Progress Announces Third Quarter Results

Oct 27, 2011

North Montney continues to drive new era of growth

CALGARY, Oct. 27, 2011 /CNW/ – (TSX – PRQ) – Progress Energy Resources Corp. (“Progress” or the “Company”)
announced results for the three months ended September 30, 2011 (the
“Quarter”).   The Quarter was highlighted by the closing of the
transaction to create a strategic partnership with PETRONAS. Also in
the Quarter, Progress released the results of an independent evaluation
of the discovered-petroleum-initially-in-place (“DPIIP”) and Contingent
Resources for 22 percent of the Company’s Montney land base (the
“Evaluated Area”).

“We have set out to establish Progress as a premier investment in the
natural gas business,” said Michael Culbert, President and Chief
Executive Officer of Progress.  “The study completed by our independent
reserve evaluator affirms the scope and scale of our North Montney
asset while our partnership with PETRONAS provides the capital required
to continue to delineate our resource base and position us for
long-term growth.”

Highlights

  • On August 2, 2011, closed the $1.07 billion strategic partnership
    transaction with PETRONAS, with Progress receiving 25 percent of the
    total consideration ($267.5 million) in cash and 75 percent ($802.5
    million) in the form of a capital carry;
  • On September 12, 2011 announced the results of an independent evaluation
    of DPIIP and Contingent Resource for 139,150 net acres of Progress
    lands in the Town area of the Foothills of British Columbia, with DPIIP
    estimated at 27.3 trillion cubic feet (“Tcf”) and best estimate of
    Contingent Resource of 8.1 Tcf.  The net present value, reflecting the
    recovery of capital costs using an eight percent discount rate, of the
    best estimate of Contingent Resources is $8.6 billion;
  • Drilled a total of 13 wells (11.8 net) in the Quarter of which 12 (10.8
    net) were Montney horizontals.  Six wells (5.3 net) of the drilled
    wells were brought on stream in the Quarter and the balance will be
    brought on stream before year end. The wells were primarily drilled in
    five of the Company’s Montney development pods at Town South, Town
    North, Gundy, Kobes, and Caribou;
  • Entered into multi-year agreements with Spectra Energy Corp. to provide
    a total of 370 million cubic feet (“mmcf”) per day of gathering and
    processing services to support Progress’ Montney growth plans in
    northeast British Columbia;
  • Produced 42,937 barrels of oil equivalent (“boe”) per day in the
    Quarter.  Unplanned outages at major gas processing facilities and the
    shutting in of adjacent Montney wells during completion operations
    impacted production by approximately 1,000 boe per day in the Quarter;
  • Generated cash flow of $51.6 million in the Quarter or $0.22 per share,
    diluted; and,
  • As at September 30, 2011, Progress was undrawn on its $650 million
    covenant-based credit facility and had a working capital surplus of $91
    million.

North Montney Program Update

Progress has built the industry’s largest Montney land position at over
1,250 net sections, or approximately 825,000 net acres, spanning 560
kilometers from northwest Alberta to northeast British Columbia. The
primary focus of the Company’s North Montney program remains in the
Foothills of northeast British Columbia where Progress holds
approximately 625,000 net acres of largely contiguous Montney rights. 
Progress continues to pursue the strategic plan 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 has been directed
towards the Montney. Drilling plans will be focused on Progress’
development pods for the remainder of 2011, including 10 horizontals in
the fourth quarter.  Progress is currently producing more than 80 mmcf
per day, net, from the North Montney area.  Progress’ North Montney
wells have the advantage of receiving a deep drilling royalty credit of
approximately $2 million per well and additionally, produce
approximately 20 barrels of high value natural gas liquids per million
cubic feet of gas produced, which is in line with the Company’s overall
corporate average for natural gas liquids produced.

During the quarter, at the Town South development pod (100 percent
working interest), Progress drilled two horizontal wells targeting the
upper and lower Montney. Town South has reached its 50 mmcf per day
production target and will now evolve to a maintenance phase which
implies the annual drilling of approximately six horizontal wells per
year to sustain volumes at 50 mmcf per day.

Also in the Quarter, at Gundy (100 percent working interest), Progress
drilled four horizontal wells, one targeting the lower Montney and
three the upper Montney.  These wells were completed with an average
rate of 5.3 mmcf per day.  To accommodate the additional volumes, the
Gundy processing facility, which is currently on stream at 25 mmcf per
day, will be expanded to 50 mmcf per day during the fourth quarter of
2011.

At the Town North pod development (100 percent working interest),
Progress drilled and completed one horizontal well targeting the upper
Montney.  Progress now has seven producing horizontals in Town North
area, with both the upper and lower Montney being productive.  Town
North’s first 25 mmcf per day processing facility was brought on stream
early in the second quarter of 2011.

At Caribou (100 percent working interest), Progress drilled one
horizontal well in the Quarter targeting the lower Montney which will
be completed in the fourth quarter.  A third well will be drilled in
the fourth quarter.  These wells will utilize existing infrastructure,
with a new Montney facility expected to be constructed in 2013.

At the Kobes development pod (30 percent working interest), Progress
completed two horizontal wells with initial production averaging 8.9
mmcf per day each from the two wells. As at quarter end, the Kobes pod
was producing approximately 10 mmcf per day net to Progress.  Progress
operates the northern portion of the Kobes development, while the
southern area is partner operated.

At Nig (50 percent working interest), approximately 25 kilometers east
of Town, a horizontal well was drilled in the upper Montney and is
currently being completed. The first horizontal in this area tested 4.6
mmcf per day and is expected to be on-stream within a month.

In the Bubbles/Jedney area (100 per cent working interest), Progress
continued delineation work on its North Montney lands, drilling one
vertical well in the Quarter.  The well tested both the upper and lower
Montney with initial test rates of 1.7 mmcf per day.  The Company holds
approximately 60,000 net acres of undeveloped land in the
Bubbles/Jedney area, located 25 kilometers northeast of the Town area,
with plans for a first horizontal well in 2012.

Deep Basin of Northwest Alberta

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.  Of note, Progress holds 140,000 net Montney
acres in the Deep Basin where the pace of industry activity is
increasing.

Progress focused its Deep Basin gas drilling program in the first
quarter of 2011 to benefit from the Alberta Drilling Royalty Credit
Program which ended on March 31, 2011.  The Company maintains a large
inventory of liquids-rich natural gas drilling locations but will focus
its Deep Basin capital investment for the remainder of 2011 on its
growing light oil opportunities.

Progress has identified more than 50 net light oil horizontal locations
on its acreage position in the Deep Basin, where the Company has deeper
natural gas production. In addition, the Company is evaluating another
20 net prospective sections, or approximately 13,000 net acres 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 of over 100 kilometers has illustrated several
productive fairways across the Company’s lands where it has previously
drilled deeper gas tests. Progress has drilled and completed three
horizontal Dunvegan wells since the fourth quarter of 2010, with first
month average production of 300 boe per day for each well.  A further
three wells, at an all-in cost of $4 million per well, are planned to
be drilled in 2011 with plans for an increased drilling program in
2012.

PETRONAS Strategic Partnership

During the Quarter, Progress closed the transaction to create a
strategic partnership with the Malaysian national oil and gas company,
PETRONAS, to develop a portion of Progress’ Montney assets in the
Foothills of northeast British Columbia.  Progress sold a 50 percent
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, the partners will explore opportunities to
develop liquefied natural gas (“LNG”) export capacity in British
Columbia (“the LNG Export Joint Venture”).  Progress received 25
percent of the total consideration (CDN$267.5 million) in cash at
closing. The remaining $802.5 million will be in the form of a capital
carry whereby PETRONAS will fund 75 percent of Progress’ 50 percent
interest.

Three rigs will be operating on the North Montney Joint Venture
properties in the fourth quarter.  The LNG Export Joint Venture has
selected an engineering firm to undertake the technical detailed
feasibility as well as initiate the site selection process.

DPIIP Evaluation – Validating the Scope and Scale of the North Montney

In the Quarter Progress announced the results of an independent
evaluation of 217 net sections or 139,150 net acres of land in the
Foothills of northeast British Columbia (the “Evaluated Area”).  The
Evaluated area includes the Company’s three pod developments at Town
South, Town North, and Gundy.  The estimate of DPIIP for the Evaluated
Area is 27.3 Tcf or approximately 126 billion cubic feet (“Bcf”) per
section on average.  The best estimate of the Contingent Resource for
the Evaluated Area is 8.1 Tcf, with a high case estimate of 10.2 Tcf
and a low case of 5.4 Tcf.  The net present value, reflecting the
recovery of capital costs using an eight percent discount rate, of the
best estimate of Contingent Resources is $8.6 billion.

DPIIP is the quantity of petroleum that is estimated, as of a given
date, to be contained in known accumulations prior to production. DPIIP
is typically broken down into four components including production,
reserves, contingent resource and discovered unrecoverable petroleum
initially in place. Contingent Resources are those quantities of
petroleum estimated, as of a given date, to be potentially recoverable
from known accumulations using established technology or technology
under development, but which are not currently considered to be
commercially recoverable due to one or more contingencies.
Contingencies may include factors such as economic, legal,
environmental, political and regulatory matters, or a lack of markets.
It is also appropriate to classify as Contingent Resources the
estimated discovered recoverable quantities associated with a project
in the early evaluation stage. The primary contingency which prevents
the classification of the Contingent Resources as reserves is the
current early stage of development. Additional drilling, completion,
and testing data is generally required before

Progress can commit to their development. As additional drilling takes
places, it is expected that the Contingent Resources will be booked as
reserves. Estimates of DPIIP and Contingent Resources described herein
are estimates only; the actual resources may be higher or lower than
those calculated in the independent evaluation. There is no certainty
that the resources described in the evaluation will be commercially
produced.

Financial Strength

In 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. The successful closing of the
PETRONAS strategic partnership provided $267.5 million in cash, further
strengthening the Company’s balance sheet.

In the second quarter of 2011 the Company renegotiated 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 at September 30, 2011,
the Company was undrawn on its $650 million revolving credit facility
and had a working capital surplus of $91 million.  During the Quarter,
the 6.25 percent convertible debenture was settled in cash for $75
million.  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 and the strategic partnership with
PETRONAS will provide increased flexibility to fund the Company’s
strategic plan.

Cash flow for the Quarter was $51.6 million or $0.22 per share,
diluted.  Capital investment was $113.8 million.  Debt-to-total
capitalization as at September 30, 2011 was eight percent.  Progress’
average gas price in the Quarter was $3.73 per thousand cubic feet
(“mcf”). The Company’s high heat content gas stream achieves a premium
to AECO prices.  Royalty rates averaged 12.3 percent in the Quarter
which was lower than the same period in 2010 due to the higher
proportion of Montney production which benefits from the British
Columbia Deep Well Credit Program. Operating costs averaged $5.56 per
boe, or $0.93 per mcf, in the Quarter reflecting the Company’s
continued focus on operational efficiencies and maximization of volumes
through existing facilities.

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.

Investor Day

Progress will be holding its 2nd Annual Investor Day from 8:30 a.m. to noon on Tuesday, November 1, 2011 at the Westin Hotel in Calgary, Alberta and on Wednesday, November
2, 2011 at the Royal York Hotel in Toronto.  Institutional investors
interested in attending either session are asked to contact Kurtis
Barrett at kbarrett@progressenergy.com or at 403-539-1843 or Kim Lewis at klewis@progressenergy.com or at 403-539-1801.

Fourth Quarter Dividend and Dividend Reinvestment Program

The Board of Directors of Progress today announced that the fourth
quarter eligible dividend will be maintained at $0.10 per share.  The
eligible dividend will be payable on January 16, 2012 to common
shareholders of record as of December 31, 2011. The ex-dividend date is
expected to be December 28, 2011.  Based on the October 26, 2011
closing share price on the Toronto Stock Exchange of $14.66, this
represents an annualized yield of approximately 2.7 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. U.S. residents may not participate in
the DRIP program.

Outlook

With a large number of wells completed and expected to come on stream
during the fourth quarter, we are on track to exit 2011 at our
previously announced guidance of approximately 50,000 boe per day. 
Achieving the exit rate will result in year-over-year production growth
of approximately 15 percent.

As a result of incremental land acquisitions, infrastructure investments
and the commencement of the North Montney Joint Venture activities, the
2011 capital program has been expanded to $400 million.

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 will continue to increase as we enter this
winter. 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 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,
continued improvement of drilling and completions technologies and
strong initial production rates and recoveries, we are well positioned
to deliver value for shareholders.

Along with the majority of other global commodities, North American
natural gas prices weakened in the Quarter, as concerns about slowing
economic growth weighed on markets.  Comparatively, landed LNG prices
in Japan rose approximately 20 percent in the Quarter to settle above
USD$17 per mmbtu.  We remain optimistic about the long-term prospects
for natural gas in North America.  The partnership that we have
established with PETRONAS, a global leader in LNG development and
marketing, may provide Progress with the opportunity to gain direct
exposure to Asian pricing, which would be unique amongst our peer
group.  The recent announcements, by the province of British Columbia,
to grow a viable LNG industry is further evidence of momentum building
for the large scale development of LNG facilities on the West Coast.

With a strong balance sheet, access to capital, a strong joint venture
partner and large contiguous land positions in attractive plays, we are
well positioned to execute on our strategic growth plan to reach
100,000 boe per day by the end of 2015.

Consolidated Financial Statements and MD&A

Third 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

September 30

Nine Months Ended

September 30

  2011 2010 2011 2010
FINANCIAL HIGHLIGHTS        
Income Statement ($ thousands, except per share amounts)        
Petroleum and natural gas revenue 114,037 105,305 348,492 334,635
Cash flow1 51,563 45,094 169,503 143,112
      Per share – diluted2 0.22 0.21 0.74 0.72
Cash dividends declared3 23,395 22,886 69,666 66,246
      Per share 0.10 0.10 0.30 0.30
         
Balance Sheet ($ thousands)        
Working capital deficiency (surplus) (89,702) 58,929 (89,702) 58,929
Bank debt 218,133 218,133
Convertible debentures 353,100 247,355 353,100 247,355
Total debt 263,398 524,417 263,398 524,417
         
Capital expenditures 113,759 108,380 300,136 267,414
         
OPERATIONAL HIGHLIGHTS        
Average Daily Production        
Natural gas (mcf/d) 224,629 222,540 222,407 209,637
Crude oil (bbls/d) 2,037 1,872 2,064 1,900
Natural gas liquids (bbls/d) 3,462 3,373 3,539 3,496
Total daily production (boe/d) 42,937 42,335 42,671 40,335
Average Realized Prices        
Natural gas ($/mcf) 3.73 3.78 3.83 4.29
Crude oil ($/bbl) 89.99 69.79 90.85 72.66
Natural gas liquids ($/bbl) 61.27 51.35 65.23 53.56
Wells Drilled, Net 12.0 20.2 36.5 48.6
(1)  Represents cash flow from operating activities before changes in
non-cash working capital.
(2)  For the three months ended September 30, 2011 the Debentures are
dilutive for earnings per share but anti-dilutive for cash flow per
share.  For the cash flow per share amount, the dilutive number of
shares is 232,358,650.
(3)  The dividends declared include 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.