Bonterra Energy Corp. (Bonterra or the Company) is pleased to announce its financial and operational results for the three months and nine months ended September 30, 2011. 

Bonterra’s average daily production was 6,201 BOE per day for the first nine months of 2011, an increase of approximately 13.2 percent compared to the first nine months of 2010. Production in the third quarter of 2011 decreased quarter over quarter by 7.6 percent due to an unusual number of delays due to weather, down time from non-operated and operated facilities, pipeline issues and production shut-ins for various reasons. Most of these issues have now been resolved and it is expected that Q4 2011 production will be substantially higher.

 

The Company continued to focus on and execute its targeted horizontal Cardium drilling program during the quarter and drilled seven gross (5.4 net) horizontal oil wells with eight wells placed on production (including one well drilled in Q2 2011). However, five of these wells were put on production in mid to late September and thus had a negligible effect on third quarter production volumes.

 

Unseasonably wet weather resulted in three wells that were scheduled to be drilled and completed in the third quarter delayed into the fourth quarter program. Weather delays also significantly slowed the Company’s tie-ins during this period. The other major factor which further and negatively impacted Q3 2011 volumes was a number of shut-ins including approximately 1,500 BOE per day shut-in for 21 days during July and August in the 50-12W5M area due to a third party facility shut-down (compressor maintenance) downstream from a Bonterra facility, approximately 50 BOE per day shut-in the Company’s Willesden Green area while the Company was drilling in close proximity to an adjacent well and approximately 50 BOE per day shut-in in Saskatchewan for most of the third quarter due to flooding in the area.

 

Capital expenditures for the first nine months of 2011 totaled $42.4 million net of drilling tax credits related mainly to the drilling, completing, tie-in and equipping of 14 gross (11.1 net) operated Pembina and Willesden Green Cardium horizontal wells, two (0.3 net) non-operated main pool Pembina Cardium horizontal wells, compression facilities in the Pembina and Willesden Green areas, gathering pipeline facilities and one gross (0.13 net) non-operated well in southeast Saskatchewan.

 

The Company has increased its 2011 capital development budget to the top end of its guidance to approximately $60 million net of drilling credits which includes the drilling of an additional seven gross (5.61 net) operated Cardium horizontal wells and two gross (0.56 net) non-operated Cardium horizontal wells in the fourth quarter of 2011. Two of these wells have already been drilled and are on production while the remaining five will be drilled with three of these expected to be on production before year end.   

 

In addition to the robust fourth quarter drilling program, Bonterra expects additional production increases as a result of resolving current production restrictions at Willesden Green. The Company commenced construction of a permanent tie-in to a low pressure gas gathering system that it has an interest in which should alleviate both downtime and operational issues. The project was expected to be completed in the third quarter of 2011 but again due to weather and regulatory related constraints the project was delayed and is now anticipated to be completed by the end of November, 2011.

 

Bonterra intends to continue focusing on implementing further cost reduction initiatives on its horizontal drill program through new drilling and completion techniques. For example, in the third quarter the Company used foam water fracs on all wells drilled resulting in significant capital cost savings. The Company’s average cost to drill, case, complete, equip and tie-in wells during the third quarter has been substantially reduced. In addition, these initiatives are expected to not only decrease costs but also improve well productivity and reserve recovery.  

 

Bonterra’s full year guidance remains unchanged at 6,200 to 6,500 BOE per day and the Company currently forecasts its 2011 exit rate to range between 6,800 to 6,900 BOE per day.

 

Bonterra remains highly optimistic with regard to its large inventory of lower-risk, oil opportunities in the Cardium and anticipates that production levels will again demonstrate significant growth in 2012. The Board of Directors and management are currently assessing the 2012 budget and capital development plans and expect to release details during the fourth quarter of 2011. 

Oil and natural gas prices decreased quarter over quarter. The Company’s average realized price for crude oil in the third quarter was $88.21 per barrel as compared to $101.30 per barrel in the second quarter of the year. Likewise, natural gas prices decreased to $3.91 per MCF as compared to $4.15 MCF in the prior quarter. 

 

As a result of the lower prices received during the quarter and reduced production volumes, revenue and cash flow from operations decreased 18.4 percent and 14.7 percent, respectively quarter over quarter. However on a nine month basis, the Company recorded significant growth year over year with a 40.9 percent increase in revenue and a 44.6 percent increase in cash flow from operations mainly due to increased production levels and crude oil prices in the first nine months of 2011 compared to the same period in 2010.

 

The Board of Directors and management have maintained the monthly dividend level to shareholders at $0.26 per share including the recently announced October dividend payable on November 30, 2011. Dividends to shareholders during the first nine months of 2011 totaled $2.28 per share, a 21.9 percent increase from the 2010 level. This represents a payout ratio of 58 percent of funds flow; at the lower end of the Company’s guidance of 55 to 70 percent.

 

The Company’s Board and management will continue to take into account production volumes and commodity prices in determining monthly dividend amounts and will consider increasing the dividend level in the near future should crude oil pricing remain strong coupled with anticipated production level increases.

 

The Company continues to effectively manage its balance sheet strength with a net debt to annualized cash flow from operations ratio of 1.31 times, well within the Company’s forecasted range of 1.0 to 1.5 times.

Bonterra remains pleased with the progress it has made on its Cardium horizontal program in the Pembina and Willesden Green fields and will continue to pursue the aggressive development of its opportunities in both the Halo areas and main Pembina pool.

 

There continues to be a great deal of instability in the global economy which has negatively impacted credit and commodity markets. As a result, this lower price environment may provide opportunities for the Company to further grow its asset base through land or corporate acquisitions. Bonterra has historically made acquisitions counter‐cyclically and this strategic approach remains a focus for the Company as it continues to look at a number of short, medium and longer term opportunities available.  

 

 

The Company’s conservative capital structure, large drilling inventory and above industry average results with its horizontal drilling program positions the Company well to continue paying a high dividend, maintaining the long-term sustainability of its business and providing superior value to its shareholders.