NEWS
RELEASE
September 22, 2008
Pearl Provides operational and financial
update
CALGARY,
ALBERTA- Pearl Exploration and Production Ltd. ("Pearl" or the "Company")
(TSX:PXX)(FIRST NORTH:PXXS) is pleased to provide the following operational and
financial update.
Heavy oil
is becoming an increasingly important component of world oil supply and Pearl
has positioned itself strategically to take advantage of this shift. With
a diverse portfolio of projects in heavy oil basins ranging from south-western
Texas to northern Alberta, Pearl has taken advantage of low entry costs to
acquire significant heavy oil resources. The use of enhanced and
unconventional recovery techniques such as cyclic steam stimulation (CSS) and
Steam-Assisted Gravity Drainage (SAGD), and water and polymer flooding are seen
as keys to unlocking the value of these resources. Pearl is currently in
the early stages of enhanced recovery pilot programs at several of the
Company's fields. Successful pilots and ultimately initial development
programs will prove the technical and commercial viability of our heavy oil
assets and create substantial value for Pearl by converting significant
portions of our large resource base into reserves.
Operational
Highlights
Mooney
Work
continues on the advancement of the polymer flood pilot at Mooney with
preliminary results from the pilot are still expected by Q1 2009. Plans
for a field wide polymer flood implementation are expected to be finalized by
Q2 2009 with implementation targeted as early as the end of 2009. The
implementation of the waterflood continues with its initiation expected in Q4
2008 and continuing into the first half of 2009. In addition, work is
underway on an increased delineation and development drilling program to extend
the productive area to the west of the main field with the goals of increasing
production and proven and probable reserves. We have recently installed
an amine plant in Mooney to remove excess CO2 from our gas stream to
allow us to ship to market without interruption to service due to non-spec
gas. Due to this non-spec gas, production at Mooney was cut back for nine
weeks beginning at the end of June by approximately 700 Boe/d, the majority of
which is now back on production at this time. In September, Pearl also
acquired a further six sections of prospective land to the east of the Mooney
main field.
Onion
Lake
In Onion
Lake our Cyclic Steam Stimulation (CSS) thermal pilot continues to show
promising results. We completed the first production cycle on the first
well earlier this month and results were significantly above our modeled
expectations. Our second well began its first steam cycle on June 20th
and its first production cycle on August 11th. Production from
the second well experienced some operational issues and as such we are making
adjustments to our operating procedures to optimize the pilot as we progress
through the second and third cycles of the pilot. The first well is
expected to begin its second steam cycle later this week.
San
Miguel
At San
Miguel, steam injection at the Steam Assisted Gravity Drainage (SAGD) pilot
located within the Chittim "B" Field continues as expected.
Temperature and pressure monitoring of the well pair indicates that the wells
have entered SAGD mode and preliminary results are encouraging.
At Saner
Ranch, pilot facility construction is proceeding on schedule with all major
long lead items on site and mechanical completion expected to be completed in
November. The Saner Ranch pilot includes both a vertical inverted five
spot well pattern and a horizontal three well pattern utilizing a modified
Fracture Assisted Steamflood Technology (FAST) process. Early
injection of steam into the vertical inverted five spot pattern commenced on
August 28th. The three horizontal wells were drilled in 1Q08 and will be
completed prior to commencement of first steam/reservoir warm-up which is
expected to commence in the horizontal pattern in October. Preliminary
performance results from both patterns are anticipated during the first half of
2009.
By the end
of the second quarter of 2009, Pearl expects to be in a position to select
which of the three recovery techniques will be used to form the basis of a
commercial development project, SAGD or one of the two modified FAST
techniques. In parallel with this, various commercial parameters including the
supply of fuel gas for steam and potential on site upgrading is expected to be
finalized during this period.
Blackrod
At
Blackrod, the Company closed a transaction on August 20th to acquire
an additional 30% working interest in 3,886 contiguous hectares of oil sands
leases in the project area. In addition we, along with our partner, also
acquired a contiguous block of five sections of land to the north-east of our
existing land holdings. Pearl now holds a 65% interest in 20 sections in the
Blackrod project area.
Pearl and
its joint venture partner continue to plan to drill 10 to 15 core wells this
winter to further delineate the deposit and gather additional petrophysical and
reservoir fluid characteristic data. The application for the required
governmental approvals of the SAGD pilot project was submitted in May 2008 and
is expected to be approved sometime in the first half of 2009. As such, the
SAGD thermal pilot is expected to be operational in the second half of
2009. We are working closely with our partner to expedite the necessary
regulatory approvals to allow for the construction of an all-season road.
Non-Core
Areas
In early
September we entered into an agreement to vend in all of our Palo Duro assets
into Tyner Resources and take back shares (26.4% of shares outstanding).
We believe this is the best way to realize on the potential value of the
resources in the Palo Duro basin as our financial and technical resources are
almost exclusively focused on our 4 core heavy oil properties. This
transaction is expected to close in October.
Pearl has
also initiated a nine well drilling program in southern Saskatchewan at the Ear
Lake and Salt Lake fields which is expected to be completed in November.
Production from these wells is expected to be on prior to year end.
Production
Production
is now approximately 6,000 Boe/d. We currently expect production of
approximately 6,000 to 7,000 Boe/d for the remainder of the
year.
Financial
Highlights
Although
oil prices have remained relatively strong throughout the third quarter they
have declined steeply from the beginning of the quarter until now. Gas
prices have also fallen significantly during the quarter. Our wellhead
realized pricing for Q3 is now expected to be in the range of $85 per
Boe. In comparison, average well head price in the second quarter was
$79.74 per Boe and the well head price initially utilized by Pearl to establish
its 2008 budget was approximately $43 per Boe.
As
previously announced Pearl has increased its capital budget for the year to
approximately $135 mm, up from the original budget of $61 mm. This
expansion will be principally focused on: 1) Mooney with an increase to
the budget of approximately $44.6 million, principally dedicated to
accelerating the polymer pilot, expansion of the waterflood and related
infrastructure and delineation drilling in the western portion of eastern
field, 2) increase in planned expenditures in Blackrod including the
acquisition of additional interests and land for $8.2 million, 3) increase to
Onion Lake activities, principally related to CSS pilot of $4.6 mm, 4) increase
in activities in San Miguel for $7.6 million and 5) expansion of budget for a
drilling program and workover program and other capital maintenance items in
our non-core areas for approximately $10 million.
Pearl
President and CEO Keith Hill stated, "We are very pleased to report our
continued progress in all of our core projects and we are very excited about
the increase in our budget to accelerate our activities in Mooney. We
strongly believe we are at the very beginning of realizing the significant
embedded value of our assets for our shareholders. Although we have
expanded our budget significantly for the current year we continue to be
focused on maintaining a strong balance sheet and remain committed to
rationalizing our non-core assets. While we are disappointed with the
impact that the broader capital markets have had on our equity price we are
thankful that we have put ourselves in a strong financial position precluding
the need for any near term equity financing."
The
Company's new corporate presentation can be viewed on the Company's website at www.pearleandp.com.
Pearl
Exploration and Production Ltd. is a public company focused on converting its
captured resources into reserves and becoming a substantial North American
heavy oil project development company. Additional information on Pearl is
available on the Company's website at www.pearleandp.com.
For
further information, please contact:
Keith Hill - President and Chief Executive Officer
Tel.: (604) 689-7842
E-mail: khill@namdo.com
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Randy Neely - Chief Financial Officer
Tel: (403) 716-4054
E-mail: randy.neely@pxx.ca
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Sophia Shane - Corporate Development
Tel: (604) 806-3575
E-mail:
sophias@namdo.com
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All references in this release to boe's are based on a 6 to 1 conversion
ratio. Boe's may be misleading, particularly if used in isolation. A boe
conversion of 6 Mcf:1 bbl is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
Pearl's Certified Advisor on First North is E. �hman J:or Fondkommission
AB.
Forward-looking statements: This document contains statements about
expected or anticipated future events and financial results that are
forward-looking in nature and as a result, are subject to certain risks and
uncertainties, such as general economic, market and business conditions, the
regulatory process and actions, technical issues, new legislation, competitive
and general economic factors and conditions, the uncertainties resulting from
potential delays or changes in plans, the occurrence of unexpected events, and
the Company's capability to execute and implement its future plans.
Actual results may differ materially from those projected by management.
For such statements, we claim the safe harbour for forward-looking statements
within the meaning of the Private Securities Legislation Reform Act of 1995.