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NEWS RELEASE TRANSMITTED BY Marketwire

FOR: PAN ORIENT ENERGY CORP.

TSX VENTURE SYMBOL: POE - | View Quote |  View Chart |  View Financials | 

Pan Orient Energy Corp.: 2011 First Quarter Financial & Operating Results

May 26, 2011 - 08:30 ET

CALGARY, ALBERTA--(Marketwire - May 26, 2011) - Pan Orient Energy Corp. ("Pan Orient") (TSX VENTURE:POE) is pleased to provide highlights of its 2011 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 net to Pan Orient.

The Corporation today filed its unaudited consolidated financial statements as at and for the three months ended March 31, 2011 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.

2011 FIRST QUARTER HIGHLIGHTS

  • Funds flow from operations for the first quarter of 2011 was $12.4 million compared with $17.8 million for the fourth quarter of 2010 and $12.3 million for the first quarter of 2010. Funds flow from operations per share (basic) was $0.24 for the first quarter of 2011.
  • Net income attributable to common shareholders of $3.9 million, or $0.08 per share (basic), for the first quarter of 2011 compared with net income attributable to common shareholders of $8.5 million, or $0.17 per share (basic) for the fourth quarter of 2010 and $3.4 million ($0.07 per share) for the first quarter of 2010.
  • Total capital expenditures for the first quarter of 2011 were $20.0 million, with $14.4 million in Thailand, $5.5 million in Indonesia and $0.1 million in Canada.
  • Indonesia

    • At the Batu Gajah Production Sharing Contract ("PSC") on-shore Sumatra (Pan Orient 97% working interest and operator), Pan Orient completed a transaction which increased our interest from 90% to 97% through repurchasing a 7% carried interest.

      Late in March 2011, Pan Orient commenced the three well exploration drilling program at Batu Gajah with the spudding of the Tuba Obi Utara-1 (NTO-1) exploration well. The NTO-1 well encountered 10.5 feet of gas pay within good-quality sand near the top of the Lower Talang Akar formation ("LTAF"). The follow-up NTO-1ST side track well encountered the same gas sand formation identified at the NTO-1 well. Initial drilling results at North Tuba Obi are encouraging with proven gas in the LTAF and additional hydrocarbon potential in the overlying formations existing eastward towards the crest of the Tuba Obi structure. Further appraisal drilling will be required to determine the commerciality and size of this accumulation. Plans are underway to seek Government of Indonesia approval for the drilling of three additional Phase Two exploration wells at Batu Gajah in late 2011 (bringing the total wells at Batu Gajah in 2011 to six plus the NTO-1ST side track), including the Tuba Obi Utara-2 (NTO-2) exploration well to be located approximately 5.7 kilometers east of the NTO-1 well. Capital expenditures of $4.9 million in the first quarter of 2011 at the Batu Gajah PSC included building of three drilling locations, equipment inventory for the three well drilling program, initial drilling costs for the NTO-1 well and exploration operations.
    • At the Citarum PSC on-shore Java (Pan Orient 77% working interest and operator), Pan Orient completed a transaction which increased our interest from 69% to 77% through repurchasing an 8% carried interest. Preparation for drilling is proceeding at the Citarum PSC with land purchase and the building of drilling locations towards an anticipated commencement of drilling of the first of three back to back wells in late September 2011. Capital expenditures of $0.5 million in the first quarter of 2011 at the Citarum PSC included initial costs for building of drilling locations and exploration operations.
    • At the South CPP PSC, on-shore Sumatra, Pan Orient completed a transaction which increased our interest from 90% to 97% through repurchasing a 7% carried interest.
    • The cost to repurchase carried interests in the three PSC's was $1.8 million, including the issuance of 50,677 shares in Pan Orient at a deemed market value of $0.3 million.
    • Subsequent to March 31, 2011, Pan Orient was notified that it was the successful bidder on a 100% working interest basis for the 6,228 square kilometer East Jabung PSC located on and offshore south Sumatra Indonesia. East Jabung PSC is directly east and adjacent to the company's 97% working interest and operated Batu Gajah PSC.
  • Thailand
    • Average 2011 oil sales in Thailand for the first quarter of 2011 of 2,246 BOPD with 1,501 BOPD from Concession L44, 414 BOPD from Concession L53, 210 BOPD from Concession L33, and 121 BOPD from Concession SW1. Oil sales in Concession L44 declined to an average of 1,501 BOPD in the first quarter of 2011 compared with an average of 3,459 BOPD in the fourth quarter of 2010 as a result of wells coming off high initial production rates, incursion of water at the WBEXT-1C well in early January, and three significant wells being brought back on-stream at reduced rates to minimize the water cut after being shut-in for much of the quarter until the WBEXT production license was granted on February 24th. Oil sales at Concession L53 increased to 414 BOPD in the first quarter of 2011 from 88 BOPD in the fourth quarter of 2010 with increased production from a workover of the L53-A well and new oil production from the L53-A1 well.

      Average oil sales in April 2011 were 2,035 BOPD, with 1,318 BOPD from Concession L44, 478 BOPD from Concession L53, 158 BOPD from Concession L33, and 81 BOPD from Concession SW1.

    • Funds flow from Thailand operations was $12.9 million for the first quarter of 2011 ($63.61 per barrel). Capital expenditures in Thailand were financed 89% by funds flow from operations. The change from $17.7 million in funds flow from Thailand operations in the fourth quarter of 2010, primarily as a result of a 45% decrease in oil sales volumes, partially offset by a 20% increase in the realized price for crude oil and a 75% decrease in current SRB and income taxes.

      For the first quarter of 2011, transportation expenses were $2.32 per barrel, operating expenses and other royalty $10.79 per barrel, general and administrative expenses $4.90 per barrel and amounts to the Thailand government of $9.71 per barrel resulted in after tax funds flow from operations per barrel of $63.61. The WTI reference price for crude oil per barrel increased 10% during the quarter to CDN$94.48 and the realized price increased to 97% of this reference price based on strength of oil product prices in Singapore. For the first quarter of 2011, Thailand crude oil revenue of $91.26 per barrel was allocated 20% to expenses for transportation, operating, and general & administrative, 11% to the government of Thailand in the form of royalties, Special Remuneratory Benefit ("SRB") and Income Tax, and 69% to Pan Orient.

    • First quarter 2011 drilling program in Thailand with the drilling of six wells (4.4 net wells) with two additional wells in Concession L53 to build upon the 2010 oil discovery there, and four wells focused on exploration in Concession L44 to add new reserves. In addition, work continued to sidetrack the L33-2 exploration well drilled in 2010. Pan Orient had two drilling rigs operating in Thailand during the first quarter of 2011 and total capital expenditures were $14.4 million.
      • The L53-A1 development well and L53-B appraisal well were drilled during the quarter in Concession L53 (Pan Orient operator and 100% ownership) and resulted in two new producing oil wells. In addition, the L53-A well had a workover which increased production from additional sandstone zones in the well.
      • The Company had limited success in drilling four exploration wells at Concession L44 (Pan Orient operator and 60% ownership) during the quarter. Exploration wells were drilled at Si Thep, Na Sanun East (NSE-E4) and two new exploration areas (L44-E and L44-F) resulting in three unsuccessful wells and one well with minor oil production.
      • At Concession L33 (Pan Orient operator and 60% ownership) work continued during the quarter to sidetrack the L33-2 well in order to evaluate the WBV1 volcanic reservoir. This well is on test and producing at low oil rates.
  • Andora Energy, a private company owned controlled by Pan Orient which has an oil sands project at Sawn Lake, Alberta, initiated a process to identity and consider strategic alternatives late in February 2011. This process is ongoing and is expected to be completed by the middle of June.

    In support of the review of its strategic alternatives, Andora acquired an additional 10% working interest in the Sawn Lake Central (12 sections) and North Blocks (51 sections) from a private Alberta company in consideration for the issuance to the vendor of 4,433,031 non-voting special warrants of Andora. Each special warrant entitles the holder thereof to receive one common share of Andora, at no additional consideration and without any further action, upon the happening of a liquidity event involving Andora, including a sale of the corporation, a merger or other business combination, a farmin or farmout, an acquisition or disposition of assets, among other alternatives. If a liquidity event is not completed by November 25, 2011, the acquired interests will be reconveyed back to the vendor and the special warrants cancelled. Andora estimates this transaction represents a pro rata addition of 29 million contingent resources barrels based on the December 31, 2010 evaluation of "Best Case" contingent resources by Sproule Unconventional Limited.

    At March 31, 2011 Pan Orient owned 53.4% of the common shares of Andora and none of the special warrants, resulting in an ownership interest of 49.6% of the total common shares of Andora on a diluted basis assuming the exercise of the special warrants.
  • Financial
    • Pan Orient closed a bought deal financing on March 8, 2011 with the issuance of 7,557,264 shares at a price of $6.55 per share for proceeds of $46.6 million net of expenses. At March 31, 2011 there were 56,543,807 common shares issued and outstanding.
    • The $20.0 million of capital expenditures in Thailand, Indonesia and Canada were funded $12.4 million from funds flow from operations and $7.6 million from working capital.
    • At March 31, 2011 Pan Orient had $69.2 million of working capital and non-current deposits, and no long-term debt. In addition, at March 31, 2011 Pan Orient had $10.6 million of equipment inventory to be utilized for future Thailand and Indonesia operations that is included in petroleum and natural gas assets on the balance sheet.

2011 Thailand Outlook

Thailand Production

Thailand oil production is currently 2,380 BOPD with 675 BOPD from Concession L53 and 1,705 BOPD from Concessions L44, SW1 and L33, up 420 BOPD from the 1,960 BOPD reported on April 26, 2011. All increases are attributed to conventional sandstone production added from the L53-B, L53-A3, L53-A2 and WBEXT-1E wells.

Concession L53

L53-B is currently producing at 58 BOPD from the K40-A sand and will be perforated in a structurally higher sandstone interval within the next seven days. No reserves at December 31, 2010 had been attributed to the L53-B lobe at any stratigraphic level.

L53-A3 is currently producing at 195 BOPD from the K40-C sand and L53-A2 is producing at 34 BOPD from the K40-A sand. L53-A2 will be sidetracked to target the K40-A sand near the L53-A3 well (currently producing from the K40-C sand) in order to produce from the excellent quality K40-A reservoir encountered by the L53-A3 well, targeting production additions of 250-400 BOPD. Drilling of the sidetrack will commence in the next five to six days.

The L53-D discovery well (240 BOPD) is currently being twinned after the initial well had been sidetracked in 2010 to appraise the extent of the reservoir and shut in after failing to encounter the target sand. It is anticipated this will be completed in the next four days, at which time the rig will move to the L53-A2 sidetrack discussed above. Upon the completion of the L53-A2 sidetrack, the rig will be mobilized to Concession L44 for development and exploration drilling until post monsoon (approximately October 2011) when the L53-G and L53-E exploration prospects in Concession L53 will be drilled.

Concessions L44 & L33

The WBEXT-1E development well encountered an excellent quality "E" sand reservoir approximately 500 meters west of the original WBEXT-1B discovery well, and is currently producing at 139 BOPD. Results from the WBEXT field "E" sand have been encouraging with stabilized rates of between 140-180 BOPD and an inventory of approximately 15-20 locations remaining in the main fault compartment alone. This reservoir will be a near term focus of drilling activity.

In the Wichian Buri field, approximately 45 BOPD is currently shut-in while two new cellars are added at the POE-3. POE-6 and WBN-2 surface locations. A six well infill program is planned to commence shortly, targeting rates of 25-60 BOPD per well with each well taking approximately 4 days to complete a vertical well and slightly longer time to complete highly deviated / horizontal wells. Any success in the initial infill program will immediately be followed up by a second, larger infill program.

Summary

Over the past 4 weeks 405 BOPD of production has been added from conventional sandstone reservoirs, and with the WBEXT-1F well about to commence testing. Within the next 7 days an additional 480 BOPD is anticipated to be added from the twin of the L53-D discovery well which had briefly tested 240 BOPD before being shut-in to drill a sidetrack well, and the WBEXT-1F development well which had penetrated approximately 80 meters of gross "E" sand (measured thickness) in the structurally highest position the "E" sand has been encountered to date.

Drilling is currently focused on the development of conventional sandstone reservoirs at Concessions L53 and L44 in order to establish a stable platform of production from which development of the main volcanic reservoir fields will be launched in conjunction with further exploration drilling that will be targeting 75% volcanic and 25% sandstone reservoirs.

The Company is pleased with the production adds of the new conventional sandstone reservoir wells and the performance of the older volcanic reservoir wells whose performance has been very stable. The two active drilling rigs for the remainder of 2011 provide Pan Orient with the flexibility to finally pursue development of a number of sandstone fields that had been neglected in the past while pursing higher initial flow rate wells with only 1 active rig.

Earlier guidance of 5,000 to 6,000 BOPD average for 2011 will be reviewed at the end of the second quarter after the initial results of the development program outlined above.

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.


Financial and Operating Summary
Three Months Ended
March 31,
Change
(thousands of Canadian dollars except where indicated)20112010
FINANCIAL
Oil revenue, before royalties and transportation expense18,44925,038-26%
Funds flow from operations (Note 1)12,36212,3360%
Per share – basic$ 0.24$ 0.26-7%
Per share – diluted$ 0.24$ 0.25-4%
Funds flow from operations by region (Note 1)
Canada(424)29
Thailand12,85912,3644%
Indonesia(73)(57)28%
Total12,36212,3360%
Net income attributable to common shareholders3,9284,070-3%
Per share - basic$ 0.08$ 0.09-11%
Per share - diluted$ 0.08$ 0.080%
Working capital64,51221,498200%
Working capital plus non-current deposits69,16625,358173%
Long-term debt--
Capital expenditures (Note 2)19,97220,269-1%
Acquisitions – Indonesia (Note 3)1,780-
Acquisition – Sawn Lake, Canada (Note 3)3,192-
Shares outstanding (thousands)56,54447,41419%
Funds Flow from Operations per Barrel (Note 1)
Canada operations$ (2.10)$ 0.09
Thailand operations63.6136.0177%
Indonesia operations – G&A expense(0.36)(0.17)113%
$ 61.15$ 35.9370%
Capital Expenditures (Note 2)
Canada68638%
Thailand14,41413,4197%
Indonesia5,4906,787-19%
Total19,97220,269-1%
Working Capital and Non-current Deposits
Working capital & non-current deposits - beginning of period31,39632,738-4%
Funds flow from operations (Note 1)12,36212,3360%
Capital expenditures (Note 2)(19,972)(20,269)-1%
Acquisitions – Indonesia (Note 4)(1,436)-
Non-cash settlement of Andora receivable-(600)
Foreign exchange impact on working capital(314)(373)-2%
Net proceeds on share transactions47,1301,526
Working capital & non-current deposits - end of period69,16625,358173%
Canada Operations
Interest income218
General and administrative recovery (expense)(263)29
Realized foreign exchange (loss)(182)(8)
Funds flow from operations (Note 1)(424)29
Funds flow from operations per barrel (Note 1)
Interest income$ 0.10$ 0.02
General and administrative (expense) recovery(1.30)0.09
Realized foreign exchange (loss)(0.90)(0.02)
$ (2.10)$ 0.09
Indonesia Operations
General and administrative (expense) recovery(73)(57)28%
Wells drilled
Gross1-
Net1.0-
Three Months Ended
March 31,
Change
(thousands of Canadian dollars except where indicated)20112010
Thailand Operations
Total oil sales volume (bbls)202,167343,400-41%
Average daily oil sales by concession (BOPD)
L441,5013,601-58%
SW1121215-43%
L33210-
L53414-
Total2,2463,816-41%
Average oil sales price, before transportation (CDN$/bbl)$ 91.26$ 72.9125%
Reference Price (volume weighted) and differential
Crude oil (WTI $US/bbl)$ 94.48$ 78.8320%
Exchange Rate $US/$Cdn1.001.06-5%
Crude oil (WTI $Cdn/bbl)$ 94.48$ 83.3913%
Sales price / WTI reference price97%87%10%
Funds flow from operations (Note 1)
Crude oil sales18,44925,038-26%
Government royalty(956)(1,589)-40%
Other royalty(45)(21)115%
Transportation expense(469)(864)-46%
Operating expense(2,137)(2,198)-3%
Field netback14,84220,366-27%
General and administrative expense(992)(1,274)-22%
Interest income1728-39%
Special Remuneratory Benefit (SRB)(23)(2,169)-99%
Current income tax(985)(4,587)-79%
Funds flow from operations12,85912,3644%
Funds flow from operations / barrel (CDN$/bbl) (Note 1)
Crude oil sales$ 91.26$ 72.9125%
Government royalty(4.73)(4.63)2%
Other royalty(0.22)(0.05)347%
Transportation expense(2.32)(2.52)-8%
Operating expense(10.57)(6.40)65%
Field Netback73.4159.3124%
General and administrative expense(4.90)(3.70)33%
Interest Income0.080.080%
Special Remuneratory Benefit (SRB)(0.11)(6.32)-98%
Current income tax(4.87)(13.36)-64%
Thailand - Funds flow from operations$ 63.61$ 36.0177%
Government royalty as percentage of crude oil sales5.2%6.3%-1.2%
SRB as percentage of crude oil sales0.1%8.7%-8.5%
Income tax as percentage of crude oil sales5.3%18.3%-13.0%
As percentage of crude oil sales
Expenses - transportation, operating, G&A and other19.7%17.4%2%
Government royalty, SRB and income tax10.6%33.3%-23%
Funds flow from operations, before interest income and realized foreign exchange69.6%49.3%20%
Wells drilled
Gross6520%
Net4.43.047%
(1)Funds flow from operations ("funds flow" before changes in non-cash working capital and reclamation costs) 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. All references to funds flow throughout this MD&A are based on funds flow from operations before changes in non-cash working capital and reclamation costs.
(2)Cost of capital expenditures, excluding any asset retirement obligation and excluding the impact of changes in foreign exchange rates.
(3)Cost of acquisitions, including deemed value of equity issued in the transaction.
(4)Cost of acquisitions, excluding deemed value of equity issued in the transaction.

To view the Thailand 2011 Drilling - Concessions L33/43 & L44/43 map, the Thailand 2011 Drilling - Concession L53 map and the Pan Orient 2011 Drilling charts, please visit the following link: http://media3.marketwire.com/docs/526poe.pdf

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.

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.

Pan Orient Energy Corp.
Jeff Chisholm
President and CEO
(403) 294-1770

Pan Orient Energy Corp.
Bill Ostlund
Vice President Finance and CFO
(403) 294-1770