PAN ORIENT ENERGY CORP.: 2018 Year End Financial & Operating Results

|GlobeNewswire

CALGARY, Alberta, March 14, 2019 (GLOBE NEWSWIRE) -- Pan Orient Energy Corp. (POEFF) (“Pan Orient”) (POE – TSXV) reports 2018 year-end and fourth 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 audited consolidated financial statements as at and for the year ended December 31, 2018 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 2018 results, President and CEO Jeff Chisholm stated:

"2018 was an excellent year for the Thailand operation with substantial increases in year-end reserves and production as a result of the L53-DD oil discovery made in October.  This was then followed up with the success of the L53-DD4 appraisal well confirming oil in a fault compartment that had been assigned possible reserves in the year-end 2018 reserve report. The success at L53-DD highlighted the hydrocarbon potential of the northern portion of Concession L53 and provided an increased understanding of the petroleum system in the immediate discovery area.  As a result of post discovery analysis, an aggressive four to five well exploration drilling program is planned for the remainder of 2019 with the first 2 wells to commence in July.

Approval of the L53-DD Production License is anticipated in April 2019, at which point the L53-DD1 & L53-DD2 wells will be brought back on stream.  A 90 day test application has been submitted for the recently completed L53-DD4 well with approval anticipated shortly. The L53-DD3 appraisal well is currently drilling through the target zone to a total depth that will be reached shortly.

Construction for the Anggun-1X exploration well in Indonesian East Jabung PSC has been making steady progress despite heavy rain at times.  The operator has indicated rig mobilization is anticipated to commence in early May with drilling to start in late June to July, subject to weather, of course.  Of note, press reports indicate that Repsol, the operator of the East Jabung PSC, has made a significant gas discovery in the nearby Sakakemang PSC.  This large discovery has resulted in significant interest by industry players and has highlighted the potential for large discoveries still to be made within this region of South Sumatra."    

2018 HIGHLIGHTS

Thailand (net to Pan Orient’s 50.01% equity interest in the Thailand Joint Venture)

  • The L53-DD oil field discovery in October 2018 resulted in a significant production increase and proved, probable and possible reserves at December 31, 2018 of 2.2 million barrels.  Two wells were placed on 90 day production tests in late 2018 and an L53-DD Production License was applied for on December 21, 2018.
  • The field netback per barrel at Concession L53 increased 35% to $65.20 per barrel in 2018 through higher realized oil prices, which were approximately 92% of the Brent oil reference price.  
  • Strong financial results in Thailand from Pan Orient’s share of the Thailand Joint Venture with adjusted funds flow from operations of $5.1 million (including $2.0 million in the fourth quarter) funding capital expenditures of $3.8 million and working capital and long-term deposits at December 31, 2018 of $6.4 million.
  • December 31, 2018 reserve report assigned proved plus probable crude oil reserves of 1.4 million barrels from conventional sandstone reservoirs (an increase of 150%) and a net present value using forecast prices and costs discounted at 10% per year of $39.5 million (an increase of 182%).  The reserve report also assigned 1.6 million barrels of possible reserves, with 1.3 million barrels assigned to the new L53-DD oil field.
  • The discovery at L53-DD set up a 2019 Thailand a two well L53-DD appraisal drilling program, with the L53-DD4 well drilled and the L53-DD3 well currently underway.  A four to five well exploration drilling program is planned to commence late in the second quarter to early in the third quarter.

Indonesia East Jabung Production Sharing Contract (Pan Orient is non-operator with a 49% ownership interest)

  • Construction of the access road and drill pad for the Anggun-1X exploration well at the East Jabung Production Sharing Contract (“PSC”) commenced in November 2018 and is expected to be completed in June 2019.  The operator has advised that rig mobilization to the staging area is anticipated to commence in May and drilling in late June to July 2019.
  • The East Jabung PSC received approval on January 11, 2019 for a four year exploration extension period to January 20, 2023 with a remaining area of 1,245.56 square kilometers, representing 20% of the original PSC area.

Corporate

  • For 2018, total corporate adjusted funds flow from operations, including Pan Orient’s 50.01% interest in the Thailand Joint Venture, was $5.5 million and the net loss attributable to common shareholders was $40 thousand.
  • Pan Orient has maintained a strong financial position for planned exploration activities at the East Jabung PSC in Indonesia with working capital and non-current deposits at December 31, 2018 of $33.1 million and no long-term debt.  In addition to this, Pan Orient’s Investment in the Thailand Joint Venture includes $6.4 million of Thailand working capital and non-current deposits for funding 2019 Thailand Joint Venture exploration and development programs in addition to the Thailand adjusted funds flow from operations.

2018 FOURTH QUARTER OPERATING RESULTS

  • Net income attributable to common shareholders for the fourth quarter of 2018 of $1.4 million ($0.03 per share) compared with a net loss of $1.0 million ($0.02 loss per share) in the third quarter of 2018.  The increase compared to the third quarter of 2018 is primarily due to a foreign exchange gain on Pan Orient’s US dollar holdings and net income from the Thailand Joint Venture.  The total 2018 net loss attributable to common shareholders was $40 thousand ($0.00 per share).
  • For the fourth quarter of 2018, the Company recorded total corporate adjusted funds flow from operations, which includes economic results of the 50.01% interest in the Thailand Joint Venture, of $3.0 million ($0.05 per share).  This compares with total corporate adjusted funds flow from operations for the third quarter of 2018 of $0.4 million ($0.01 per share).  In the fourth quarter of 2018 the Company reported $1.3 million of realized and unrealized foreign exchange gains versus $0.4 million of realized and unrealized foreign exchange losses in the third quarter of 2018.  Additionally, Pan Orient’s share of adjusted funds flow of the Thailand Joint Venture increased to $2.0 million in the fourth quarter from $1.2 million in the third quarter as a result of increased oil production from the L53-DD field discovered in October 2018.  Total corporate adjusted funds flow from operations for 2018 was $5.5 million ($0.10 per share).
  • Pan Orient had capital expenditures of $1.0 million in the fourth quarter of 2018, with $0.8 million for Indonesian exploration activities and $0.2 million in Canada at the Sawn Lake steam assisted gravity drainage (“SAGD”) project of Andora Energy Corporation (“Andora”).  In addition, Pan Orient’s share of Thailand Joint Venture capital expenditures was $2.3 million, which was recorded in Investment in Thailand Joint Venture. 
  • Capital expenditures for 2018 were $4.3 million, with $3.4 million in Indonesia, $0.1 million in Canada and $0.8 million at the Sawn Lake SAGD demonstration project of Andora.  In addition, Pan Orient’s share of Thailand Joint Venture capital expenditures was $3.8 million, which was recorded in Investment in Thailand Joint Venture.
  • At December 31, 2018, Pan Orient had $33.1 million of working capital and non-current deposits.  Working capital and non-current deposits were comprised of $31.7 million cash, $0.6 million of non-current deposits, $3.0 million of net Indonesian taxes receivable (subsequently received in January 2019), and less $2.2 million for other accounts payable, accounts receivable and the current portion of the decommissioning provision.  In addition, Pan Orient’s Investment in Thailand Joint Venture includes $6.4 million of Thailand working capital and non-current deposits and $1.9 million of equipment inventory to be utilized for future Thailand Joint Venture operations and exploration.
  • Pan Orient had outstanding capital commitments of $738,000 as at December 31, 2018 of which $19,000 was associated with the Company’s 49% participating interest in the East Jabung PSC, Indonesia and $719,000 was associated with natural gas pipeline tariff charges associated with the Sawn Lake SAGD demonstration project of Andora in Canada.
  • Results net to Pan Orient’s 50.01% Interest in the Thailand Joint Venture for Concession L53
    • Average oil sales of 366 BOPD during the fourth quarter of 2018 generated $2.0 million in adjusted funds flow from operations, or $59.97 per barrel.  This compares with 2018 third quarter results of 214 BOPD (a 71% increase), $1.2 million in adjusted funds flow from operations (a 71% increase) and $60.22 per barrel in adjusted funds flow from operations.  The average realized sales price per barrel decreased to $83.75 in the fourth quarter from $92.34 in the third quarter.
    • Per barrel amounts during the fourth quarter of 2018 were a realized price for oil sales of $83.75, transportation expenses of $2.02, operating expenses of $11.45, general and administrative expenses of $6.74 and a 5% royalty to the Thailand government of $4.07.  Oil sales revenue during this period was allocated 24% to expenses for transportation, operating, and general & administrative, 5% to the government of Thailand for royalties, and 71% to the Thailand Joint Venture.
    • Capital expenditures were $2.3 million during the fourth quarter of 2018 and $3.8 million for 2018.  Capital expenditures related to the discovery of the L53-DD oil field were $1.9 million for site construction and access road, and drilling of L53-DD1 and L53-DD2 wells.  Additional capital expenditures in 2018 included workover programs, reservoir engineering, and other development activities and capitalized general and administrative expenses.
    • The L53-DD oil field was discovered in October 2018 with the drilling of the L53-DD1 exploration well and immediately followed up with the L53-DD2 appraisal well.  Each well was placed on production in the fourth quarter of 2018 under a 90 day production test period and combined oil sales from the two wells in 2018 were 13,835 barrels.  An application for an L53-DD Production License of 1.973 square kilometers was submitted on December 21, 2018 and approval is anticipated in the April to May 2019 time frame.
    • The December 31, 2018 independent reserves evaluation for Thailand on-shore Concession L53 was prepared for Pan Orient Energy (Siam) Ltd. (“POS”), a 50.01% owned subsidiary of Pan Orient, which is the operator and has a 100% working interest.  The evaluation was conducted by Sproule International Limited of Calgary (“Sproule”) 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 50.01% ownership in POS, but does not have any direct interest in, or control over, the crude oil reserves or operations of on-shore Concession L53.  The values at December 31, 2018 identified below as “Net to Pan Orient’s 50.01% Equity Interest in POS” represent 50.01% of POS reserves and values. 

Net to Pan Orient’s 50.01% equity interest in POS, proved plus probable crude oil reserves of 1,365,500 barrels at December 31, 2018 from conventional sandstone reservoirs, an increase of 150% compared with the prior year primarily as a result of the discovery of the L53-DD oil field in the fourth quarter of 2018 which has been assigned proved reserves of 199,500 barrels and proved plus probable reserves of 859,500 barrels at December 31, 2018.  Net to Pan Orient’s 50.01% equity interest in POS, net present value (after tax) of Thailand proved plus probable crude oil reserves at December 31, 2018, using forecast prices and costs discounted at 10% per year, of $39.5 million, or $0.72 per Pan Orient share based on the current 54.9 million Pan Orient shares outstanding. 

Given the early stage development of the recent L53-DD oil discovery, the Company requested the inclusion of possible oil reserves at December 31, 2018 in order to define the potential upside of the field.  Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.  There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.  Possible oil reserves were not evaluated at December 31, 2017.  Net to Pan Orient’s 50.01% equity interest in POS, proved plus probable plus possible crude oil reserves were 2,927,000 barrels at December 31, 2018.  Net to Pan Orient’s 50.01% equity interest in POS, net present value (after tax) of Thailand proved plus probable plus possible crude oil reserves at December 31, 2018, using forecast prices and costs discounted at 10% per year, of Cdn$76.8 million, or $1.40 per Pan Orient share based on the current 54.9 million Pan Orient shares outstanding.

  • Indonesia
    • Capital expenditures in Indonesia were $3.4 million in 2018 for the East Jabung PSC.  Drilling activities were $2.9 million with $3.3 million for the planned Anggun-1X exploration well and a reduction of $0.4 million for adjustments to the cost of the Ayu-1X and Elok-1X exploration wells drilled in 2017.  Additional capital expenditures of $0.5 million in 2018 related to capitalized general and administrative expenses, data purchase and sample analysis.
    • On January 22, 2019 Pan Orient received the net $3.0 million refund from the Government of Indonesia relating to Pan Orient’s appeal of the 2013 and 2014 Land and Building Tax assessment, and for which the verdict was received in the third quarter of 2017
  • Sawn Lake Alberta Heavy Oil (Operated by Andora, in which Pan Orient has a 71.8% ownership)
    • Andora is a 71.8% owned subsidiary of Pan Orient and is consolidated with Pan Orient for reporting purposes.
    • Andora has interests in 78 gross sections (34.7 net sections) of Sawn Lake Alberta Crown oil sands leases at December 31, 2018.  Andora is the operator of five oil sands leases with 36 gross sections (30.5 net sections) at Sawn Lake, where it has a working interest of either 50% or 100%.   These five leases operated by Andora contain 99.3% of contingent resources assigned in a June 30, 2016 evaluation by Sproule Unconventional Limited.  One section (0.5 net sections) which had not been assigned contingent resources in the June 30, 2016 evaluation expired in July 2018.  Six oil sands leases are operated by another company with 42 gross sections (4.2 net sections), where Andora is a non-operator with a 10% working interest.  These non-operated leases contain 0.7% of the contingent resources assigned in the June 30, 2016 evaluation.  Nine sections (0.9 sections net) of the non-operated leases expired in July 2018. 
    • Andora is the operator and holds a 50% working interest in the Sawn Lake, Alberta SAGD demonstration project.  Regulatory approval was received on December 5, 2017 for potential commercial expansion to 3200 BOPD at the Sawn Lake, Alberta SAGD project (in which Andora has a 50% 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 SAGD 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 SAGD field and enable development using a series of “battery scale” SAGD 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 6 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.
    • Capital expenditures of $0.8 million in 2018 comprised of $0.5 million capitalization of ongoing expenses at the demonstration project facility, engineering and development work of $0.1 million and $0.2 million of capitalization of general and administrative expenses.

OUTLOOK

INDONESIA

East Jabung PSC, Onshore Sumatra Indonesia (Pan Orient 49% ownership & Non Operator)

The Anggun-1X exploration well is approximately 5.6 kilometers to the northwest of the Ayu-1X exploration well drilled in 2017 and approximately 70 meters structurally up-dip from Ayu-1X at the Gumai sandstone target level.  The Anggun-1X exploration well will target the Gumai sandstones (primary target) in a structural closure up-dip of the Ayu-1X drilling location and the Batu Raja limestone (secondary target) that is expected to be an independent closure from the Ayu-1X well.  The estimated dry hole cost of the Anggun-1X well, including permanent road, well pad construction and drilling, is US$15.4 million (Cdn$21.0 million), with Pan Orient’s 49% share of US$7.5 million (Cdn$10.2 million).  The cost of the Anggun-1X well to the end of 2018 has been US$5.0 million, with Pan Orient’s 49% share being US$2.5 million (Cdn$3.3 million).

The operator has advised that drilling of Anggun-1X is anticipated to commence in late June to July 2019. There is a potential follow-up appraisal well in 2020 in the event of Anggun-1X success.

THAILAND

Concession L53 Onshore (Pan Orient Energy (Siam) Ltd., in which Pan Orient has 50.01% ownership)

A two well appraisal drilling program commenced with the spudding of the L53-DD4 well on February 11, 2019.  The well encountered an interpreted, combined 15.6 meters of net oil pay within the AA2 and BB/CC sandstones between the true vertical depth of 1,010 to 1,103 meters.  The L53-DD4 well penetrated a fault compartment with assigned year-end 2018 possible reserves (no proved or probable reserves were assigned) adjacent to and north of the main DD oil field fault compartment that was drilled previously by the L53-DD1 and L53-DD2 wells.  As a result, proved and probable reserves additions within this new fault compartment are anticipated at year-end 2019.  The CC sand at L53-DD4 was encountered 7.5 meters structurally higher than at L53-DD1 and possesses superior reservoir quality and thickness.  The AA sand at L53-DD4 (no proved or probable reserves assigned at this location at year-end 2018) was poorly developed; however, high quality oil pay was encountered in the deeper AA2 sand resulting in a new oil pool discovery.  The DD/EE sands (no proved or probable reserves assigned at this location at year-end 2018) were water bearing at L53-DD4.  A 90 day well test application for L53-DD4 has been submitted to the Government of Thailand and testing will commence when the approval is received.

The L53-DD3 was spudded on March 3, 2019 and is currently drilling.  The L53-DD3 well is essentially a twin of the earlier L53-DD2 well with the exception being that the AA sand that was faulted out in L53-DD2 is expected to be penetrated in a structurally higher position than at L53-DD1.  L53-DD3 is designed to effectively drain the thick, high quality oil pay within the BB/CC sands at this structurally high location in a timely manner.

Seismic mapping incorporating the DD field drilling results has been completed and on the basis of this information, permits for a multi-well exploration drilling program to commence late in the second quarter to early in the third quarter of 2019 are underway.  It is anticipated two prospects will be tested initially in the immediate DD field area with the first two exploration wells.  A second three well exploration drilling program is expected to commence in late 2019.  All exploration and development activities in 2019 are expected to be financed by Thailand working capital and adjusted funds flow from operations.

CANADA

Sawn Lake, Alberta (Operated by Andora, in which Pan Orient has a 71.8% ownership)

Sawn Lake is a top quartile SAGD asset that has been de-risked through the demonstration project.  Pan Orient continues to work with joint venture partners to move towards the potential commercial expansion to 3200 BOPD at the Sawn Lake, Alberta SAGD project (in which Andora has a 50% working interest and is the operator).  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 United States 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.  Exploration and development activities in Indonesia and Thailand, and the heavy oil situation in Canada in 2019 will be key in defining the go forward opportunities and strategies for Pan Orient.

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:  renewal, extension or termination of oil concessions and production sharing contracts; other regulatory approvals; well drilling programs and drilling plans; the benefits of patented technology; estimates of reserves and potentially recoverable resources; information on future production and project start-ups; and sufficiency of financial resources.  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, regulatory changes and delays, 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. 

FOR FURTHER INFORMATION, PLEASE CONTACT:
Pan Orient Energy Corp.
Jeff Chisholm, President and CEO (located in Bangkok, Thailand)
Email: jeff@panorient.ca

- or -

Bill Ostlund, Vice President Finance and CFO
Telephone:   (403) 294-1770, Extension 233

 


Financial and Operating Summary Three Months Ended
December 31,
Twelve Months Ended
December 31,
% Change
(thousands of Canadian dollars except where indicated)   2018       2017       2018       2017    
FINANCIAL          
Financial Statement Results – Excluding 50.01% Interest in Thailand Joint Venture (Note 1)          
Net income (loss) attributed to common shareholders   1,409       (578 )     (40 )     (5,132 )   -99 %
  Per share – basic and diluted $   0.03     $ (0.01 )   $   (0.00 )   $ (0.09 )   -99 %
Cash flow used in operating activities (Note 2)   (245 )     (485 )     (2,407 )     (2,396 )   0 %
  Per share – basic and diluted $  (0.00 )   $ (0.01 )   $   (0.04 )   $ (0.04 )   0 %
Cash flow used in investing activities (Note 2)   (1,052 )     (1,990 )     (5,500 )     (4,810 )   14 %
  Per share – basic and diluted $   (0.02 )   $ (0.04 )   $   (0.10 )   $ (0.09 )   14 %
Working capital   32,546       32,536       32,546       32,536     0 %
Working capital & non-current deposits   33,139       36,897       33,139       36,897     -10 %
Long-term debt   -       -       -       -     0 %
Shares outstanding (thousands)   54,900       54,900       54,900       54,900     0 %
Capital commitments (Note 3)   738       139       738       139     431 %
Working Capital and Non-current Deposits          
Beginning of period – Excluding Thailand Joint Venture   32,993       40,416       36,897       49,818     -26 %
  Adjusted funds flow from (used in) operations (excluding Thailand Joint Venture) (Note 5)   972       (409 )     346       (4,392 )   -108 %
  Issue of common shares   -       -       -       22     -100 %
  Consolidated capital expenditures (Note 7)   (998 )     (2,889 )     (4,256 )     (7,888 )   -46 %
  Amounts advanced from Thailand Joint Venture   31       31       159       169     -6 %
  Disposal of petroleum and natural gas assets (Note 8)   -       -       133       133     0 %
  Settlement of decommissioning liabilities   -       (295 )     -       (752 )   -100 %
  Effect of foreign exchange   141       43       (140 )     (213 )   -34 %
End of period – Excluding Thailand Joint Venture   33,139       36,897       33,139       36,897     -10 %
Pan Orient 50.01% interest in Thailand Joint Venture Working Capital and Non-Current Deposits   6,385       4,867       6,385       4,867     31 %
Economic Results – Including 50.01% Interest in Thailand Joint Venture (Note 5)          
Total corporate adjusted funds flow from (used in) operations by region (Note 5)          
  Canada (Note 6)   1,021       (230 )     651       (3,473 )   -119 %
  Thailand (Note 1)   (7 )     (14 )     (32 )     (38 )   -16 %
  Indonesia   (42 )     (165 )     (273 )     (881 )   -69 %
  Adjusted funds flow from (used in) operations (excl. Thailand Joint Venture)   972       (409 )     346       (4,392 )   -108 %
  Share of Thailand Joint Venture (Note 4)   2,029       916       5,171       3,716     39 %
Total corporate adjusted funds flow from (used in) operations   3,001       507       5,517       (676 )   -916 %
  Per share – basic and diluted $   0.05     $ 0.01     $   0.10     $ (0.01 )   -1105 %
Capital Expenditures – Petroleum & Natural Gas Properties (Note 7)          
Canada (Note 6)   233       209       897       1,130     -21 %
Indonesia   765       2,680       3,359       6,758     -50 %
Consolidated capital expenditures (excl. Thailand Joint Venture)   998       2,889       4,256       7,888     -46 %
Share of Thailand Joint Venture capital expenditures   2,321       1,033       3,835       1,849     107 %
Total capital expenditures (incl. Thailand Joint Venture)   3,319       3,922       8,091       9,737     -17 %
Disposition – Petroleum & Natural Gas Properties (Note 8)   -       -       (133 )     (133 )   0 %

 

Investment in Thailand Joint Venture          
Beginning of period   32,864       31,601       32,185       32,795     -2 %
Net income (loss) from Joint Venture   492       (172 )     114       (1,004 )   -111 %
Other comprehensive gain from Joint Venture   1,179       787       2,364       563     320 %
Amounts advanced to Joint Venture   (31 )     (31 )     (159 )     (169 )   -6 %
End of period   34,504       32,185       34,504       32,185     7 %


  Three  Months Ended
December 31,
Twelve Months Ended
December 31,
 
(thousands of Canadian dollars except where indicated)   2018       2017       2018       2017     Change
Thailand Operations          
Economic Results – Including 50.01% Interest in Thailand Joint Venture (Note 4)          
Oil sales (bbls)   33,702       21,470       91,090       92,568     -2 %
Average daily oil sales (BOPD) by Concession L53   366       233       250       254     -2 %
Average oil sales price, before transportation (CDN$/bbl) $   83.75     $ 70.80     $   84.82     $ 64.68     31 %
Reference Price (volume weighted) and differential          
  Crude oil (Brent $US/bbl) $   64.54     $ 61.37     $   69.62     $ 53.94     29 %
  Exchange Rate $US/$Cdn   1.34       1.29       1.32       1.32     0 %
  Crude oil (Brent $Cdn/bbl) $ 86.78     $ 79.38     $   91.91     $ 71.43     29 %
  Sale price / Brent reference price   97 %     89 %     92 %     91 %   1 %
Adjusted funds flow from (used in) operations (Note 5)          
  Crude oil sales   2,823       1,520       7,727       5,987     29 %
  Government royalty   (137 )     (72 )     (379 )     (294 )   29 %
  Transportation expense   (68 )     (35 )     (172 )     (150 )   15 %
  Operating expense   (386 )     (295 )     (1,236 )     (1,061 )   16 %
  Field netback   2,232       1,118       5,940       4,482     33 %
  General and administrative expense (Note 9)   (227 )     (232 )     (835 )     (831 )   0 %
  Interest income   21       13       37       21     76 %
  Foreign exchange gain (loss)   (4 )     3       (3 )     6     -150 %
  Thailand – Adjusted funds flow from operations   2,022       902       5,139       3,678     40 %
Adjusted funds flow from (used in) operations / barrel  (CDN$/bbl) (Note 5)          
  Crude oil sales $   83.75     $ 70.80     $   84.82     $ 64.68     31 %
  Government royalty   (4.07 )     (3.35 )     (4.16 )     (3.18 )   31 %
  Transportation expense   (2.02 )     (1.63 )     (1.89 )     (1.62 )   17 %
  Operating expense   (11.45 )     (13.75 )     (13.57 )     (11.46 )   18 %
  Field netback $   66.21     $ 52.07     $   65.20     $ 48.42     35 %
  General and administrative expense (Note 9)   (6.74 )     (10.81 )     (9.17 )     (8.98 )   2 %
  Interest Income   0.62       0.61       0.41       0.23     77 %
  Foreign exchange gain (loss)   (0.12 )     0.14       (0.03 )     0.06     -155 %
  Thailand – Adjusted funds flow from operations $   59.97     $ 42.01     $   56.41     $ 39.73     42 %
Government royalty as percentage of crude oil sales   5 %     5 %     5 %     5 %   0 %
Income tax & SRB as percentage of crude oil sales   -       -       -       -     0 %
As percentage of crude oil sales          
  Expenses - transportation, operating, G&A and other   24 %     36 %     28 %     34 %   -6 %
  Government royalty, SRB and income tax   5 %     5 %     5 %     5 %   0 %
  Adjusted funds flow from operations, before interest income   72 %     59 %     67 %     61 %   6 %
Wells drilled          
  Gross   2       1       2       1     100 %
  Net   1       0.5       1       0.5     100 %
Financial Statement Presentation
Results – Excl. 50.01% Interest in Thailand Joint Venture (Note 1)
         
  General and administrative expense (Note 9)   (7 )     (14 )     (32 )     (38 )   -16 %
  Adjusted funds flow used in consolidated operations   (7 )     (14 )     (32 )     (38 )   -16 %
Adjusted funds flow included in Investment in Thailand Joint Venture          
  Net income (loss) from Thailand Joint Venture   492       (172 )     114       (1,004 )   -111 %
  Add back non-cash items in net loss   1,537       1,088       5,057       4,720     7 %
  Adjusted funds flow from Thailand Joint Venture   2,029       916       5,171       3,716     39 %
Thailand – Economic adjusted funds flow from operations (Note 4)   2,022       902       5,139       3,678     40 %


  Three  Months Ended
December 31,
  Twelve Months Ended
December 31,
 
(thousands of Canadian dollars except where indicated) 2018     2017     2018     2017     Change
Canada Operations (Note 7)          
Interest income 105     88     494     308     60 %
General and administrative expenses (Note 9) (420 )   (482 )   (1,910 )   (2,092 )   -9 %
Realized foreign exchange gain 13     -     20     1     1900 %
Unrealized foreign exchange gain (loss) (Note 16) 1,323     164     2,047     (1,838 )   -211 %
Current income tax -     -     -     148     -100 %
  Canada – Adjusted funds flow from (used in) operations 1,021     (230 )   651     (3,473 )   -119 %
Indonesia Operations          
General and administrative expense (Note 9) (63 )   (151 )   (255 )   (823 )   -69 %
Exploration recovery 30     -     -     (5 )   -100 %
Realized foreign exchange loss (9 )   (14 )   (18 )   (53 )   -66 %
  Indonesia – Adjusted funds flow used in operations (42 )   (165 )   (273 )   (881 )   -69 %
Wells drilled          
  Gross -     -     -     2      
  Net -     -     -     1.0      


    Year Ended
December 31,
Change
(thousands of Canadian dollars except where indicated)   2018   2017
RESERVES AND CONTINGENT RESOURCES        


Onshore Thailand – Concession L53 (50.01% economic interest) (Note 1)
  (Note 10) (Note 11)  
Proved oil reserves (thousands of barrels)   451    272  65 %
Proved plus probable oil reserves (thousands of barrels)   1,366    547  150 %
Net present value of proved + probable reserves, after tax discounted at 10%   39,507    13,982  182 %
Per Pan Orient share – basic (Note 12) $ 0.72  $ 0.25  188 %
Canada (Pan Orient’s 71.8% share of the oil sands leases of Andora at Sawn Lake, Alberta)   (Note 13)   
       
INTERNATIONAL INTERESTS AT DECEMBER 31, 2018          
All amounts reflect Pan Orient's economic interest Status Net Square Kilometers December 31, 2018
Financial Commitments
(Cdn thousands)
2018 Avg. Production (BOPD) P+P Reserves (thousands of barrels)
Onshore Thailand Concession (Recorded in Investment in Joint Venture)          
L53/48 (Pan Orient 50.01% ownership as at December 31, 2018) (Note 1 & 14) Partially developed 118  to January 2021 (Note 14) 250  1,366  
Onshore Indonesia PSC (Consolidated subsidiary)          
East Jabung PSC, South Sumatra (49% interest & non-operator) (Note 15) Undeveloped 610  19  to January 2020    
     728  19       
             


(1)   Pan Orient holds a 50.01% equity interest in Pan Orient Energy (Siam) Ltd. as a joint arrangement where the Company shares joint control with the 49.99% equity interest holder.  The resulting joint arrangement is classified as a Joint Venture under IFRS 11 and is accounted for using the equity method of accounting where Pan Orient’s 50.01% equity interest in the assets, liabilities, working capital, operations and capital expenditures of Pan Orient Energy (Siam) Ltd. are recorded in Investment in Thailand Joint Venture.
(2)   As set out in the Consolidated Statements of Cash Flows in the Consolidated Financial Statements of Pan Orient Energy Corp. 
(3)   Refer to Commitments note disclosure of the December 31, 2018 and December 31, 2017 Consolidated Financial Statements.
(4)   For the purpose of providing more meaningful economic results from operations for Thailand, the amounts presented include 50.01% of results of the Thailand Joint Venture.
(5)   Total corporate adjusted funds flow from operations is cash flow from operating activities prior to changes in non-cash working capital, decommissioning expenditures and settlements, unrealized foreign exchange gain or loss plus the corresponding amount from Pan Orient’s 50.01% interest in the Thailand Joint Venture which is recorded in Joint Venture for financial statement purposes.  This measure is used by management to analyze operating performance and leverage.  Adjusted 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.  Adjusted 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. 
(6)   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.
(7)   Cost of capital expenditures excluded decommissioning costs, the impact of changes in foreign exchange and capitalized stock-based compensation expense.
(8)   In 2018, the Sawn Lake joint venture sold some inventory of pipe to outside third party.  In 2017, the Company sold some equipment inventory from its Indonesian operations to its Thailand joint venture. 

(9)
  General & administrative expenses, excluding non-cash accretion on decommissioning provision. The nominal amount of G&A shown in the three and twelve months ended December 31, 2017 and 2018 for Thailand operations related to G&A of the holding company of Pan Orient Energy (Siam) Ltd.
(10)   Thailand reserves as at December 31, 2018 as evaluated by Sproule International Limited of Calgary assessed at forecast crude oil reference prices and costs. The US$ reference price for crude oil per barrel (US$ UK Brent per barrel) in the evaluation is $70.00 for 2019, $72.00 for 2020, $73.00 for 2021, $74.46 for 2022, $75.95 for 2023, and prices increase at 2.0% per year thereafter.  Foreign exchange rate used of Cdn$1=US$0.77 for 2019, Cdn$1=US$0.80 for 2020 and Cdn$1=US$0.80 thereafter.  The engineered values disclosed may not represent fair market value.
(11)   Thailand reserves as at December 31, 2017 as evaluated by Sproule International Limited of Calgary assessed at forecast crude oil reference prices and costs. The US$ reference price for crude oil per barrel (US$ UK Brent per barrel) in the evaluation is $58.00 for 2018, $67.00 for 2019, $72.00 for 2020, $75.00 for 2021, $76.50 for 2022 and prices increase at 2.0% per year thereafter.  Foreign exchange rate used of Cdn$1=US$0.79 for 2018, Cdn$1=US$0.82 for 2019 and Cdn$1=US$0.85 thereafter.  The engineered values disclosed may not represent fair market value.
(12)   Per share values calculated based on 54,900,407 Pan Orient Shares outstanding at December 31, 2018 and December 31, 2017.
(13)   The evaluation of Andora’s contingent resources of the oil sands project at Sawn Lake Alberta, Canada as at June 30, 2016 was conducted by Sproule Unconventional Limited.  The evaluation assigned an 85% chance of development for Sawn Lake, or a 15% development risk, and the risked “Best Estimate” contingent resources for Andora were 196.9 million barrels of bitumen recoverable (141.4 million barrels net to Pan Orient’s interest in Andora).  Andora’s unrisked “Best Estimate” contingent resources were 231.6 million barrels (166.3 million net to Pan Orient’s interest in Andora) of recoverable bitumen as at June 30, 2016.  The June 30, 2016 report had been updated for results of the Sawn Lake demonstration project, the June 30, 2016 price forecasts for crude oil, bitumen, natural gas and exchange rates, and a revised date of 2020 for the estimated commencement of commercial production.
(14)   At December 31, 2018 Concession L53/48 in Thailand consisted of 22.22 square kilometers associated with the L53-A, L53-B, L53-D and L53-G fields held through production licenses (with a 20 year primary term to 2036 plus an additional 10 year renewal period that can be applied for) and 213.91 square kilometers of “reserved area” exploration lands.  The Company has submitted the application for the production license for the L53-DD field and approval is anticipated in April or May of 2019.
The original nine year exploration period for Concession L53 expired on January 7, 2016.  The Government of Thailand approved a 215.87 square kilometer "reserved area" within Concession L53 for up to five years, with the payment of a surface reservation fee of $0.8 million gross ($0.4 million net to Pan Orient), for each year the Company elects to retain the reserved area.  The Company is entitled to receive a refund of the surface reservation fee for a particular year in an amount equal to the petroleum exploration expenditures spent in that year within the reserved area up to the reservation fee paid.  The Company intends to spend at least the full amount each year the reserved area is renewed and, therefore, it is expected that the annual reservation fee will be fully refunded. 
(15)    In 2014 the Company entered into a farmin agreement for the transfer of a 51% direct working interest and operatorship of the East Jabung PSC.  The agreement included a firm commitment by the farminee to fund the first US$10.0 million towards the first exploration well and a contingent commitment to fund the first US$5.0 million towards an appraisal well, if justified. The transaction closed on June 1, 2015 and the Company transferred the operatorship of the PSC to the farminee and reduced its interest to 49%.  The drilling of the Ayu-1X well and Elok-1X well in 2017 qualified for the two wells under the firm 3 year exploration work program.  The original expiry of the East Jabung PSC occurred on November 21, 2017 and was extended by the Government of Indonesia (“GOI”) to January 20, 2019.  Subsequent to year end, the East Jabung PSC joint venture received approval for a four year exploration extension period of the PSC to January 20, 2023. Capital commitments for the first year of the PSC exploration extension include drilling of one exploration well and geological studies.  The drilling of the Anggun-1X well will qualify as the exploration well commitment.  The estimated dry hole cost of the Anggun-1X well, including permanent road, well pad construction and drilling is USD 15.4 million (CAD 21.0 million), with Pan Orient’s 49% share of US$7.5 million (Cdn$10.2 million).  Additional commitments for the second to fourth year PSC extension will be determined on a year-by-year basis through submission of a work program and approval from the GOI.  During the four year exploration extension period, the joint venture has the option of exiting or continuing with the PSC on an annual basis..  The final remaining PSC area after the extension is 1,245.56 square kilometers, representing 20% of the original PSC area. 
(16)   Unrealized foreign exchange gain or loss in Canada is related to the U.S. dollars denominated cash balances held in Canada.
(17)   Tables may not add due to rounding.

 

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Source: Pan Orient Energy Corp. 2019 GlobeNewswire, Inc.