Mr. Jeff Chisholm reports
PAN ORIENT ENERGY CORP. 2017 YEAR END FINANCIAL AND OPERATING RESULTS
Pan Orient Energy Corp. has released its fiscal 2017 and fourth quarter consolidated financial and operating results.
The company is filing its audited consolidated financial statements as at and for the year ended Dec. 31, 2017, and related management's discussion and analysis with Canadian securities regulatory authorities.Copies of these documents may be obtained on SEDAR or at the company's website.
Commenting on Pan Orient's 2017 results, president and chief executive officer, Jeff Chisholm, stated: "Fiscal 2017 was a year that saw progress made across all three segments of the company's business.The first two exploration wells drilled in the Indonesian East Jabung PSC proved a working petroleum system in this frontier area and have management very much anticipating the drilling of the Anggun-1X well in September, 2018.In Thailand, we completed and submitted the L53-B production environmental impact assessment with approval and commencement of production estimated in June, 2018, that will be followed shortly thereafter by the drilling of one L53-B appraisal well.Additionally, permitting for what are deemed to be two of the best exploration well locations made great progress with permitting expected to be completed in August, 2018, and drilling of one of these two locations to take place shortly thereafter in 2018.Lastly, government approval was received for commercial expansion of the Sawn Lake project which incorporates the installation of the Andora proprietary produced water boiler. Detailed engineering design and cost estimates are currently being completed in order to be in a position to move quickly when the investment climate improves."
2017 highlights
Indonesia
At the East Jabung production sharing contract (PSC) in Indonesia, where Pan Orient is non-operator with a 49-per-cent ownership interest, the first two exploration wells have been drilled.The Ayu-1X and Elok-1X wells did not encounter commercial hydrocarbons, however, drilling results were encouraging with significant indications of hydrocarbons significantly derisking the petroleum system in this region. The Anggun-1X exploration well has been approved by the joint venture as part of the 2018 work program and budget, and is expected to commence drilling in September, 2018.Drilling of the Ayu-1X and Elok-1X exploration wells satisfied the East Jabung PSC firm well commitment of two exploration wells to be drilled prior to the expiry of the first six-year exploration phase.The initial exploration phase of the East Jabung PSC has been extended by the government of Indonesia to Jan. 20, 2019.During the third quarter of 2017, the company received a ruling from the Indonesian tax court that it had won an appeal of the 2012-2014 offshore land and building tax assessment for the East Jabung PSC, but lost on the much smaller subsurface tax assessment.As a result, a refund is expected in early 2019 of the $3.7-million deposit paid to appeal the assessment, and the $700,000 payable for the subsurface assessment has been recorded.The Batu Gajah PSC, in which Pan Orient had an operated 77-per-cent interest, expired on Jan. 15, 2017.
Thailand (net to Pan Orient's 50.01-per-cent equity interest in the Thailand joint venture)
Pan Orient conducted a series of successful workovers at concession L53 in Thailand to maintain a relatively stable level of oil production with oil sales in 2017 of 254 barrels of oil per day (bopd) compared with 258 bopd in 2016.During 2017, the Brent reference price for oil increased 22 per cent and funds flow from operations increased 50 per cent to $3.7-million, or $39.73 per barrel.Capital expenditures of $1.8-million included a number of workovers and the L53AC-C1 exploration well, which was determined to be dominantly water bearing and abandoned.Dec. 31, 2017, reserve report assigned proved plus probable crude oil reserves of 546,500 barrels from conventional sandstone reservoirs and a net present value using forecast prices and costs discounted at 10 per cent per year, of $14-million.The reserve report excludes exploration lands.The 2018 Thailand capital program is expected to include one exploration well, an appraisal well at L53-B and a multiwell workover program.
Sawn Lake, Canada (Pan Orient's 71.8 per cent subsidiary Andora Energy Corp.)
Andora Energy has finalized detailed engineering for its proprietary thermal system and process for producing steam from oil field produced water.Regulatory approval was received on Dec. 5, 2017, for potential commercial expansion to 3,200 bopd at the Sawn Lake (Alberta) steam assisted gravity drainage project (in which Andora has a 50-per-cent working interest and is the operator) using Andora's proprietary produced water boiler.
Corporate
Total corporate funds flow used in operations, including Pan Orient's 49-per cent interest in the Thailand joint venture, was $700,000, and the net loss attributable to common shareholders was $5.1-million, of which $1.8-million related to an unrealized foreign exchange loss on U.S. dollar denominated cash holdings.Pan Orient continues to maintain a strong financial position for planned exploration activities at the East Jabung PSC in Indonesia with working capital and non-current deposits at Dec. 31, 2017, of $36.9-million and no long-term debt.In addition to this, Pan Orient's investment in Thailand joint venture includes $4.9-million of Thailand working capital and non-current deposits for future Thailand joint venture operations.
2017 fourth quarter operating results
Net loss attributable to common shareholders for the fourth quarter of 2017 of $600,000 (one-cent loss per share) compared with $1.8-million loss (three cents loss per share) in the third quarter of 2017. For the fourth quarter of 2017, the company recorded total corporate funds flow from operations, which includes economic results of the 50.01-per-cent interest in the Thailand joint venture, of $500,000 (one cent per share).This compares with total corporate funds flow used in operations for the third quarter of 2017 of $800,000 (one-cent loss per share).In the fourth quarter of 2017 the company reported $100,000 of realized and unrealized foreign exchange gains versus $1.1-million of realized and unrealized foreign exchange losses in the third quarter of 2017.These foreign exchange gains and losses primarily relate to the company's holdings of U.S. dollars. Pan Orient had capital expenditures of $2.9-million in the fourth quarter of 2017, with $2.7-million in Indonesia and $200,000 in Canada at the Sawn Lake steam assisted gravity drainage demonstration project of Andora.In addition, Pan Orient's share of Thailand joint venture capital expenditures was $1-million, which was recorded in investment in Thailand joint venture.Capital expenditures for 2017, net of dispositions, were $7.8-million, with $6.7-million in Indonesia, $100,000 in Canada and $1-million at the Sawn Lake steam assisted gravity drainage demonstration project of Andora.In addition, Pan Orient's share of Thailand joint venture capital expenditures was $1.8-million, which was recorded in investment in Thailand joint venture.At Dec. 31, 2017, Pan Orient had $36.9-million of working capital and non-current deposits.Working capital and non-current deposits comprise $37.7-million cash, $4.4-million of non-current deposits, other receivables of $500,000 and less $5.7-million for accounts payable and the current portion of the decommissioning provision.In addition, Pan Orient's investment in Thailand joint venture includes $4.9-million of Thailand working capital and non-current deposits and $2-million of equipment inventory to be utilized for future Thailand joint venture operations and exploration. Pan Orient had outstanding capital commitments as at Dec. 31, 2017, of $17,000 associated with the company's 49-per-cent participating interest in the East Jabung PSC, Indonesia, and $122,000 associated with natural gas pipeline tariff charges associated with the Sawn Lake steam assisted gravity drainage demonstration project of Andora in Canada.Results net to Pan Orient's 50.01-per-cent interest in the Thailand joint venture for concession L53: Average oil sales of 233 bopd during the fourth quarter of 2017 and generated $900,000 in funds flow from operations, or $42.01 per barrel.This compares with 2017 third quarter results of 262 bopd (an 11-per-cent decrease) and $35.92 per barrel in funds flow from operations (a 17-per-cent increase).The average realized sales price per barrel has increased to $70.80 in the fourth quarter from $60.44 in the third quarter.Per barrel amounts during the fourth quarter of 2017 were a realized price for oil sales of $70.80, transportation expenses of $1.63, operating expenses of $13.75, general and administrative expenses of $10.81, and a 5-per-cent royalty to the Thailand government of $3.35.Oil sales revenue during this period was allocated 36 per cent to expenses for transportation, operating and general and administrative, 5 per cent to the government of Thailand for royalties, and 59 per cent to the Thailand joint venture.No Thailand petroleum income taxes or special remuneratory benefit tax was recorded during 2017.Capital expenditures were $1-million during the fourth quarter of 2017, and $1.8-million for fiscal 2017.Capital expenditures for 2017 comprise $1-million for drilling of the L53AC-C1 exploration well, $700,000 for workovers and other capital expenditures and $100,000 for capitalized general and administrative expenses.The L53AC-C1 exploration well was determined to be dominantly water bearing and was abandoned.Oil sales in January, 2018, and February, 2018, at concession L53 averaged 174 bpod as a result of downtime related to downhole pump issues. Production is currently in excess of 280 bopd after the recent completion of the recent six-well workover program.The L53-B production licence for 1.96 square kilometres was granted in May, 2017.The L53-B environmental impact assessment has been submitted with approval and commencement of production expected in approximately June, 2018.The Dec. 31, 2017, independent reserves evaluation for Thailand onshore concession L53 was prepared for Pan Orient Energy Ltd., a 50.01-per-cent-owned subsidiary of Pan Orient, which is the operator and has a 100-per-cent working interest.The evaluation was conducted by Sproule International Ltd. of Calgary, and was prepared in accordance with Canadian Securities Administrators National Instrument 51-101 -- Standards of Disclosure for Oil and Gas Activities.Pan Orient has a 50.0-per-cent ownership in POS, but does not have any direct interest in, or control over, the crude oil reserves or operations of onshore concession L53.The values at Dec. 31, 2017, identified as net to Pan Orient's 50.01-per-cent equity interest in POS, represent 50.01 per cent of POS reserves and values.
Net to Pan Orient's 50.01-per-cent equity interest in POS, proved plus probable crude oil reserves of 546,500 barrels at Dec. 31, 2017, from conventional sandstone reservoirs, decreased 4 per cent compared with the prior year as a result of oil sales partially offset by a positive technical revision.Net to Pan Orient's 50.01-per-cent equity interest in POS,net present value (after tax) of Thailand proved plus probable crude oil reserves at Dec. 31, 2017, using forecast prices and costs discounted at 10 per cent per year, of $14-million, or 25 cents per Pan Orient share based on the current 54.9 million Pan Orient shares outstanding.
IndonesiaThe Ayu-1X exploration well was drilled to a total depth of 1,140 metres within the granitic basement on Aug. 21, 2017.Analysis indicated approximately 5.5 metres of high-porosity net oil pay at the top of good quality reservoir in the Batu Raja limestone.Significant indications of hydrocarbons in the form of oil shows and high gas readings in well-developed sands of Gumai age were also found.The Ayu-1X well was drilled pursuant to the terms of the 2015 farmout agreement whereby the farminee finances the first $10-million (U.S.) toward the first exploration well.The total estimated cost of the Ayu-1X well for location and access, drilling to total depth and posttotal depth evaluation is $14.3 million (U.S.).Pan Orient's net share of $2.1-million (U.S.) was recorded in 2017. The Elok-1X exploration well was drilled as a sidetrack from the Ayu-1X wellbore to a subsurface location approximately 700 metres south of the Ayu-1X well location and reached a total depth of 1,236 metres.The top of the primary Talang Akar formation sandstone objective (primary target) was encountered at 1,169-metres true vertical depth and found to be non-hydrocarbon bearing. The Batu Raja limestone, not a target at Elok-1X, was encountered approximately 26 metres structurally lower than at Ayu-1X, exhibiting high mud gas readings and oil-stained carbonates in the upper portion.The total cost of the Elok-1X well is estimated at $5-million (U.S.).Pan Orient's 49-per-cent net share of $2.4-million (U.S.) was recorded in 2017.Significant indications of hydrocarbons in the form of oil shows and high gas readings were observed while drilling well-developed sands of Gumai age at both wells. Additional drilling is required to establish the commerciality of the Ayu, Elok and Anggun structural complex.The Anggun-1X exploration well, approximately 5.6 kilometres to the northwest of Ayu-1X and approximately 70 metres structurally up dip from Ayu-1X at the Gumai sandstone target level, is expected to commence drilling in September, 2018.The objectives of this well will be large structural closures at both the Batu Raja and Gumai target levels.The preliminary estimated dry-hole cost of the Anggun-1X well, including permanent road, well pad construction and drilling, is $15.4-million (U.S.), with Pan Orient's 49-per-cent share of $7.55-million (U.S.).The drilling of the Ayu-1X and Elok-1X exploration wells satisfied the East Jabung PSC firm well commitment of two exploration wells to be drilled prior to the expiry of the first six-year exploration phase.The initial exploration phase of the East Jabung PSC has been extended by the government of Indonesia to Jan. 20, 2019.Pan Orient's 2017 capital expenditures for the East Jabung PSC were $6.8-million, comprising $2.7-million for the Ayu-1X exploration well, $3.1-million for the Elok-1X exploration well and $1-million for seismic reprocessing and capitalized general and administrative expenses.The tax directorate general of Indonesia assessed Pan Orient for 2012, 2013 and 2014 land and building tax under a new tax framework of 78,705 million Indonesian rupiah, or $7.3-million when translated at the Dec. 31, 2017, exchange rate.Of the $7.3-million tax assessed, $6.8-million was associated with offshore in 2013 and $500,000 was associated with subsurface for 2012 to 2014.Like other impacted oil and gas companies operating in Indonesia, Pan Orient lodged an objection, which was rejected by the Indonesian tax office.The company filed an appeal with the Indonesian tax court in 2014 and, as required by Indonesian law for filing an appeal with the Indonesian tax court, paid a refundable deposit of $3.7-million, which is equal to 50 per cent of the tax being disputed.During the third quarter of 2017, the company received a ruling from the Indonesian tax court that it had won the appeal on the offshore tax assessment, but lost on the subsurface tax assessment.The company is following the process to obtain a refund of the $3.7-million deposit, which is recorded as a non-current deposit of the consolidated statements of financial position. The company has accrued $700,000 in accounts payable and accrued liabilities for the subsurface tax assessment and penalties.
Sawn Lake Alberta heavy oil (operated by Andora, in which Pan Orient has a 71.8-per-cent ownership) Regulatory approval was received on Dec. 5, 2017, for potential commercial expansion to 3200 bopd at the Sawn Lake steam assisted gravity drainage project (in which Andora has a 50-per-cent working interest and is the operator) using Andora's proprietary produced water boiler.Commercial expansion to 3200 bopd would include a reactivation of the demonstration project steam assisted gravity drainage facility and existing wellpair, drilling of an additional four wellpairs and expansion of the facility to generate the additional necessary steam.It is anticipated that additional steam generation would include the test installation of the Andora proprietary produced water boiler.Andora believes that its produced water boiler could achieve significant benefits for the Sawn Lake steam assisted gravity drainage field and enable development using a series of battery-scale steam assisted gravity drainage facilities (as opposed to a central processing facility).The lead time to acquiring the necessary equipment and commencing operations would be approximately 18 months, and another six months is required for the start of bitumen production (after development of the steam chamber).An expansion is dependent on completion of detailed engineering and a higher commodity price environment to support project economics and financing. At Dec. 31, 2017, Andora had interests in 88 sections of Alberta oil sands leases at Sawn Lake.Andora is the operator of 37 sections, where it has a working interest of either 50 per cent or 100 per cent. The June 30, 2016, contingent resources report by Sproule Unconventional Ltd. assigned risked best estimate contingent resources net to Andora of 197 million barrels of bitumen recoverable.The five Sawn Lake Alberta Crown oil sands leases operated by Andora (with 37 sections) contain 99.3 per cent of the June 30, 2016, assigned contingent resources.With respect to the lands operated by Andora, three of the leases (with 22.75 sections) have an expiry date of July 10, 2018.In January, 2018, Andora received approval for continuation of 21.75 sections in these three leases and the one section which was not continued had not been assigned contingent resources.Capital expenditures for the Sawn Lake demonstration project were $200,000 in the fourth quarter of 2017 and totalled $1-million for 2017.Capital expenditures related to drilling of a core well to support continuation of mineral rights in one of the oil sands leases, capitalization of continuing expenses at the demonstration project facility, engineering for the produced water boiler, and capitalized general and administrative.
Outlook
Indonesia
East Jabung PSC, onshore Sumatra Indonesia (Pan Orient 49-per-cent ownership and non-operator)
The joint venture has approved a 2018 work program and budget that includes the drilling of the Anggun-1X exploration well, estimated to commence drilling in September, 2018, at a cost of $15.4-million (U.S.), and a contingent 3-D seismic survey that would be acquired in the event of success at Anggun-1X.
Thailand
concession L53 onshore (Pan Orient has 50.01-per-cent ownership)
concession L53 continued to generate funds flow from operations as a low-cost operation and limited capital expenditures.The 2018 Thailand capital program is expected to include one exploration well, an appraisal well at L53-B and a multiwell workover program.All activities in 2018 are expected to be financed by Thailand working capital and funds flow from operations.
Canada
Sawn Lake (operated by Andora, in which Pan Orient has a 71.8-per-cent ownership)
Sawn Lake is a top quartile steam assisted gravity drainage asset that has been derisked through the demonstration project.Pan Orient continues to move forward toward potential commercial expansion to 3,200 bopd and future development at Sawn Lake.It is recognized that stable crude oil prices, and specifically higher Western Canada select reference prices, will have a significant impact on any decision regarding the timing and extent of future development.
Corporate
Pan Orient continues to maintain a strong cash balance, denominated mainly in U.S. dollar deposits, that will allow the company to conduct key exploration and development activities and ensure financial flexibility.The company constantly reviews its exploration and development asset portfolio in Indonesia, Thailand and Canada, with the aim of maximizing corporate value and achieving the best allocation of resources.
Pan Orient is a Calgary-based oil and gas exploration and production company with operations currently located onshore Thailand, Indonesia and in Western Canada.
FINANCIAL AND OPERATING SUMMARY (thousands of dollars, except where indicated) Three months ended Dec. 31, 12 months ended Dec. 31, 20172016 20172016 Financial Financial statement results -- excluding 50.01-per-cent interest in Thailand joint venture Net income (loss) attributed to common shareholders$ (578) $(78,149)$ (5,132) $(82,837)Per share -- basic and diluted(0.01)(1.42) (0.09)(1.51)Cash flow from (used in) operating activities(485) 82 (2,396)8,620Per share -- basic and diluted(0.01)-(0.04) 0.16Cash flow used in investing activities (1,990)(65)(4,810) (5,864) Per share -- basic and diluted(0.04)-(0.09) (0.1) Working capital32,53645,447 32,53645,447 Working capital and non-current deposits 36,89749,818 36,89749,818 Long-term debt- -- -Capital commitments 139 2,318139 2,318 Contingencies Working capital and non-current deposits Beginning of period40,41649,945 49,81879,160Funds flow from (used in) operation(409)251 (4,392) (3,778)Special distribution- -- (21,954)Consolidated capital expenditures(2,889) (431)(7,888) (3,905)Amounts advanced from Thailand joint venture 3140169 172 Disposal of petroleum and natural gas assets-56133 161 Decommissioning expenditures and settlements (295)- (752)- Effect of foreign exchange 43 (43)(213)(38)End of period36,89749,818 36,89749,818Economic results -- including 50.01-per-cent interestin Thailand joint venture Total corporate funds flow from (used in) operations by regionCanada (230)255 (3,473) (2,424)Thailand(14) (2) (38)(29) Indonesia(165) (2)(881) (1,325)Funds flow from (used in) operations (409)251 (4,392) (3,778)Share of Thailand joint venture 916 9983,716 2,477Total corporate funds flow from (used in) operations507 1,249 (676) (1,301)Per share -- basic and diluted 0.010.02(0.01)(0.02)Capital expenditures -- petroleum and natural gas properties Canada209 1761,130 1,980Indonesia 2,680 2556,758 1,925Consolidated capital expenditures 2,889 4317,888 3,905Share of Thailand joint venture capital expenditures1,033 1,0131,849 1,495Total capital expenditures3,922 1,4449,737 5,400Disposition -- petroleum and natural gas properties - (56)(133) (161)investment in Thailand joint ventureBeginning of period31,60133,316 32,79535,088Net (loss) from joint venture(172) (226)(1,004) (1,542) Other comprehensive gain (loss) from joint venture787(255) 563(579)Amounts received from joint venture (31)(40)(169) (172)End of period32,18532,795 32,18532,795Thailand operationsEconomic results -- including 50.01-per-cent interestin Thailand joint venture Oil sales (bbl)21,47026,702 92,56894,539 Average daily oil sales (bopd) by concession L53233 290254 258Average oil sales price, before transportation ($/bbl)70.80 60.2264.68 48.95 Reference price (volume weighted) and differentialCrude oil (Brent U.S. $/bbl)61.37 49.1253.94 43.51 Exchange rate U.S. $/Canadian1.291.34 1.321.34Crude oil (Brent $/bbl) 79.38 65.7271.43 58.33Sale price/Brent reference price89% 92%91% 84% Funds flow from (used in) operations Crude oil sales 1,520 1,6085,987 4,628 Government royalty(72)(80)(294) (229) Transportation expense(35)(41)(150) (143) Operating expense(295) (289)(1,061) (1,057) Field netback 1,118 1,1984,482 3,199 General and administrative expense (232) (202)(831) (756)Interest income13 5 2111 Foreign exchange gain (loss)3(5) 6(5) Current income tax- --(1) Funds flow from operations -- Thailand902 9963,678 2,448 Funds flow from (used in) operations/barrel ($/bbl) Crude oil sales 70.80 60.2264.68 48.95Government royalty(3.35)(3.00) (3.18)(2.42) Transportation expense(1.63)(1.54) (1.62)(1.51) Operating expense(13.75) (10.81)(11.46) (11.18)Field netback 52.07 44.8748.42 33.84General and administrative expense (10.81)(7.57) (8.98)(8.01) Interest income0.610.19 0.230.12 Foreign exchange gain (loss) 0.14 (0.19)0.06 (0.05) Current income tax- -- (0.01) Funds flow from operations -- Thailand42.01 37.3039.73 25.89Government royalty as percentage of crude oil sales5%5% 5%5% Income tax and SRB as percentage of crude oil sales - -- - As percentage of crude oil salesExpenses -- transportation, operating, general and administrative and other36% 33%34% 42% Government royalty, SRB and income tax 5%5% 5%5% Funds flow from operations, before interest income59% 62%61% 53%Wells drilledGross 1 11 1 Net 0.5 0.50.5 0.5Financial statement presentation results -- excluding 50.01-per-cent interest in Thailand joint ventureGeneral and administrative expense(14) (3) (38)(30) Foreign exchange gain - 1- 1 Funds flow from (used in) consolidated operations (14) (2) (38)(29) Funds flow included in investment in Thailand joint ventureNet (loss) from Thailand joint venture (172) (226)(1,004) (1,542) Add back depletion and other non-cash items in net (loss) 1,088 1,2244,720 4,019Funds flow from Thailand joint venture916 9983,716 2,477 Thailand -- economic funds flow from operations 902 9963,678 2,448
We seek Safe Harbor.
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