reserves evaluation conducted by McDaniel & Associates Consultants Ltd. effective December 31, 2011 ("McDaniel Report") and prepared in accordance with the definitions set out under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Pace has a Reserves Committee comprised of a majority of independent board members who review the qualifications and appointment of the independent reserve evaluators. The committee also reviews the process for providing information to the evaluators and meets with the independent evaluators to discuss the procedures used in the independent report, to review the Company's major properties and to identify and discuss any areas of risk. The McDaniel Report was reviewed by the Reserves Committee of Pace.

Reserves Advisory

AUDITED CONSOLIDATED FINANCIAL STATEMENTS, MD&A AND AIF

Pace's audited consolidated financial statements for the year ended December 31, 2011 together with the notes thereto, Management Discussion and Analysis for the year ended December 31, 2011 and Pace's Annual Information Form for the year ended December 31, 2011 will be filed on SEDAR today and can be accessed at www.sedar.com or by visiting Pace's website at www.paceoil.ca.

Pace will host a conference call and webcast to discuss the Q4 2011 and year end 2011 financial results. The conference call and webcast will take place on Wednesday, March 14, 2012 at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time).

To access and/or participate in the conference call by telephone:

Dial: 1-877-407-0782 (Toll-Free Canada/USA)

Dial: 1-201-689-8567 (International)

Participants are advised to dial into the call five minutes prior to the starting time to register.

To access and listen to the webcast by internet:

Enter in your web browser: http://www.investorcalendar.com/IC/CEPage.asp?ID=167628

A replay of the conference call will be available via the above link and will be archived on Pace's website at www.paceoil.ca for a limited time.

Replay Number (Toll Free): 1-877-660-6853

Replay Number (International): 1-201-612-7415

Replay Passcodes (both required for playback):

Account #: 286

Conference ID #: 390236

Pace Oil & Gas Ltd. is a Calgary, Alberta based intermediate sized oil-weighted company with a large portfolio of near term oil resource opportunities in the Western Canadian Sedimentary Basin. Pace has a growing oil production base in the Peace River Arch area with its large Montney pool at Dixonville, its Slave Point light oil resource play at Red Earth and in Southern Alberta, is successfully developing and exploiting a large inventory of identified Mannville channels. In Northwest Alberta, the Company is in the early stages of exploring a large Pekisko oil resource play. Pace has a large land inventory of over 800,000 net acres and a large 3-D seismic database to identify drilling opportunities and uses the newest proven technologies in horizontal drilling, multi-stage completions, and enhanced oil recovery processes to grow its production and reserve base.

Pace's common shares trade under the symbol PCE on the TSX and PACEF on the OTC.

FORWARD-LOOKING STATEMENTS

Certain statements contained within this press release constitute forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, statements relating to "reserves" or "resources" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. In addition, this press release contains forward-looking statements with respect to: (i) production volumes and expectations regarding the timing of when additional production volumes will be brought on stream; (ii) Pace's drilling plans and the results therefrom including expectations regarding well completions and the start-up of new wells; (iii) future development and exploration activities and the timing thereof; (iv) Pace's plans for the development of its proven and probable undeveloped reserves. With respect to the forward looking statements contained in this press release, Pace has made assumptions regarding:

Although Pace believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Pace can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. These statements speak only as of the date of this Press Release or as of the date specified in the documents incorporated by reference into this Press Release, as the case may be. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to:

other factors which are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. The forward-looking statements contained in this document speak only as of the date of this document and Pace does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.

 
Pace Oil & Gas Ltd.
Fred Woods
President & CEO
(403) 303-8505
fwoods@paceoil.ca

Pace Oil & Gas Ltd.
Chad Kalmakoff
Vice President, Finance
(403) 303-8504
ckalmakoff@paceoil.ca

Pace Oil & Gas Ltd.
Judy Stripling
Executive Vice President & CFO
(403) 303-8502
jstripling@paceoil.ca