Pace Oil & Gas Ltd. Provides Update on Strategic Alternatives and Reports 2012 Reserves and Operating Results

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CALGARY, ALBERTA--(Marketwire - March 5, 2013) - Pace Oil & Gas Ltd. (TSX:PCE) ("Pace" or the "Company") is pleased to provide an update on the status of its previously announced merger, selected information from Pace's 2012 reserve evaluation and its fourth quarter and 2012 year end operating and financial results.

STRATEGIC PROCESS UPDATE

On December 20, 2012, Pace entered into an arrangement agreement (the "Arrangement Agreement") with Charger Energy Corp. ("Charger") and AvenEx Energy Corp. ("AvenEx"), pursuant to which Pace, Charger and AvenEx agreed to amalgamate by way of a plan of arrangement (the "Arrangement") to form Spyglass Resources Corp. ("Spyglass"), an intermediate, dividend paying oil and gas producer. Meetings of the shareholders were scheduled for February 19, 2013 and later postponed until February 26, 2013.

On February 25, 2013, Pace, AvenEx and Charger amended the agreement to allow the parties to solicit and facilitate alternative transactions with other parties and to waive the termination fees in the event that one of the original parties enters into an alternate transaction (the "Amending Agreement"). Governance changes to Pace were announced on the same date, with Tom Buchanan resigning from the Board of Directors, Fred Woods stepping down as Chairman, President and CEO and Peter Harrison assuming the role of Chairman of the Board. The proposed Board of Directors of Spyglass upon completion of the Arrangement was also amended. On February 26, 2013, the meetings of the shareholders of each of Pace, Charger and AvenEx were adjourned to March 26, 2013. The Pace Board of Directors continue to recommend shareholders vote in favour of the Arrangement and Board members eligible to vote unanimously approved the Arrangement and the Amending Agreement.

With the Amending Agreement, Pace is actively soliciting alternate superior proposals. National Bank Financial Inc. ("NBF") is acting as exclusive financial advisor to Pace with respect to its review of strategic alternatives available to maximize value to Pace shareholders. Interested parties may contact Tom MacInnis, Head of Global Energy Group and Managing Director, Investment Banking for NBF at (403) 290-5107.

Q1 2013 UPDATE

In Q1 2013, Pace has operated with a reduced capital program and expects Q1 2013 capital spending to be approximately $13 million. The Company estimates Q1 2013 production to be approximately 12,000 boe/d comprised of approximately 6,100 bbls/d of liquids and 35.5 mmcf/d of natural gas.

RESERVE SUMMARY

Summary of Oil and Gas Reserves and Net Present Values of Future Net Revenue
As of December 31, 2012 Forecast Prices and Costs

 

 

 
Light and Medium Oil
 
Heavy Oil
 
Natural Gas
 
Natural Gas Liquids
 
Total Oil Equivalent
 

 
Gross(1 ) Net(2 ) Gross(1 ) Net(2 ) Gross(1 ) Net(2 ) Gross(1 ) Net(2 ) Gross(1 ) Net(2 )

 
(Mbbls ) (Mbbls ) (Mbbls ) (Mbbls ) (MMcf ) (MMcf ) (Mbbls ) (Mbbls ) (Mboe ) (Mboe )
Proved
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Developed Producing 20,198
 
15,139
 
913
 
816
 
66,843
 
60,750
 
498
 
342
 
32,749
 
26,423
 

 
Developed Non- Producing 326
 
220
 
48
 
41
 
15,735
 
11,659
 
109
 
74
 
3,106
 
2,278
 

 
Undeveloped 1,965
 
1,563
 
25
 
23
 
19,231
 
17,436
 
28
 
19
 
5,223
 
4,511
 
Total Proved 22,489
 
16,922
 
985
 
880
 
101,809
 
89,846
 
635
 
436
 
41,077
 
33,212
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Probable
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Developed Probable 7,437
 
5,215
 
301
 
256
 
35,476
 
31,414
 
266
 
183
 
13,917
 
10,890
 

 
Undeveloped Probable 1,581
 
1,247
 
50
 
44
 
27,314
 
24,515
 
41
 
27
 
6,225
 
5,404
 
Total Probable 9,018
 
6,462
 
352
 
300
 
62,789
 
55,929
 
308
 
211
 
20,142
 
16,294
 
Total Proved Plus Probable 31,507
 
23,384
 
1,337
 
1,180
 
164,598
 
145,775
 
942
 
646
 
61,220
 
49,506
 
Notes: (1) the Company's interest in reserves, which are its working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the Company

 

 

 
(2) the Company's interest in reserves its working interest (operating or non-operating) share after deduction of royalty obligations, plus its royalty interests in production or reserves;

Product Pricing

The McDaniel price forecast for natural gas decreased significantly from the forecast used for the year ended 2011, with the average 2013 AECO price decreasing from $4.20/MMBTU forecasted as of January 1, 2012 to $3.35/MMBTU as of January 1, 2013. The average 2013 price forecast for Edmonton light crude oil also decreased to $87.50/bbl Cdn, from $99.00bbl forecasted in the McDaniel price forecast on January 1, 2012. The decrease in forecasted natural gas prices impacted the Company's natural gas reserve bookings for the year. The Company reduced its proved plus probable ("2P") natural gas reserves by 6.1 mmboe due to economic factors and removed 90 gross (51.9 net) probable locations from this category. The locations remain technically viable but contingent on improved gas prices.

Reconciliation of Changes in Reserves

The following table sets forth a reconciliation of Pace's gross reserves as at December 31, 2012, derived from the McDaniel Report using forecast prices and cost estimates, reconciled to the gross reserves of Pace as at December 31, 2011.

Reconciliation of Gross (Working Interest) Reserves by Principal Product Type
 
Forecast Prices and Costs
 

 

 
Reserve Category
 
Factors Light and Medium Oil (Mbbls ) Heavy Oil (Mbbls ) Natural Gas Liquids (Mbbls ) Natural Gas (MMcf ) BOE (Mboe )

 

 

 

 

 

 

 

 

 

 

 

 

 
Proved
 
December 31, 2011 22,593
 
955
 
734
 
120,895
 
44,430
 

 

 

 
Discoveries -
 
-
 
-
 
-
 
-
 

 

 

 
Extensions & Improved Recovery 1,723
 
57
 
4
 
509
 
1,868
 

 

 

 
Technical Revisions 348
 
97
 
128
 
5,217
 
1,443
 

 

 

 
Acquisitions -
 
-
 
-
 
-
 
-
 

 

 

 
Dispositions -
 
-
 
-
 
-
 
-
 

 

 

 
Production (2,096 ) (118 ) (119 ) (15,040 ) (4,840 )

 

 

 
Economic Factors (79 ) (5 ) (112 ) (9,771 ) (1,824 )

 

 
December 31, 2012 22,489
 
985
 
635
 
101,809
 
41,077
 

 

 

 

 

 

 

 

 

 

 

 

 

 
Probable
 
December 31, 2011 9,725
 
375
 
534
 
87,403
 
25,201
 

 

 

 
Discoveries -
 
-
 
-
 
-
 
-
 

 

 

 
Extensions & Improved Recovery (565 ) 14
 
1
 
232
 
(511 )

 

 

 
Technical Revisions (72 ) (34 ) 24
 
(1,130 ) (270 )

 

 

 
Acquisitions -
 
-
 
-
 
-
 
-
 

 

 

 
Dispositions -
 
-
 
-
 
-
 
-
 

 

 

 
Production -
 
-
 
-
 
-
 
-
 

 

 

 
Economic Factors (71 ) (4 ) (252 ) (23,716 ) (4,728 )

 

 
December 31, 2012 9,018
 
352
 
308
 
62,789
 
20,142
 

 

 

 

 

 

 

 

 

 

 

 

 

 
Proved Plus Probable
 
December 31, 2011 32,318
 
1,329
 
1,268
 
208,298
 
69,632
 

 

 

 
Discoveries -
 
-
 
-
 
-
 
-
 

 

 

 
Extensions & Improved Recovery 1,158
 
71
 
5
 
740
 
1,358
 

 

 

 
Technical Revisions 277
 
63
 
151
 
4,087
 
1,172
 

 

 

 
Acquisitions -
 
-
 
-
 
-
 
-
 

 

 

 
Dispositions -
 
-
 
-
 
-
 
-
 

 

 

 
Production (2,096 ) (118 ) (119 ) (15,040 ) (4,840 )

 

 

 
Economic Factors (149 ) (9 ) (363 ) (33,487 ) (6,103 )

 

 
December 31, 2012 31,507
 
1,337
 
942
 
164,598
 
61,220
 

Net Present Value

Pace's crude oil, natural gas and natural gas liquids reserves were evaluated using McDaniel's price forecasts effective January 1, 2013 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 Values of Future Net Revenue, Before Income Taxes
Before Income Taxes Discounted at (%/year)
Reserves Category 0% 5% 10% 15% 20%
($ thousands)
 

 

 

 

 
Proved
 

 

 

 

 

 
Developed Producing 908,922 595,907 444,166 357,601 302,038

 
Developed Non-Producing 55,707 37,820 27,735 21,405 17,123

 
Undeveloped 93,146 47,863 25,038 11,827 3,462
Total Proved 1,057,775 681,589 496,940 390,833 322,622

 
Probable 589,292 253,527 145,118 96,758 70,043
Total Proved Plus Probable 1,647,067 935,116 642,057 487,591 392,665

 

 

 

 

 

 

 

Net Asset Value

Pace's estimated net asset value is based on the present value of reserves discounted at 10% before income taxes and includes estimates for undeveloped lands, seismic and other assets and deducts net debt. Using 2P reserves reserve values the estimated net asset value is $9.91/share and using total proved ("TP") reserves the estimated net asset value is $6.82/share.

Net Asset Value - Forecast Pricing and Costs at December 31, 2012

 

 

 

 
Proved Developed Producing
 
Total Proved
 

 
Proved plus Probable
 

 

 

 

 
PV ($M ) $/Share
 
PV ($M ) $/Share
 

 
PV ($M ) $/Share
 

 
Value at 10% BIT
 

 
444,166
 
9.47
 
496,940
 
10.59
 

 
642,057
 
13.68
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Acres (000s )
 

 

 

 

 

 

 

 

 

 

 

 

 

 
Undeveloped Land ($/acres)(i) 388
 
38,800
 
0.83
 
38,800
 
0.83
 

 
38,800
 
0.83
 

 
Net Debt
 

 
(215,817 ) (4.60 ) (215,817 ) (4.60 )
 
(215,817 ) (4.60 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Shares (000s )
 

 

 

 

 

 

 

 

 

 

 

 

 

 
NET ASSET VALUE 46,916
 
267,149
 
5.70
 
319,923
 
6.82
 

 
465,040
 
9.91
 

 

(i) Undeveloped land value based on internal estimate of $100/acre.

Land Holdings

The following table sets out Pace's land holdings as at December 31, 2012.


 
Developed
 
Undeveloped
 
Total
 
(000s acres) Gross(1 ) Net(2 ) Gross(1 ) Net(2 ) Gross(1 ) Net(2 )
Alberta 696
 
481
 
477
 
367
 
1,173
 
848
 
British Columbia 1
 
1
 
29
 
21
 
30
 
22
 
Total 697
 
482
 
506
 
388
 
1,203
 
870
 
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, 2012 ("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"). 100% of Pace's assets are evaluated by McDaniel. 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 and the Board of Directors. Pace's annual information form for the year ended December 31, 2012 (the "AIF") contains Pace's reserves data and other oil and gas information as mandated by NI 51-101. Pace's AIF is available under Pace's profile on SEDAR at www.sedar.com.

Reserves Advisory

OPERATIONS UPDATE:

Southern Alberta

Dixonville

North West Alberta

FINANCIAL SUMMARY:

Financial
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
(000s, except per share amounts) Q4 12
 
Q4 11 2012
 
2011
 
Petroleum and natural gas sales $ 49,475
 
$ 69,317 $ 212,353
 
$ 250,279
 

 
Royalties
 
9,603
 

 
17,004
 
46,921
 

 
56,034
 

 
Operating Expenses
 
20,116
 

 
18,081
 
78,170
 

 
69,089
 

 
Transportation
 
2,228
 

 
2,627
 
10,096
 

 
10,372
 
Netback $ 17,528
 
$ 31,605 $ 77,166
 
$ 114,784
 

 

 

 

 

 

 

 

 

 

 

 

 

 
Realized gain on financial instruments
 
1,977
 

 
13
 
7,295
 

 
880
 

 
G&A - cash charge
 
3,958
 

 
4,022
 
17,873
 

 
15,902
 

 
Interest
 
2,258
 

 
1,669
 
8,196
 

 
7,537
 

 
Other income
 
342
 

 
232
 
457
 

 
5,627
 
Funds from operations $ 13,631
 
$ 26,159 $ 58,849
 
$ 97,852
 

 
Per share- Basic
 
0.29
 

 
0.55
 
1.25
 

 
2.06
 

 
Per share- Diluted
 
0.29
 

 
0.55
 
1.25
 

 
2.06
 
Net income (loss) $ (86,565 ) $ 454 $ (152,991 ) $ 16,707
 

 
Per share- Basic
 
(1.85 )
 
0.01
 
(3.25 )
 
0.35
 

 
Per share- Diluted
 
(1.85 )
 
0.01
 
(3.25 )
 
0.35
 
Capital expenditures $ 14,924
 
$ 44,129 $ 83,217
 
$ 127,565
 
Dispositions
 
-
 

 
23
 
-
 

 
(1,977 )
Net debt
 
215,817
 

 
186,129
 
215,817
 

 
186,129
 
Total assets $ 581,521
 
$ 738,530 $ 581,521
 
$ 738,530
 
Weighted Average Shares outstanding (000s)
 

 

 

 

 

 

 

 

 

 

 

 
Basic
 
46,916
 

 
47,281
 
47,044
 

 
47,510
 

 
Diluted
 
46,916
 

 
47,281
 
47,044
 

 
47,523
 
Operations
 

 

 

 

 

 

 

 

 

 

 
Average daily production
 

 

 

 

 

 

 

 

 

 

 

 
Oil (bbls/d)
 
5,657
 

 
6,627
 
6,050
 

 
5,917
 

 
NGLs (bbls/d)
 
285
 

 
338
 
324
 

 
328
 

 
Natural gas (mcf/d)
 
35,804
 

 
43,442
 
41,093
 

 
46,772
 
Combined (boe/d)
 
11,909
 

 
14,205
 
13,223
 

 
14,040
 
Average prices received
 

 

 

 

 

 

 

 

 

 

 

 
Oil ($/bbl) $ 71.69
 
$ 87.88 $ 76.28
 
$ 82.91
 

 
NGLs ($/bbl)
 
54.83
 

 
68.68
 
58.36
 

 
64.79
 

 
Natural gas ($/mcf)
 
3.26
 

 
3.40
 
2.43
 

 
3.72
 
Combined ($/boe) $ 45.16
 
$ 53.04 $ 43.88
 
$ 48.84
 

 
Royalties
 
8.76
 

 
13.01
 
9.70
 

 
10.93
 

 
Operating expense
 
18.36
 

 
13.84
 
16.15
 

 
13.48
 

 
Transportation expense
 
2.03
 

 
2.01
 
2.09
 

 
2.02
 
Operating netback ($/boe) $ 16.01
 
$ 24.18 $ 15.94
 
$ 22.41
 

Financial Overview

AUDITED CONSOLIDATED FINANCIAL STATEMENTS, MD&A AND AIF

Pace's audited consolidated financial statements for the year ended December 31, 2012 together with the notes thereto, Management Discussion and Analysis for the year ended December 31, 2012 and Pace's Annual Information Form for the year ended December 31, 2012 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'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; (ii) Pace's drilling plans and the results therefrom; (iii) future development and exploration activities. 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.
Todd Brown
VP & COO
(403) 930-3539
tbrown@paceoil.ca

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