BNK Petroleum announces second quarter results

BNK Petroleum has announced results for the second quarter and first half of 2014.

Highlights

• Revenue was US$ 6.0 million for second quarter of 2014 and netbacks were US$ 58.85 per boe, an increase of 256% compared to Q2 2013 due to more oil in the production mix and higher prices.
• Production was 999 boepd for the second quarter, an increase of 276% due to the Caney production in the second half of 2013 and the Woodford sale in April 2013.
• Net income was US$ 199,000 for the second quarter of 2014 compared to a loss of US$ 929,000 in second quarter of 2013.
• In July, the company closed a US$ 100 million credit facility with Morgan Stanley with an initial commitment amount of US$ 15.9 million.
• Cash flow from operating activities was US$ 2.3 million for the second quarter of 2014 compared to negative cash flow from operating activities of US$ 9.0 million in the second quarter of 2013.
• Cash and working capital totalled US$ 32.3 million and US$ 18.7 million respectively at 30 June 2014 not including the subsequently closed credit facility.
• Capital expenditures increased 189% to US$ 22.7 million primarily due to the startup of the 2014 US drilling program and the drilling and fracture stimulation of the Gapowo B-1 well in Poland.

Commentary

Commenting on the results, BNK’s President and CEO, Wolf Regener, released the following statement:

"During the second quarter, the company began its 2014 drilling program in the US with the Wiggins 11-2H well. The drilling was completed in July with a 5050 ft treatable lateral section and the company has just begun fracture stimulating the well with results expected in early September. The lateral section of the Wiggins 11-2H well was placed in what we believe is the most productive stratigraphic portion of the Caney, based on the analysis of previous well results and the pilot hole. The second well in the 2014 drilling program is the Hartgraves 1-5H well, which was spud on 6 August, and is currently drilling the lateral portion of the wellbore with fracture stimulation expected to begin in early September.

"The Wiggins 12-8H and the Barnes 7-2H wells both continue to perform above our expectations with combined average production of over 550 boepd for the six months of 2014. These wells have been on production for six and eight months respectively. The company's first three wells in the 2014 US drilling program are being drilled in sections directly adjacent to the Wiggins 12-8H and Barnes 7-2H wells.

"With the recently announced US$ 100 million reserve-based credit facility and the equity financing in the first quarter, we intend to continue our 2014 US Caney formation drilling program beyond the three previously announced wells. The company plans to continue drilling Caney wells for the rest of the year. By year-end, we are projecting to have finished drilling six wells in 2014 and have four of them on production. Our year-end production exit rate is projected to be between 2300 to 2600 boepd.

"Due to our successful 2013 drilling program in the Caney formation, the company was able to generate positive net income for the first two quarters of 2014. Our netbacks for the first six months increased by more than 200% compared to the same period in 2013, which allowed the company to generate positive net income with the same level of production on a boe basis due to the higher oil content in the Caney formation. In addition, we generated positive cash flow from operations of almost US$ 5.3 million and revenue of US$ 14.2 million for the first six months of the year.

"The flow-back test of the Gapowo B-1 horizontal well in Poland has concluded and the well is currently shut-in for a 3-4 week pressure buildup test. Production rates remained in the range of 200,000 to 400,000 ft³/d throughout the flowback test. The company expects this pressure data to provide the remaining information required to complete our reservoir model analysis. The company anticipates completing the reservoir analysis in October.

"The company believes that this reservoir analysis will validate the company's preliminary analysis, through further design improvements, that future wells can be effectively stimulated across an entire lateral and that the production rates achieved at Gapowo can be proportionally increased to not only account for the entire lateral but also increase gas rates per stage when placement of designed proppant concentrations are achieved. The company expects the resulting projected production to be at rates that would justify further development of the reservoir.

"This is similar to the path of exploration to development in many shale gas projects in the United States where numerous exploratory wells are necessary to advance shale projects to economic production, including the company's own experience in the Caney formation. As previously announced, given the capital requirements of such exploration activities and the company's focus on its Caney growth, the company intends to renew its efforts to joint venture with a suitable partner after completing the reservoir analysis mentioned above.

"In the second quarter of 2014, the company generated net income of US$ 199,000 compared to a net loss of US$ 929,000 in the second quarter of 2013. Oil and gas revenue, net of royalties was US$ 6.0 million in the second quarter of 2014, an increase of US$ 5.2 million, or almost 600%, compared to the prior year quarter when the Woodford assets were sold in April 2013.

"Average netbacks for the second quarter 2014 were US$ 58.85, an increase of 256% compared to the prior year quarter due to the significantly higher levels of oil in the production mix of the Caney formation. Oil accounted for 72% of 2014 production in the Caney versus 33% of 2013 production from the Woodford formation which was sold in April 2013.

"Production increased 276% in the second quarter 2014 compared to second quarter 2013 due to the Caney wells drilled in the second half of 2013 and the Woodford sale in April 2013. Average pricing per barrel increased 86% primarily due to the higher oil of the Caney formation in the production mix.

"Capital expenditures increased to US$ 22.7 million in the second quarter 2014 due to the startup of the 2014 drilling program in the US and the drilling and completion of the Gapowo B-1 well in Poland. Capital expenditures in the second quarter of 2013 were US$ 7.8 million."

"Through the first half of 2014 the company generated net income of US$ 449,000 compared to a loss of US$ 6.2 million in the first half of 2013. Oil and gas revenues increased by 125% to US$ 11.5 million due to an increase of 123% in average prices due to the higher oil from the Caney formation in the production mix. Cash flow generated from operating activities for the first six months of 2014 was US$ 5.3 million compared to negative cash flow from operating activities of US$ 8.7 million in the first six months of 2013."

Adapted from press release by Katie Woodward

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/14082014/bnk-petroleum-q2-2014-results-1269/