Tirana, Aug. 14 – According to a news statement Monday from the Bankers Petroleum Ltd., the company has achieved better results during Q2 in Albania. In a report issued Monday the BP spoke at detail about its revenue and expenditure in the tiny Balkan country.
Bankers Petroleum Ltd. (TSX: BNK, AIM: BNK) today announced significantly improved second quarter results. Revenue for the quarter more than doubled to $7.4 million compared to $3.0 million in the second quarter of 2005. Funds from operations was $3.3 million, compared to cash used in operations of $200,000 for the comparable period in 2005. “We continue to achieve significant improvements in our operations quarter-over-quarter,” said Richard Wadsworth, President. “In the second quarter, our activities resulted in improved netbacks, resulting from primarily reduced operating expenses and strong production gains in Albania. This brought our June exit production to 3,500 barrels of oil per day (bopd) and contributing to our current production of approximately 4,000 bopd.”
During the second quarter this year BP’s netback in Albania improved to $11.09 per barrel from $8.51 in the preceding quarter and $6.04 per barrel for the same period in 2005. In Albania, average production per well increased to 38 bopd from 33 bopd in the preceding quarter.
Bankers Petroleum Ltd. is a Canadian-based oil and gas exploration and production company focused on opportunities in unconventional petroleum assets. It also operates in the Patos-Marinza oilfield in Albania pursuant to a license agreement, producing heavy oil. Bankers shares are traded on the Toronto Stock Exchange and the AIM Market in London, England under the ticker symbol BNK.
In/on Albania
The Company has negotiated a new price formula for its oil exports under the existing contract with the same Italian refinery. Under this amendment, the price is determined based on the end products refined from the Company’s crude, independent of Brent oil price. The average export price using this formula resulted in $35.95 per barrel in July 2006. Had the Company used the old pricing mechanism, the price received would have been $33 per barrel. This change in pricing formula is expected to increase the Company’s revenues, netback, and funds from operations for the balance of the year.
Other significant events during the quarter included:
– At the end of June 30, 2006, Bankers had 85 wells on production, 36 wells waiting for minor and major servicing, and 15 wells waiting for reactivation. Average production per well increased to 38 bopd from 33 bopd in the preceding quarter.
– The Company exported approximately 26% of its crude during the second quarter.
– Oil revenue was $7.4 million compared to $5.7 million for the preceding quarter and $3.0 million for the same period in 2005, increases of 30% and 147% respectively.
– Net operating income for the period was $3.2 million compared to $1.9 million for the immediately preceding quarter and $811,000 for the same period a year ago, increases of 68% and 295% respectively.
– Albanian capital expenditures were $13.1 million for the quarter compared to $8.5 million for the preceding quarter and $3.9 million for the same period in 2005.
During the quarter, production continued to increase as more wells were re-activated in Albania, bringing the active well count to 85 compared to 67 in December 2005. As at June 30, 2006, the Company also had 36 wells waiting for servicing and 15 wells for reactivation. Daily production increased 24% to 3,193 bopd from 2,579 bopd for the preceding quarter and 109% from 1,527 bopd from the same period a year ago. The exit production rate was approximately 3,500 bopd at June 30, 2006, and further production increases are continuing into the third quarter.
Bankers exported approximately 26% of its crude oil to Italy during the quarter at an average price of $31.61 per barrel. The rest of the sales were made to the Albanian Refining and Marketing of Oil Company, Armo Sh.A (Armo), at an average price of $23.58 per barrel. The Company’s average crude oil price for the quarter was $25.64 per barrel, up slightly from $25.55 per barrel for the preceding quarter.
Oil and gas revenues for the quarter were $7.4 million up from $5.7 million for the quarter ended March 31, 2006 and $3.0 million for the corresponding quarter a year ago, increases of 30% and 148% respectively.
Royalties, Direct Expenses and Netbacks
Royalties are calculated pursuant to the Petroleum Agreement with Albpetrol in Albania, and consist of Albpetrol’s pre-existing production and a 1% gross overriding royalty on production. Royalties decreased moderately to $2.98 per barrel from $3.05 per barrel in the preceding quarter. This was related to more robust production rates achieved from the newly reactivated wells.
Operating expenses per barrel declined significantly to $9.91 from $12.31 per barrel in the preceding quarter. This is due in part to the Company giving additional focus on well reactivations, where 36 wells were reactivated at a pace of 12 wells per month. The results of the wells reactivated in the quarter were better than average. Increasing production is generating economies of scale. While the last trend is expected to continue into the future, the impact of the former ones will fluctuate from period to period.
The Company’s netback per barrel improved to $11.09 per barrel from $8.51 per barrel in the preceding quarter primarily as a result of lower unit operating expenses. The netback for the corresponding period in 2005 was $6.04 per barrel.
The Company incurred $7.1 million in well reactivations in Albania during the quarter. The balance of the expenditures was primarily related to increase in field inventory and miscellaneous asset acquisitions.
Capital expenditures during the second quarter of 2005 were $8.9 million of which $3.9 million were incurred on well re-completions and facilities in Albania and the balance on the Palo Duro land acquisitions in the United States.
The Company estimated its undiscounted asset retirement obligations in Albania as $7.8 million based on the 169 wells taken over from Albpetrol to date. This amount will be settled at the end of the Company’s 25-year license. The net present value of $908,000 of asset retirement obligations was estimated based on a credit-adjusted risk free rate of 9%. Asset retirement obligations were increased to $949,000 at June 30, 2006 as a result of accretion.
The capital expenditures for the balance of the year are estimated as $12 million for Albania and $8 million for the U.S. The current field inventory levels and the outstanding prepaid orders will be largely sufficient for well reactivations in Albania during the balance of 2006. The cash capital expenditures in Albania estimated at $6 million will be payments to local contractors in Albania which will be financed by funds from operations.
Bankers has agreed to the terms of a $20 million debt facility with an Albanian based international financial institution to fund the ongoing capital expenditures in Albania. This facility is expected to be in place during the third quarter. The Company however will require other sources of funding in the coming years to finance its capital expenditures in the United States and Albania.
In March 2006, the Company’s Plan of Development for the Patos Marinza heavy oilfield in Albania was approved by the National Petroleum Agency of Albania (NPA). Under the Plan of Development, the Company estimated the remaining capital expenditures as at January 1, 2006 between $155.0 million to $213.0 million during the life of the Patos Marinza project.
The estimated capital expenditures during the next five years are as follows:
($ millions) Low Case High Case
2006 30.2 29.7
2007 38.3 42.2
2008 31.6 29.4
2009 9.5 41.6
2010 10.9 15.5
Remaining 34.5 54.6
155.0 213.0
Under the Petroleum Agreement, Bankers is required to submit an annual program to NPA which includes the nature and the amount of capital expenditures to be incurred during that year. Significant deviations in this annual program from the Plan of Development will be subject to NPA approval. The Petroleum Agreement provides that disagreements between the parties will be referred to an independent expert whose decision will be binding. The Company has the right to relinquish a portion or all of the contract area. If only a portion of the contract area is relinquished then the Company will continue to conduct petroleum operations on the portion it retains and the future capital expenditures will be adjusted accordingly. In the event that Bankers is not able to generate sufficient capital resources, it may be required to renegotiate the Plan of Development or relinquish all or part of the contract area.
The Company has no commitments under operating leases for office space and equipment.
Bankers has a significant investment in Albania. There are a number of risks associated with conducting foreign operations over which the Company has no control, including political instability, potential and actual civil disturbances, ability to repatriate funds, changes in laws affecting foreign ownership and existing contracts, environmental regulations, oil and gas prices, production regulations, royalty rates, income tax law changes, potential expropriation of property without fair compensation and restriction on exports. Additional risks that may affect the Company and its operations are set out in its AIF filed under the Company’s profile on www.sedar.com.
Based on the success of well reactivations and production to date in Albania, the Company revised upward its exit production rate for 2006 to 4,200 bopd from 3,800 bopd. The average production for 2006 is expected to exceed 3,300 bopd which represents an increase of 96% over the average production of 1,687 bopd in 2005. Favourable oil prices and better export terms negotiated by the Company should result in higher average prices and revenues for the Company during the balance of the year. This coupled with lower unit operating expenses should result in higher netbacks, earnings and funds from operations.
