Progress Announces Second Quarter Results

Jul 28, 2011

Joint Venture validates North Montney as a globally competitive asset

Emerging light oil play in the Deep Basin

CALGARY, July 28, 2011 /CNW/ – (TSX: PRQ) – Progress Energy Resources Corp.
(“Progress” or the “Company”)
announced results for the second quarter of 2011 (the “Quarter”) which
are consistent with the Company’s guidance.  On June 2, 2011, Progress’
joint venture process came to fruition with the signing of a binding
framework agreement with PETRONAS to form both an upstream North
Montney Joint Venture and a downstream LNG Export Joint Venture.

“The agreement we signed with PETRONAS during the Quarter represents a
transforming transaction for Progress and its shareholders,” said
Michael Culbert, President and Chief Executive Officer of Progress.
“This partnership, with one of the leading energy and LNG companies in
the world, will position us to unlock the significant value of our
North Montney assets.”

Highlights

  • On June 2, 2011 executed a CDN$1.07 billion binding framework agreement
    to create a strategic partnership with the Malaysian national oil
    company, PETRONAS;
  • To date, Progress has drilled three horizontal Dunvegan light oil wells
    in the Deep Basin with first month rates averaging 300 boe per day per
    well;
  • Produced 40,736 boe per day, which includes the impact of the scheduled
    plant turnaround at the McMahon gas processing plant;
  • Generated cash flow of $54.6 million in the Quarter or $0.24 per share,
    diluted;
  • Drilled a total of 3 wells (net 1.8), all in the Foothills of northeast
    British Columbia at Town South, Kobes and Nig and completed two wells
    drilled in the first quarter; one in the Deep Basin and one in the
    Blueberry area of the Foothills;
  • As at June 30, 2011, Progress was undrawn on its $650 million
    covenant-based credit facility;
  • Maintained the second quarter dividend at $0.10 per common share and
    declared a third quarter dividend of $0.10 per common share.

Emerging Deep Basin Opportunity – Dunvegan Light Oil Play

Progress has drilled and completed three horizontal, 100-percent working
interest Dunvegan oil wells in the Deep Basin since the fourth quarter
of 2010. The first well, a 2,750 meter test, produced an average of 250
boe per day of 40° API light oil over a 30 day test period and is still
producing over 100 boe per day with no water after seven months of
operation.  Progress’ second well expanded the play 39 kilometers to
the northwest from the original test. This well, post frac, produced an
average of 355 boe per day over a 30 day test period and continues to
produce over 300 boe per day after three months of production.  The
Company’s third test was recently placed on production and is expected
to average 300 boe per day for the first month of production.

Assuming four wells per section, Progress has identified more than fifty
Dunvegan horizontal follow-up locations on its acreage position where
the Company has deeper natural gas production. In addition, the Company
is evaluating another 20 net prospective sections of land within the
Deep Basin.  The Dunvegan formation is a pervasive package of stacked
marine and fluvial Cretaceous sands ranging in thickness from one meter
units to over 25 meters of reservoir. Detailed in-house geologic
mapping has illustrated several productive fairways across the
Company’s lands where it has previously drilled deeper gas tests.  A
further three wells, at an all-in cost of $4 million per well, are
planned to be drilled in 2011 with the potential to accelerate the
program in 2012.

In total, Progress drilled 11 wells (10.3 net) in the Deep Basin in the
first half of 2011, with five wells being completed in the first
quarter and one additional well being completed in the Quarter.  The
remaining wells are to be completed during the third quarter.  Progress
expects to drill a total of six wells in the Gold Creek, Wapiti and
Elmworth areas over the remainder of 2011.

Progress holds a material land position covering approximately 280,000
net acres in the Deep Basin of northwest Alberta.  Given the large and
contiguous nature of the land base, the Company is able to test play
concepts, including liquids-rich gas plays and light oil plays, and
with success can quickly establish a meaningful position at lower cost
than industry competitors.  Progress has the proven expertise in
unlocking new play types such as the Nikanassin formation for which the
Company co-developed a slick-oil completion technique that is now
widely used in the industry.

PETRONAS Strategic Partnership

During the Quarter, Progress executed a binding framework agreement to
create a strategic partnership with the Malaysian national oil company,
PETRONAS, to develop a portion of Progress’ Montney assets in the
Foothills of northeast British Columbia.  Progress will sell 50 percent
of its working interest in its Altares, Lily, and Kahta properties (the
“North Montney Joint Venture”) to PETRONAS for CDN$1.07 billion in cash
and carried interest, as well as explore opportunities to develop
liquefied natural gas (LNG) export capacity in British Columbia.  Under
the terms of the framework agreement, PETRONAS will pay 25 percent of
the total consideration (CDN$267.5 million) in cash at closing and 75
percent of the total consideration in the form of a capital carry
whereby PETRONAS will pay 75 percent of Progress’ share of future
capital expenditures in the North Montney Joint Venture over the next
five years to a total of CDN$802.5 million.  The transaction is
expected to close during the third quarter of 2011.

Montney Program Update

Progress has built the industry’s largest Montney land position at over
1,250 net sections, or approximately 900,000 net acres, spanning 560
kilometers from northwest Alberta to northeast British Columbia. The
primary focus of the Company’s Montney program remains in the Foothills
of northeast British Columbia where Progress holds approximately
700,000 net acres of largely contiguous Montney rights.  Progress
continues to pursue the goal set out in November 2010 of doubling its
production base over the next five years by developing multiple 50 mmcf
per day development pods. Approximately 75 percent, of the Company’s
capital spending in 2011 will be directed towards the Montney. Drilling
plans will be focused on Progress’ core development pods for the
remainder of 2011, including 17 horizontal and two vertical wells.

At the Town South pod development (100 percent working interest),
Progress drilled one horizontal well targeting the middle Montney in
the Quarter.  Town South is Progress’ most developed pod to date, with
16 horizontal wells drilled since the third quarter of 2010.

At the Kobes pod development (30 percent working interest), one partner
horizontal well was drilled in the Quarter and will be completed in the
third quarter.  The well was drilled in the southern area of the Kobes
development, which is partner operated, while Progress operates the
northern portion.  The Kobes pod has proven to have among the strongest
initial production rates in the entire Montney fairway.

At the Nig exploration block (50 percent working interest), over 25
kilometers East of Town, a partner- operated Montney well was drilled
in the Quarter.  The well flowed up tubing at 4.2 mmcf per day and is
currently shut-in for pressure build-up.  Liquids production is
expected to be 25 bbls per mmcf.

Program Funding

In the first half of 2011 Progress has taken considerable steps to
ensure that the Company can fund its capital program in the near and
long term.  During the first four months of 2011, the Company divested
of non-core assets with associated production of approximately 800 boe
per day for proceeds of approximately $35 million. Upon closing of the
transaction, the upfront cash proceeds from the PETRONAS strategic
partnership totaling $267.5 million will provide Progress with an
immediate source funding.  Additionally, Progress is undrawn on its new
$650 million covenant based credit facility which was established in
the second quarter of 2011.

Financial Strength

Cash flow for the Quarter was $54.6 million or $0.24 per share,
diluted.  Capital investment was $46 million.  As at June 30, 2011, the
Company was undrawn on its $650 million revolving credit facility.
Debt-to-total capitalization as at June 30, 2011 was 13 percent.

On April 29, 2011 the Company amended and restated its bank credit
facility to be a covenant-based facility rather than a borrowing base
facility.  This facility is a 3-year extendible revolving secured
facility in the amount of $650 million from a syndicate of lenders with
an initial maturity date of April 29, 2014.   As Progress continues to
grow its production, reserves and cash flow with the objective of
doubling the size of the Company in the next five years, this new
facility will provide more certainty and flexibility to fund the
Company’s growth program.

Progress’ average gas price in the Quarter was $3.86 per thousand cubic
feet (“mcf”), including the impact of the Company’s hedging program.
The Company’s high heat content gas stream achieves a premium to AECO
prices.  Royalty rates averaged 13.8 percent in the Quarter as a result
of lower natural gas prices and the impact of higher royalty
incentives.  Operating costs averaged $5.75 per boe, or $0.96 per mcf,
in the Quarter reflecting the Company’s continued focus on operational
efficiencies and maximization of volumes through existing facilities
and includes the impact associated with the planned outage at the
McMahon gas processing facility.

In the first half of 2011, Progress entered into a series of hedges on a
portion of its natural gas production buying puts on 30,000 gigajoule
(“GJ”) per day at a net floor of $3.43 per GJ.  The Company now has
60,000 GJ per day or approximately 22 percent of its natural gas
production hedged at a net floor of approximately $3.41 per GJ or
approximately $3.90 per mcf, based on Progress’ high heat content gas,
for the period from May 1, 2011 to October 31, 2011.  The Company also
entered into a series of AECO basis swaps on 40,000 million British
Thermal Units (“mmbtu”) per day for 2011 at a net differential of
US$0.50 per mmbtu and on 40,000 mmbtu per day for 2012 at a net
differential of US$0.62 per mmbtu.

Third Quarter Dividend and Dividend Reinvestment Program

The Board of Directors of Progress today announced that the third
quarter eligible dividend will be maintained at $0.10 per share.  The
eligible dividend will be payable on October 17, 2011 to common
shareholders of record as of September 30, 2011. The ex-dividend date
is expected to be September 28, 2011.  Based on the July 27, 2011
closing share price on the Toronto Stock Exchange of $13.46, this
represents an annualized yield of approximately three percent.  The
amount of future cash dividends, if any, is subject to the discretion
of the Progress Board of Directors.

Progress has a dividend reinvestment plan (the “DRIP”) that allows
eligible shareholders of Progress to direct that their cash dividends
be reinvested in additional common shares which, when issued from
treasury, will be issued at 95 percent of the Average Market Price (as
defined in the DRIP) on the applicable dividend payment date.  A
registered shareholder who wishes to enroll in the DRIP may do so by
contacting Computershare Trust Company of Canada, the Plan Agent.
Beneficial shareholders who wish to participate in the DRIP should
contact the broker or other nominee through which their common shares
are held to provide appropriate enrollment instructions and to ensure
any deadlines or other requirements that such broker or nominee may
impose or be subject to are met.

Outlook

Our 2011 capital program has been established at $350 million and is
expected to result in year-over-year production growth of approximately
13 percent.  Production is projected to exit 2011 at between 50,000 and
52,000 boe per day, before the impact of dispositions.  We have a
current productive capability of approximately 45,000 boe per day.

The focus of our capital program for the remainder of the year will be
the continued advancement of our highly economic Montney pod
developments at Town South, Town North, Gundy and Kobes.  Additionally,
activity on our North Montney Joint Venture lands in the Altares, Lily
and Kahta areas will commence upon closing of the strategic partnership
in the third quarter of 2011.  We will continue to take advantage of
the factors that make the North Montney attractive;  the natural gas we
produce is sweet and therefore does not require expensive sour gas
processing; we attract a deep drilling royalty credit of approximately
$2.1 million per well; and, we produce approximately 20 barrels per
million cubic feet of high-value natural gas liquids. Along with our
experience in the area, evolving drilling and completions technologies
and strong initial production rates and recoveries, we are well
positioned to deliver value for shareholders.

Natural gas prices weakened through the second quarter of 2011, a period
when demand is typically low due to moderate temperatures; however heat
in early June demonstrated that non-normal weather has the ability to
significantly increase prices.  We remain optimistic about the
long-term prospects for natural gas in North America and increasingly
view the natural gas market as a global, rather than regional,
marketplace.  As demonstrated by our LNG Export Joint Venture with
PETRONAS, the resource potential of northeast British Columbia is
globally recognized and supply from a stable OECD country is highly
prized by Asian consumers.  Momentum is building for the large scale
development of LNG facilities on the West Coast, which will enable
Progress to target more attractive markets.

Progress is well positioned to execute on its growth plans.  We have a
strong balance sheet with no bank debt as at the end of the Quarter, an
undrawn credit facility and expect to receive an upfront CDN$267.5
million cash payment upon closing of our strategic partnership with
PETRONAS.  These financial levers provide immediate and ongoing funding
for our growth strategy.  Non-core asset dispositions and the standby
equity financing component of our strategic partnership with PETRONAS
provide further support in the long term.

Consolidated Financial Statements and MD&A

Second Quarter 2011 Consolidated Financial Statements and Notes to the
Consolidated Financial Statements and Management’s Discussion and
Analysis for Progress Energy Resources Corp. have been filed on SEDAR (www.sedar.com)
under Progress Energy Resources Corp. and can also be accessed on the
Company’s website at www.progressenergy.com.

Progress is a Calgary based, mid-size energy Company primarily focused
on natural gas exploration, development and production in northwest
Alberta and northeast British Columbia. Common shares of Progress are
listed on the Toronto Stock Exchange under the symbol PRQ.

Three Months Ended Six Months Ended
June 30 June 30
2011 2010 2011 2010
FINANCIAL HIGHLIGHTS
Income Statement ($ thousands, except per share amounts)
Petroleum and natural gas revenue 117,340 115,859 234,455 229,330
Cash flow1 54,618 51,215 117,940 98,018
Per share – diluted 0.24 0.24 0.52 0.52
Cash dividends declared2 23,184 21,945 46,271 43,360
Per share 0.10 0.10 0.20 0.20
Balance Sheet ($ thousands)
Working capital deficiency (surplus) 14,209 20,424 14,209 20,424
Bank debt 0 178,384 0 178,384
Convertible debentures 424,761 245,405 424,761 245,405
Total debt 438,970 444,213 438,970 444,213
Capital expenditures 46,037 38,261 186,377 159,034
OPERATIONAL HIGHLIGHTS
Average Daily Production
Natural gas (mcf/d) 206,202 226,898 221,278 203,078
Crude oil (bbls/d) 2,122 2,014 2,078 1,914
Natural gas liquids (bbls/d) 3,747 3,690 3,579 3,559
Total daily production (boe/d) 40,736 43,520 42,537 39,319
Average Realized Prices
Natural gas ($/mcf) 3.91 4.03 3.88 4.57
Crude oil ($/bbl) 99.21 72.97 91.27 74.09
Natural gas liquids ($/bbl) 66.57 56.40 67.18 54.62
Wells Drilled, Net 1.8 2.7 24.5 28.4
(1) Represents cash flow from operating activities before changes in
non-cash working capital.
(2) The dividends declared include distributions and dividends that grantees
are entitled to on the vesting of the Share Unit Plan, the Long Term
Incentive Plan and Performance Unit Incentive Plan.

Advisory Regarding Forward-Looking Statements

This press release and financial highlights table (collectively the
“press release”) contains forward-looking statements and
forward-looking information within the meaning of applicable securities
laws. The use of any of the words “expect”, “anticipate”, “continue”,
“estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “should”,
“believe”, “plans”, “intends” and similar expressions are intended to
identify forward-looking information or statements.  In particular,
forward looking statements in this press release include, but are not
limited to, statements with respect to the focus of capital
expenditures, the timing of capital spending and the results therefrom;
payment of dividends; projections of future land holdings; completion
of planned facility expansions and the timing thereof; future drilling
plans and programs, the timing thereof and the results therefrom;
timing of development of resources; expected commodity prices and
industry conditions.


The forward-looking statements and information are based on certain key
expectations and assumptions made by Progress, including expectations
and assumptions concerning prevailing commodity prices and exchange
rates, applicable royalty rates and tax laws; future well production
rates; reserve and resource volumes; the performance of existing wells;
the success obtained in drilling new wells; and the sufficiency of
budgeted capital expenditures in carrying out planned activities; and
the availability and cost of labour and services and future operating
costs.  Although Progress believes that the expectations and
assumptions on which such forward-looking statements and information
are based are reasonable, undue reliance should not be placed on the
forward looking statements and information because Progress can give no
assurance that they will prove to be correct.

Since forward-looking statements and information address future events
and conditions, by their very nature they involve inherent risks and
uncertainties. Actual results could differ materially from those
currently anticipated due to a number of factors and risks. These
include, but are not limited to, the risks associated with the oil and
gas industry in general such as operational risks in development,
exploration and production; delays or changes in plans with respect to
exploration or development projects or capital expenditures; the
uncertainty of reserve and resource estimates; the uncertainty of
estimates and projections relating to reserves, resources, production,
costs and expenses; health, safety and environmental risks; commodity
price and exchange rate fluctuations; marketing and transportation;
loss of markets; environmental risks; competition; incorrect assessment
of the value of acquisitions; failure to realize the anticipated
benefits of acquisitions; ability to access sufficient capital from
internal and external sources; changes in legislation, including but
not limited to tax laws, royalties and environmental regulations.

Management has included the above summary of assumptions and risks
related to forward-looking information provided in this press release
in order to provide securityholders with a more complete perspective on
the Company’s future operations and such information may not be
appropriate for other purposes.  The Company’s actual results,
performance or achievement could differ materially from those expressed
in, or implied by, these forward-looking statements and, accordingly,
no assurance can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of them
do so, what benefits that the Company will derive there from.  Readers
are cautioned that the foregoing lists of factors are not exhaustive.
These forward-looking statements are made as of the date of this press
release and the Company disclaims any intent or obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or results or otherwise, other than as
required by applicable securities laws.

Readers are cautioned that the foregoing list of factors is not
exhaustive. Additional information on these and other factors that
could affect the operations or financial results of Progress are
included in reports on file with applicable securities regulatory
authorities and may be accessed through the SEDAR website (
www.sedar.com). 
The forward-looking statements and information contained in this
press release are made as of the date hereof and Progress undertakes no
obligation to update publicly or revise any forward-looking statements
or information, whether as a result of new information, future events
or otherwise, unless so required by applicable securities laws.

Barrels of Oil Equivalent

“Boe” means barrel of oil equivalent on the basis of 1 boe to 6,000
cubic feet of natural gas. Boe’s may be misleading, particularly if
used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet
of natural gas is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.