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Pan Orient Energy Corp.: 2015 First Quarter Financial & Operating Results

Pan Orient Energy Corp. (“Pan Orient”) (TSX VENTURE:POE) reports its 2015 first quarter consolidated financial and operating results. Please note that all amounts are in Canadian dollars unless otherwise stated and BOPD refers to barrels of oil per day.

The Corporation is today filing its unaudited consolidated financial statements as at and for the three months ended March 31, 2015 and related management’s discussion and analysis with Canadian securities regulatory authorities. Copies of these documents may be obtained online at www.sedar.com or the Corporation’s website, www.panorient.ca.

Commenting today on Pan Orient’s first quarter 2015 results, President and CEO Jeff Chisholm stated: “These financial results and the announcement of the Government of Indonesia’s approval of the East Jabung PSC farmout clearly demonstrate the progress achieved over the past year in the corporate initiative to reduce our future capital exposure and strengthen our balance sheet.”

Highlights

  • Completed the sale on February 2, 2015 of a 50% equity interest in Thailand subsidiary for estimated net proceeds to Pan Orient, after closing adjustments and costs, of $52.0 million, including a working capital adjustment of $3.1 million.
  • Bitumen production continues at the Sawn Lake, Alberta steam assisted gravity drainage (“SAGD”) demonstration project of Andora Energy Corporation (“Andora”). After a three week delay due to repair of the electrical submersible pump, the steam chamber is approaching the top of the Bluesky formation sandstone reservoir and bitumen production has averaged 353 BOPD (177 BOPD net to Pan Orient) for the period of May 1 to May 20 with a steam to oil ratio (“SOR”) of 4.7.
  • On May 15, 2015 the Government of Indonesia approved the transfer of a 51% participating interest and operatorship of the East Jabung Production Sharing Contract (“PSC”) to a subsidiary of Talisman Energy Inc. Pan Orient retains a 49% participating interest at the East Jabung PSC. The first well is planned to be drilled in approximately early to mid-2016 and the farminee will fund the first USD$5 million of Pan Orient’s share of the exploration program and fund associated general and administrative expenses.
  • Working capital and non-current deposits of $85.0 million at March 31, 2015 and an additional $9.4 million as initial consideration of the East Jabung farmout is expected in mid-June of 2015. Pan Orient has no long-term debt.

2015 FIRST QUARTER OPERATING RESULTS

  • On February 2, 2015 the Company sold a 50% equity interest in its subsidiary Pan Orient Energy (Siam) Ltd. and retained a 50% equity interest. From February 2, 2015 forward the retained 50% equity interest is reclassified as a non-controlled Joint Venture and Pan Orient’s 50% equity interest in the working capital, assets, capital expenditures, liabilities and operations of Pan Orient Energy (Siam) Ltd. are recorded as Investment in Thailand Joint Venture.
  • For the first quarter of 2015, the Company recorded total corporate funds flow from operations of $0.4 million ($0.01 per share) and funds flow from sale of the Thailand interest of $48.9 million ($0.86 per share).
  • Net income attributable to common shareholders was $33.9 million ($0.60 per share).
  • At March 31, 2015 Pan Orient had $85.0 million of working capital and non-current deposits. Working capital and non-current deposits of $85.0 million were comprised of $70.7 million cash, $4.3 million of non-current deposits, $12.7 million of Canadian taxes receivable, other receivables & prepaid expenses of $2.0 million and less payables of $4.7 million. There is $1.8 million of equipment inventory at the Batu Gajah PSC in Indonesia to be utilized in future drilling operations. In addition, Pan Orient’s Investment in Thailand Joint Venture includes $0.9 million of Thailand working capital and non-current deposits and $2.3 million of equipment inventory to be utilized for future Thailand Joint Venture operations.
  • Pan Orient reports capital expenditures of $1.9 million in the first quarter of 2015, with $0.4 million in Indonesia, $0.1 million in Thailand to February 1, 2015 and $1.4 million in Canada at the Sawn Lake SAGD demonstration project of Andora. In addition, Pan Orient’s share of Thailand joint venture capital expenditures after February 1, 2015 was $2.5 million, which was recorded in Investment in Thailand Joint Venture.
  • Pan Orient had outstanding capital commitments as at March 31, 2015 of $10 million in Indonesia associated with the East Jabung PSC. In May 2015, the East Jabung farmout received Government of Indonesia approval and the commitment associated with the retained 49% participating interest, will now be reduced to $4.9 million and under terms of the East Jabung farmout, the farminee will fund the first USD$5 million of Pan Orient’s share of the exploration program. In Canada, there is are capital commitments of $332,000 with respect to outstanding purchase orders and natural gas pipeline tie-in and tariff charges associated with the Sawn Lake SAGD demonstration project of Andora.
  • During the first quarter of 2015, Pan Orient repurchased, and subsequently cancelled, 142,900 common shares ranging from $1.42 to $1.43 per share under its normal course issuer bid. Subsequent to March 31, 2015, the Company repurchased for cancellation an additional 579,100 common shares ranging from $1.42 to $1.64 per share.
  • Thailand
    • Pan Orient’s Thailand interests in Concession L53, including the 50% interest in the Thailand Joint Venture from February 2, 2015 onwards, had average oil sales of 313 BOPD during the quarter and generated $0.8 million in after tax funds flow from operations, or $27.51 per barrel. Results for the first quarter of 2015 reflect the sale of a 50% equity interest in the Thailand subsidiary during the quarter and declining crude oil prices.
    • Per barrel amounts during the first quarter of 2015, including the 50% interest in the Thailand Joint Venture from February 2, 2015 onwards, were a realized price for oil sales of $60.23, transportation expenses of $1.63, operating expenses of $16.86, general and administrative expenses of $11.14 and a royalty to the Thailand government of $2.87. Oil sales revenue during this period was allocated 49% to expenses for transportation, operating, and general & administrative, 5% to the government of Thailand for royalties, and 46% to Pan Orient. No Thailand petroleum income taxes or Special Remuneratory Benefit tax was recorded during the quarter.
    • Oil sales in April 2015 at Concession L53 were 481 BOPD (241 BOPD net to Pan Orient’s 50% interest in the Joint Venture).
    • Pan Orient commenced a three well Thailand drilling program in late February. The L53-ANC1 exploration well failed to encounter commercial hydrocarbons but initial interpretations suggest that potential quality reservoir sands may be expected further east. The L53-DC1ST1 appraisal well encountered 52 meters of true vertical thickness of net oil pay in ten sandstone intervals and the L53-DEXT1ST1 appraisal well encountered 24 meters of true vertical thickness of net oil pay in nine sandstone intervals. Various zones are in the process of being tested. Current production from the two newly drilled wells is 278 BOPD (139 BOPD net to Pan Orient’s 50% interest in the Joint Venture).
    • Capital expenditures of $2.6 million in Thailand during the first quarter of 2015 in Concession L53, including the 50% interest in the Thailand Joint Venture from February 2, 2015 onwards, were comprised of $1.8 million for the L53A-Central exploration well, $0.3 million for equipment inventory, $0.1 million for capitalized general and administrative expenses and $0.4 million for other capital expenditures.
  • Indonesia
    • Capital expenditures in Indonesia of $0.4 million for permits, fees and capitalized general and administrative expenses at the East Jabung and Batu Gajah PSC’s.
  • Canada
    • Andora is the operator and holds a 50% working interest the Sawn Lake, Alberta SAGD demonstration project. Andora is a 71.8% owned subsidiary of Pan Orient and is consolidated with Pan Orient for reporting purposes.
    • Capital expenditures for the Sawn Lake demonstration project during the first quarter of 2015 were $1.4 million relating to final construction of the SAGD facility.
    • The SAGD producing well is still in its ramp-up phase and the steam chamber is approaching the top of the Bluesky formation sandstone reservoir. During March, bitumen production averaged 320 BOPD (160 BOPD net to Pan Orient) with an SOR of 5.2. On April 11, 2015 the electrical submersible pump for the SAGD producing well experienced a problem and the well was shut-in to make the necessary repairs. As a result, bitumen production declined in April to an average of 125 BOPD (63 BOPD net to Pan Orient) with an SOR of 5.9. Production resumed on May 1st and has averaged 353 BOPD (177 BOPD net to Pan Orient) with an SOR of 4.7 for the first 20 days of May.
    • Production results to date are not necessarily indicative of long-term performance or of ultimate recovery and the Sawn Lake demonstration project has not yet proven that it is commercially viable. All related costs and revenues are being capitalized as exploration and evaluation assets until commercial viability is achieved.

OUTLOOK

  • Indonesia
    • On May 15, 2015 the company received Government of Indonesia for approval for the transfer of a 51% participating interest and operatorship in the East Jabung PSC to a subsidiary of Talisman Energy Inc. The first well is currently planned to be drilled in the East Jabung PSC in approximately early to mid-2016.
    • The Company plans to drill an exploration well at the Batu Gajah PSC in the second half of 2015 which would offset an existing oil discovery made by another operator in the adjacent Lemang PSC. Forestry approval for three surface locations was received in May 2015, and road and wellpad construction is expected to commence in June 2015.
  • Canada – Sawn Lake (Operated by Andora, in which Pan Orient has a 71.8% ownership)
    • The Company expects the steam chamber to reach the top of the Bluesky formation sandstone reservoir in May or June 2015 and maximum production is anticipated to occur in approximately September 2015, corresponding to the end of the first year of production.
    • The well is still in its ramp-up phase and Andora is now aiming for consistent bitumen production of 449 barrels of bitumen per day, with an associated SOR of 3.1, which corresponds to the High case estimate used by Sproule Unconventional Limited in the December 31, 2014 contingent resource evaluation for the 16- 30-91-12W5M well pair which was drilled in a 15 to 20 meter thick reservoir with no bottom or top water.
  • Thailand
    • Pan Orient is continuing to test the multiple sandstone intervals in the L53-DC1ST1 and L53-DEXT1ST2 appraisal wells.
    • No exploration drilling has been confirmed by the Concession L53 joint venture partners for 2015 at this time. Activities for the next half of 2015 will focus on workovers of existing wells to maximize production and further investigation all options towards reducing operating costs.

Pan Orient is a Calgary, Alberta based oil and gas exploration and production company with operations currently located onshore Thailand, Indonesia and in Western Canada.

This news release contains forward-looking information. Forward-looking information is generally identifiable by the terminology used, such as “expect”, “believe”, “estimate”, “should”, “anticipate” and “potential” or other similar wording. Forward-looking information in this news release includes, but is not limited to, references to: well drilling programs and drilling plans, estimates of reserves and potentially recoverable resources, and information on future production and project start-ups. By their very nature, the forward-looking statements contained in this news release require Pan Orient and its management to make assumptions that may not materialize or that may not be accurate. The forward-looking information contained in this news release is subject to known and unknown risks and uncertainties and other factors, which could cause actual results, expectations, achievements or performance to differ materially, including without limitation: imprecision of reserve estimates and estimates of recoverable quantities of oil, changes in project schedules, operating and reservoir performance, the effects of weather and climate change, the results of exploration and development drilling and related activities, demand for oil and gas, commercial negotiations, other technical and economic factors or revisions and other factors, many of which are beyond the control of Pan Orient. Although Pan Orient believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurances that the expectations of any forward-looking statements will prove to be correct.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Financial and Operating Summary
(thousands of Canadian dollars except where indicated)
Three Months Ended
March 31,
2015 2014 % Change
FINANCIAL
Financial Statement Results – Excluding 50% Interest in Thailand Joint Venture from February 2, 2015 onwards (Note 1)
Net income (loss) attributed to common shareholders 33,940 (185)
Per share – basic and diluted $ 0.60 $ (0.00) 100%
Cash flow from (used in) operating activities (Note 2) (510) 4,599 -111%
Per share – basic and diluted $ (0.01) $ 0.08 -92%
Cash flow from (used in) investing activities (Note 2) 44,003 (10,816) -507%
Per share – basic and diluted $ 0.78 $ (0.19) -411%
Working capital 80,623 41,699 93%
Working capital & non-current deposits 84,955 44,040 93%
Long-term debt 0%
Shares outstanding (thousands) 56,617 56,760 0%
Working Capital and Non-current Deposits
Beginning of period 40,854 47,889 -15%
Funds flow from consolidated operations (Note 4) (117) 4,367 -103%
Funds flow from sale of Thailand interest 48,877 100%
Working capital and non-current deposits derecognized on sale of Thailand interest and recorded in Investment in Joint Venture (3,151) 100%
Consolidated capital expenditures (Note 6) (1,864) (11,010) -83%
Funds flow from investment in Thailand Joint Venture (28) 100%
Disposal of petroleum and natural gas assets (Note 7) 2,698 -100%
Foreign exchange impact on working capital 586 96 509%
Normal course issuer bid (202) 100%
End of period 84,955 44,040 93%
Economic Results – Including 50% Interest in Thailand Joint Venture from February 2, 2015 onwards (Note 3)
Total funds flow from operations (Note 4) 360 4,367 -92%
Per share – basic and diluted $ 0.01 $ 0.08 -92%
Funds flow from (used in) operations by region (Note 4)
Canada (Note 5) (17) 100 -117%
Thailand – 100% to February 1, 2015 (Note 1) 298 4,981 -94%
Indonesia (398) (714) -44%
Funds flow from consolidated operations (117) 4,367 -103%
Share of Thailand Joint Venture (Note 3) 477 100%
Total funds flow from operations 360 4,367 -92%
Funds flow from sale of Thailand interest
Sales proceeds 53,456 100%
Transaction costs (1,428) 100%
Working capital and non-current deposits in Thailand interest sold (3,151) 100%
Total funds flow from disposition of Thailand interest 48,877 100%
Petroleum and natural gas properties
Capital expenditures (Note 6) 4,389 11,010 -60%
Dispositions – excluding sale of Thailand interest (Note 7) (2,698) -100%
Capital Expenditures (Note 6)
Canada (Note 5) 1,374 4,146 -67%
Thailand – 100% to February 1, 2015 (Note 1) 60 2,554 -98%
Indonesia 430 4,310 -90%
Consolidated capital expenditures 1,864 11,010 -83%
Share of Thailand Joint Venture capital expenditures 2,525 100%
Total capital expenditures 4,389 11,010 -60%
Investment in Thailand Joint Venture
Beginning of period 0%
Investment retained on sale of Thailand interest 38,587 100%
Net loss from Joint Venture (293) 100%
Other comprehensive income from Joint Venture 436 100%
Amounts (received from) advanced to Joint Venture 28 100%
End of period 38,758 100%
(thousands of Canadian dollars except where indicated) Three Months Ended
March 31,
2015 2014 Change
Thailand Operations
Economic Results – Including 50% Interest in Thailand Joint Venture from February 2, 2015 onwards (Note 3)
Oil sales (bbls) 28,174 64,117 -56%
Average daily oil sales (BOPD) by Concession L53 313 712 -56%
Average oil sales price, before transportation (CDN$/bbl) $ 60.23 $ 105.28 -43%
Reference Price (volume weighted) and differential
Crude oil (Brent $US/bbl) $ 52.50 $ 108.07 -48%
Exchange Rate $US/$Cdn 1.25 1.12 8%
Crude oil (Brent $Cdn/bbl) $ 65.79 $ 120.93 -44%
Sale price / Brent reference price 92% 87% 2%
Funds flow from operations (Note 4)
Crude oil sales 1,697 6,750 -75%
Government royalty (81) (329) -75%
Transportation expense (46) (104) -56%
Operating expense (475) (1,038) -54%
Field netback 1,095 5,279 -79%
General and administrative expense (Note 4) (314) (299) 5%
Interest income 2 2 0%
Realized foreign exchange loss (8) 100%
Current income tax (1) -100%
Funds flow from operations 775 4,981 -84%
Funds flow from operations / barrel (CDN$/bbl) (Note 4)
Crude oil sales $ 60.23 $ 105.28 -43%
Government royalty (2.87) (5.13) -44%
Transportation expense (1.63) (1.62) 1%
Operating expense (16.86) (16.19) 4%
Field netback 38.87 82.34 -53%
General and administrative expense (Note 8) (11.14) (4.66) 139%
Interest Income 0.07 0.03) 137%
Realized foreign exchange loss (0.28) 100%
Current income tax (0.02) -100%
Thailand – Funds flow from operations $ 27.51 $ 77.69 -65%
Government royalty as percentage of crude oil sales 5% 5% 0%
Income tax & SRB as percentage of crude oil sales 0% 0% 0%
As percentage of crude oil sales
Expenses – transportation, operating, G&A and other 49% 21% 134%
Government royalty, SRB and income tax 5% 5% 0%
Funds flow from operations, before interest income 46% 74% -38%
Wells drilled (wells were drilled after February 1, 2015)
Gross 3 1 200%
Net 1.5 1.0 50%
Financial Statement Presentation – Excluding 50% Interest in Thailand Joint Venture from February 2, 2015 onwards (Note 1)
Crude oil sales 809 6,750 -88%
Government royalty (38) (329) -88%
Transportation expense (24) (104) -77%
Operating expense (257) (1,038) -75%
Field netback 490 5,279 -91%
General and administrative expense (Note 8) (185) (299) -38%
Interest income 1 2 -50%
Realized foreign exchange loss (8) 100%
Current income tax (1) -100%
Funds flow from consolidated operations 298 4,981 -94%
Included in Investment in Thailand Joint Venture
Net loss from Thailand Joint Venture (293) 100%
Add back non-cash items in net loss 770 100%
Included in Investment in Thailand Joint Venture 477 100%
(thousands of Canadian dollars except where indicated) Three Months Ended
March 31,
2015 2014 Change
Canada Operations (Note 6)
Interest income 47 88 -47%
General and administrative expenses (Note 8) (574) (547) 5%
Realized foreign exchange gain 510 559 -9%
Canada – Funds flow from (used in) operations (17) 100 -117%
Indonesia Operations
General and administrative expense (Note 8) (457) (297) 54%
Exploration expense (Note 9) (161) (309) -48%
Realized foreign exchange gain (loss) 220 (108) -304%
Indonesia – Funds flow used in operations (398) (714) -44%
(1) On February 2, 2015 the Company sold a 49.99% equity interest in its subsidiary Pan Orient Energy (Siam) Ltd. and retained a 50.01% equity interest in that company. The transaction resulted in Pan Orient Energy (Siam) Ltd. changing from a wholly-owned and controlled subsidiary to a joint arrangement where the Company shares joint control with the purchaser of the 49.99% equity interest. The resulting joint arrangement is classified as a Joint Venture under IFRS 11 and is required to be accounted for using the equity method of accounting rather than consolidated as it had previously been when Pan Orient Energy (Siam) Ltd. was a controlled subsidiary. The change in accounting from consolidation to the equity method has resulted in the accounts of Pan Orient Energy (Siam) Ltd. being derecognized from the consolidated financial statements and a net investment related to the portion of the interest retained being recognized at its estimated fair value upon initial recognition. Pan Orient’s 50.01% equity interest in the assets, liabilities, working capital, operations and capital expenditures of Pan Orient Energy (Siam) Ltd. from February 2, 2015 forward are recorded in Investment in Thailand Joint Venture.
(2) As set out in the Consolidated Statements of Cash Flows in the unaudited Consolidated Financial Statements of Pan Orient Energy Corp.
(3) For the purpose of providing more meaningful economic results from operations for Thailand, and for comparison to previous period, the amounts presented consist of:
Company’s share of Thailand funds flow from operations at 100% from January 1, 2015 to February 1, 2015 (being the beginning of the year to the last date before the equity sale transaction was completed as discussed in note 1)
Company’s share of Thailand funds flow from operations at 50.01% from February 2, 2015 to March 31, 2015 (the period from when the Company completed the equity sale transaction to March 31, 2015).
(4) Funds flow from operations is cash flow from operating activities prior to changes in non-cash working capital, reclamation costs and excluding the recovery of prior year income taxes plus the corresponding amount from the Thailand operations which is recorded in Investment in Joint Venture for financial statement purposes. This measure is used by management to analyze operating performance and leverage. Funds flow as presented does not have any standardized meaning prescribed by IFRS and therefore it may not be comparable with the calculation of similar measures of other entities. Funds flow is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS.
(5) The Sawn Lake Demonstration Project in Alberta has not yet proven that it is commercially viable and all related costs and revenues are being capitalized as exploration and evaluation assets until commercial viability is achieved.
(6) Cost of capital expenditures, excluding decommissioning provision and the impact of changes in foreign exchange rates.
(7) Joint venture partners in Andora’s Sawn Lake SAGD demonstration project repurchased the 3% gross overriding royalty on a portion of the non-owned working interests in 36.5 sections for $2.7 million.
(8) General & administrative expenses, excluding non-cash accretion on decommissioning provision and stock-based payments.
(9) Exploration expense relates to exploration costs associated with the Citarum and South CPP PSCs in Indonesia.
(10) Tables may not add due to rounding.