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BNK Petroleum Inc
Symbol BKX
Shares Issued 144,804,858
Close 2014-03-13 C$ 2.14
Market Cap C$ 309,882,396
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BNK Petroleum loses $19.71-million (U.S.) in 2013

2014-03-14 08:00 ET - News Release

Mr. Wolf Regener reports

BNK PETROLEUM INC. ANNOUNCES 4TH QUARTER AND ANNUAL 2013 RESULTS

BNK Petroleum Inc. has released its 2013 financial results. All amounts are in United States dollars unless otherwise indicated.

                                      FINANCIAL RESULTS

                                                     Fourth quarter                       Full year           
                                               2013            2012            2013            2012

Earnings (loss)
Thousands of dollars (loss)               ($11,016)        ($4,538)       ($19,710)       ($14,948)
Per common share (loss)
assuming dilution                            (0.08)          (0.03)          (0.14)          (0.10)
Capital expenditures                         36,502           4,945          81,772          40,537
Average production (boepd)                      877           1,681             776           1,581
Gross revenue                                 5,678           5,184          13,995          20,028
Average product price per barrel              70.39           33.52           49.39           34.61
Average netback per barrel                    50.65           17.83           30.81           17.75

BNK's president and chief executive officer Wolf Regener commented: "I feel we have made excellent progress this last year on both our U.S. and European projects. In our 2013 Tishomingo field, Caney formation drilling program, our efforts were focused on reducing drilling time and cost, testing the optimal lateral placement within the formation and optimizing the fracture stimulations resulting in increasing the oil rate of each consecutive well. These goals were achieved. The last two wells that we drilled and completed in 2013, the Barnes 7-2H and the Wiggins 12-8H, have been our best performing wells to date, demonstrating lower decline rates along with higher percentages of oil in the production mix. The Barnes 7-2H well, which still has 15 per cent of the lateral left to fracture stimulate, had a 60-day initial production rate of 360 barrels of oil per day (bopd) (469 barrels of oil equivalent per day (boepd)) and the Wiggins 12-8H well, where only approximately half the length of the lateral was effectively stimulated was 273 bopd (402 boepd). These two wells were the first to be drilled in the lower Caney interval rather than the transition zone which was targeted in the first three wells. The company's fourth quarter average production was 877 boepd and our December average production was approximately 1,050 boepd.

"The 2013 year-end reserves report confirmed the company's belief in the potential for the Caney as the company's proved and probable (2P) gross reserves were estimated at approximately 15.5 million boe, while the proved, probable and possible (3P) gross reserves were estimated at approximately 40.9 million boe. The net present value of future net revenue before tax, discounted at 10 per cent, was $286-million for the 2P reserves and $847-million for the 3P reserves.

"We look forward to starting our 2014 drilling program in the second quarter after we obtain the final data from the Barnes 7-2 whole-core analysis. Fracture stimulation operations are expected to begin at the end of this month on the first of the two lateral Caney well bores that were not yet fully fracture stimulated (the remaining 15 per cent of the Barnes 7-2H well and the Leila 31-2H well). In addition, work on the locations and surface casing installation for the next two Caney wells has already commenced and is expected to be finalized in the coming weeks.

"In less than eight months after selling substantially all of our producing assets we were able to replace all of our revenue as our fourth quarter 2013 revenues exceeded 2012 fourth quarter revenues by over $400,000. Our cash flow from operations for the fourth quarter 2013 was $2.3-million, which is $1.5-million more than our 2012 fourth quarter operating cash flow. In addition, our Caney netbacks for the fourth quarter 2013 averaged $50.65 per barrel, a 184-per-cent increase over the netbacks from the Woodford production in the fourth quarter of last year, which averaged $17.83 per barrel.

"In Poland, the company successfully drilled, cased and cemented the Gapowo B-1 well in its Bytow concession. We are encouraged by the high gas shows encountered in the 5,900 feet of lateral and we look forward to fracture stimulating the first 30 per cent of the available length. After this portion of the well has been tested we will design the stimulation for the rest of the lateral, incorporating what we learn from the first stimulation.

"The fracture stimulation design for the first portion of the Gapowo B-1 well has been finalized, subcontractors have been selected and location work is under way. We expect to commence fracture stimulation of this well as soon as the location work is complete.

"In 2013, Saponis Investments SP ZOO decided to relinquish the Slawno and Starogard concessions, while retaining the Slupsk concession. In December, 2013, the company increased its ownership in Saponis to 57.04 per cent, up from 26.7 per cent. This triggered an impairment test of the company's Saponis interest under IFRS rules and the resulting impairment plus the writedown of the two concessions contributed to the company recording a $7.5-million loss from equity investments. However, the company believes its interest in Saponis is more valuable now than prior to these events due to its increased interest in the more prospective Slupsk concession.

"The company incurred an $11.0-million loss in the fourth quarter of 2013, which includes the non-recurring $7.5-million Saponis equity investment loss and a $1.7-million write-off of the Darlowo lease in Poland, versus a loss of $4.5-million in the fourth quarter of 2012.

"For the 2013 year the company incurred a loss of $19.7-million versus a loss of $14.9-million in 2012. Oil and gas revenues declined $4.9-million, or 30 per cent, due to a decrease in average production per day due to the sale by the company in April, 2013, of all of its rights in the Woodford and other formations in the Tishomingo field, which was offset by production from our subsequently drilled Caney wells and an increase in average pricing per barrel.

"The company recorded a gain of $9.5-million on the Woodford sale, and used a portion of the proceeds to pay down its debt from $41-million to $100,000. Offsetting this gain was $3.5-million related to the amortization of deferred financing costs, a prepayment penalty of $2.5-million and a $2.5-million payment to settle all of our financial commodity contracts."

Fourth quarter highlights

  • Drilled and fracture stimulated the Barnes 7-2H and Wiggins 12-8H wells in the Caney formation in the Tishomingo field;
  • Received required EIA and concession modification to drill Gapowo B-1 well lateral in Poland;
  • In January, 2014, completed the drilling and ran casing on the Gapowo B-1 well, which is expected to be fracture stimulated in the second quarter of 2014;
  • Oil and gas revenues of $4.6-million, which exceeded the prior-year quarter for the first time since the Woodford sale;
  • Cash flow from operating activities of $2.3-million versus prior-year operating cash flows of $800,000;
  • Netbacks were $50.65 per barrel compared with $17.83 in the prior-year fourth quarter;
  • Production continuing increasing, after Woodford sale, and averaging 877 boepd in the quarter;
  • G&A decreasing by $1.0-million due to cost cutting efforts including reductions in staff and lower costs in Europe;
  • Loss of $11.0-million in the fourth quarter of 2013 versus loss of $4.5-million in the third quarter of 2012 due to a loss from investments in joint ventures of $7.4-million in 2013;
  • At quarter-end, cash and marketable securities totalling $42.2-million and working capital of $18.9-million.

Fourth quarter 2013 to fourth quarter 2012

Oil and gas revenues net of royalties totalled $4,613,000 in the quarter versus $4,212,000 in the fourth quarter of 2012. Oil revenues were $4,716,000 in the quarter versus $1,822,000 in the fourth quarter of 2012, an increase of 159 per cent as production increased 118 per cent to an average of 533 barrels per day due to the production mix from the Caney wells while average oil prices increased 19 per cent or $15.20 a barrel. Natural gas revenues declined $1,008,000 or 79 per cent as natural gas production decreased to 690,000 cubic feet per day due to the Woodford sale and the production mix of the Caney wells while average natural gas prices per 1,000 cubic feet increased 3 per cent. NGL (natural gas liquids) revenue declined $1,391,000 or 67 per cent to $690,000 as average production decreased 73 per cent to 197 boepd as a result of the Woodford sale and the production mix from the Caney wells while average NGL prices increased 22 per cent to $38.03 a barrel.

Other income decreased $735,000 to $163,000 as fourth quarter 2012 results included gains from eliminating asset retirement obligations for wells no longer owned by the company.

Exploration and evaluation expenses increased $859,000 between quarters due to the 2013 write-off of the Darlowo well in Poland.

Production and operating expenses declined $925,000 between quarters due to the Woodford sale.

Depletion and depreciation expense decreased $189,000 between quarters due to decreased production and depletion base and lower production as a result of the Woodford sale.

General and administrative expenses decreased $954,000 between quarters primarily due to lower payroll and related costs and lower professional fees incurred in Europe relating to legal, accounting and management fees which were partially offset by higher director fees incurred in 2013.

Stock-based compensation increased $524,000 between quarters due to a grant of stock options in the fourth quarter of 2013.

Finance income decreased $344,000 due to realized gains on financial commodity contracts in 2012. Finance expense decreased $774,000 primarily due to interest on loans and borrowings of $384,000 in 2012 and unrealized losses on financial commodity contracts in 2012.

Capital expenditures of $36,502,000 were incurred in the fourth quarter of 2013, almost all of which were spent in Oklahoma.

Year ended 2013 highlights

  • Drilled and fracture stimulated the first five wells in the Caney formation in the Tishomingo field;
  • Closed the Woodford sale in April, 2013, for $146.4-million;
  • Paid down the company's credit facility from $41-million to $100,000 in connection with the Woodford sale;
  • Settled all the financial derivative contracts in April, 2013, in connection with the Woodford sale and incurred a realized loss of $2.5-million;
  • Capital expenditures increasing $40.7-million or 99 per cent to $81.8-million primarily due to the 2013 drilling program in Oklahoma which totalled $78.1-million for the year ended 2013; 2012 capital expenditures amount including $28-million of capital expenditures for exploration and evaluation assets, mainly in Poland;
  • G&A expenses decreasing by $2.9-million primarily due to staff reductions and lower costs in Europe;
  • Average production decreasing 51 per cent between comparative years due to the Woodford sale, which was partially offset by production from the new Caney wells;
  • A net loss of $19.7-million incurred in the year ended 2013 versus a loss of $14.9-million in 2012 partially due to a loss from investments in joint ventures of $7.5-million in 2013 and the $1.7-million write-off of the Polish Darlowo concession.

Year ended 2013 to year ended 2012

Oil and natural gas revenues net of royalties declined $4,902,000 or 30 per cent to $11,371,000. Oil revenues before royalties increased $624,000 to $9,149,000 due to a 2-per-cent increase in production due to the production mix from the Caney wells and a 6-per-cent increase in prices between years. Natural gas revenues before royalties declined $2,086,000 or 54 per cent due to a 62-per-cent decline in average production due to the Woodford sale and production mix from the Caney wells, partially offset by a 23-per-cent increase in natural gas prices per 1,000 cubic feet. NGL revenue before royalties declined $4,574,000 or 60 per cent to $3,054,000 due to a 60-per-cent decline in average production per day due to the Woodford sale and the production mix from the Caney wells.

Other income decreased due to 2012 gains from eliminating asset retirement obligations for wells no longer owned by the company.

Exploration and evaluation expenses increased $606,000 due to the write-off of the Darlowo concession in Poland.

Production and operating expenses decreased 56 per cent to $2,641,000 as average production decreased 51 per cent due to the Woodford sale.

Depletion and depreciation expense decreased $2,288,000 primarily due to decreased production and depletion base and lower production as a result of the Woodford sale.

General and administrative expenses decreased $2,935,000 primarily due to lower payroll and related costs, lower professional fees incurred in Europe relating to legal, accounting, management fees, and lower travel costs partially offset by higher director fees in 2013.

Finance income decreased $1.5-million due to realized gains on financial commodity contracts and unrealized gains on warrant revaluations in 2012. Finance expense increased $7.6-million primarily due to a $7.5-million charge related to interest on loans and borrowings which included $3.5-million for the amortization of deferred financings costs and $2.5-million of prepayment penalties related to the loan paydown along with a realized loss on financial commodity contracts of $2.5-million as these contracts were all settled in April, 2013.

At Dec. 31, 2013, cash and marketable securities increased by $39,379,000 from Dec. 31, 2012, primarily due to the Woodford sale offset by the 2013 capital expenditures.

                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS       
                            (In thousands of dollars, except per share amounts)         
                                                                                                        
                                                 Three months ended Dec. 31,         12 months ended Dec. 31,
                                                      2013              2012              2013           2012
Revenue
Oil and natural gas revenue, net                    $4,613            $4,212           $11,371        $16,273
Gathering income                                         -               356               331          1,420
Gain on sale of assets (loss)                        (119)                 -             9,499              -
Management fees and other income                       163               898             1,124          1,633
                                                     4,657             5,466            22,325         19,236
Expenses
Exploration and evaluation                           1,937             1,078             1,994          1,388
Production and operating                               528             1,453             2,641          6,002
Depletion and depreciation                           1,729             1,918             4,786          7,074
General and administrative                           3,414             4,368            13,344         16,279
Share-based compensation                               716               192             1,305            877
(Loss) from investments in
joint ventures                                       7,439             (101)             7,533            172
Restructuring expenses                                   -               756               595          1,771
                                                    15,763             9,664            32,198         33,563
Finance income                                          97               441               166          1,686
Finance (expense)                                      (7)             (781)          (10,003)        (2,397)
Net (loss) and comprehensive (loss)               (11,016)           (4,538)          (19,710)       (14,948)
Net (loss) per share
basic and diluted                                   (0.08)            (0.03)            (0.14)         (0.10)

We seek Safe Harbor.

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