Over the course of 2007, Pearl added substantially to its production and resource/reserve base through six corporate and land acquisitions and a major development drilling program.
Much of the operations were focused on development drilling to raise production levels to the 2007 guidance range of 12,000 to 14,000 Boepd. The company’s year end exit rate came in at the low end of the range at 12,100 boepd yet represents a 55% increase over year end 2006 exit rate. In total the Company drilled 170 wells in 2007 throughout its properties utilizing as many as 5 rigs at a time.
As a result of these efforts, our Proved Reserves increased by 90%, our Probable Reserves by 89% and our Possible Reserves by over 500%. The quadrupling of our combined total Proved plus Probable plus Possible Reserves from 50.7 to 194.9 MMboe illustrates the value and quality of the assets acquired and developed during the year.
2007 Highlights
On January 1, 2007 the Company amalgamated Nevarro and Pan-Global with Atlas and renamed the combined subsidiary Pearl E&P Canada Ltd.
On March 1, 2007, the Company acquired all of the issued and outstanding shares of Cipher Exploration Inc., a privately-held oil and gas company with heavy oil assets in western Canada. The Company assumed Cipher’s debt of approximately $8.3 million and issued 2,047,502 common shares to the Cipher shareholders for a total deemed purchase price of $20 million. Cipher’s key heavy oil assets include Ear Lake, Reward and Eagle Creek, Saskatchewan. Production at the time of the acquisition was approximately 340 boe/d.
On May 8, 2007 the Company sold all of its Gulf of Mexico exploration assets to Bayou Bend Petroleum Ltd. (”Bayou Bend”; formerly Kit Resources Ltd.) in exchange for ten million shares of Bayou Bend having a deemed value of $2.20 per share. The Gulf of Mexico assets comprised the Company’s 100% working interest in five Gulf of Mexico offshore blocks (including Mustang Island), farm-in rights to acquire a 25% working interest in a sixth offshore block and all material contracts, physical data, work products and files and records associated with these blocks. The Company subsequently disposed of its Bayou Bend holdings in two transactions for cash proceeds of $12 million. ($10 million in the 3rd quarter and $2 million in the 5th quarter).
On August 2, 2007, the Company announced that it had closed the acquisition of a 24% working interest in the Mooney oil field from Ravenwood Energy Corp. (”Ravenwood”), a private oil and gas company for $20.0 million net of standard industry adjustments. The acquisition increased Pearl’s working interest in the Mooney field to over 98% and added approximately 625 boepd of production at the time of the acquisition.
On August 23, 2007 the Company acquired a 35% working interest in 2,816 contiguous hectares of oil sands leases (Blackrod) located south of Fort McMurray, in the Athabasca Oil Sands region of northern Alberta. The purchase price was $5.0 million.
On October 19th, 2007, the Company acquired all of the issued and outstanding shares of Watch Resources Ltd. (”Watch”), a junior oil and gas company with conventional heavy oil interests in the Fishing Lake area of north-central Alberta, in an all-share transaction at an exchange ratio of 0.23 common shares of Pearl for each common share of Watch. At closing, the Company issued 10,542,927 common shares of Pearl to former Watch shareholders at a deemed price of $4.76 per share, based on the weighted average trading price of Pearl’s shares shortly before and after the announcement of the acquisition. The deemed consideration, including transaction costs, for the Watch acquisition totaled $51.0 million. Included in the assets of Watch is a $5.0 million term deposit which is part of the non-banksponsored Asset Backed Commercial Paper (”ABCP”). The liquidity and settlement of the ABCP has been suspended pending the restructuring of the notes as determined by the Montreal Accord. At this time the timing of when the ABCP will have a liquid market is uncertain.
On November 6th, 2007, the Company acquired heavy oil assets in the states of Montana and Utah from PetroHunter Energy Corporation (”PetroHunter”). The purchase price is a maximum of US $30 million, payable as follows: (a) US $7.5 million in cash at closing; (b) the issuance of up to 2.5 million common shares of Pearl, the equivalent of up to US $10 million based on US $4.00 per share; and (c) a performance payment of US $12.5 million in cash at such time as either: (i) production from the assets reaches 5,000 bopd; or (ii) proven reserves from the assets is greater than 50 million barrels of oil. Of the 2.5 million common shares potentially issuable, 947,153 of these shares were issued on closing, 592,822 shares, are held in escrow, and are to be issued upon settlement of certain closing conditions related to title, and 960,025 of these shares are contingently issuable based on the outcome of negotiations with a third party. In the event that the Company fails to reach an agreement with the third party by May, 2008, the performance payment will be reduced to $9.8 million and the contingent shares will remain unissued.